In the early years of the ebook revolution it looked like Barnes & Noble had stolen a march on its bookselling competitors with Nook. In 2010 Nook's ereading platform could claim to have 20% of the (then) fast-growing US ebook market, and a hardware strategy way ahead of its rivals. Indeed, as a low-cost 7 inch form factor device, it's arguable that the Nook Color (which was launched in 2010) did a great deal to create the market for small, budget tablets that eventually led to Apple releasing the iPad Mini.
Yet like many early leaders, Barnes & Noble has not been able to maintain its early momentum. The company's latest set of financial results, released yesterday, show that Nook is a business continuing a precipitous decline. It reported that overall revenues from Nook content, devices and accessories were down by 50.6% compared to the same period last year. Sales of Nook hardware fell most steeply, declining 62.8% to just $37m. More worrying still was a 30% drop in revenues from sales of digital content.
The one bright spot in Barnes & Noble's latest figures were physical sales. Like Waterstones in the UK, Barnes & Noble experienced a small upturn in physical book sales, even while sales of dedicated e-reading devices fell. Excluding Nook, sales at Barnes & Noble retail stores rose by 1.7%, leading some industry watchers to herald this as more evidence of the renaissance of the printed book. Barnes & Noble's college business performed even better, with revenues increasing 7% to $521m, which is interesting given the news over previous weeks that there still seems to be a lot of growth left in the physical textbooks market. This has prompted the company to abandon plans to spin off its college and Nook divisions together. Instead it announced that it will now seek to separate the business into three.
In laying the blame for falling digital content sales on its weakening device business, however, Barnes & Noble may have laid bare the limitations of its current digital strategy. This suggests that Nook is still reliant on the integrated approach of selling physical devices to drive usage of its suite of apps and services. Yet while this strategy worked in 2010, the numbers from successive quarters show that it is no longer working in 2015, despite a hardware partnership with Samsung that was supposed to stimulate sales through delivering a new range of Nook devices.
The failure of these Samsung designed and built devices to turn Nook's fortunes around could have less to do with their individual merit than the tablet market itself, which has weakened significantly in the last 12 months. In a recent earnings call Hubert Joly, the CEO of electronics retailer Best Buy reported that tablet sales were down 30% on last year, as the increasing size of large screen smartphones or phablets such as the iPhone 6 Plus blurred the line between the two device categories. As we reported on this blog earlier this year, phablets - with their large screens and long battery life - provide a better reading experience than previous generations of smartphones and are playing a pivotal role in encouraging consumers to read digital books on the go. As they eat into the tablet market though the one thing that phablets cannot do is revitalize the fortunes of businesses that have bet heavily on the continuing rise and use of tablets.