June 6, 2012, 11:15 AM

IRCE 2012 Report: Finding a bigger Nook in e-commerce

CEO William Lynch talks about how the Nook e-reader changes Barnes & Noble.

Mark Brohan

Research Director

Lead Photo

William Lynch

Barnes and Noble Inc. CEO William Lynch makes no bones about it—the company’s three-year transformation from a specialty retailing company into a digital content and e-commerce organization was a matter of survival and not just the launch of a new venture.

Lynch, who delivered the keynote presentation this morning at the Internet Retailer Conference & Exhibition 2012 in Chicago, told attendees that in 2009, Barnes & Noble, No. 32 in the 2012 Internet Retailer Top 500 began what would become the retailer’s biggest ever business transformation. “We put ourselves and everything we were doing into a massive structural shift,” Lynch told attendees.

To transform Barnes & Noble from a traditional books seller into a leading developer and retailer of digital content and electronic book reading technology, Lynch set out to build a new organization that would develop its own technology in-house and leverage the company’s deep understanding of consumers and their reading habits.

With its Nook business now three years old, Barnes & Noble commands about 27% of the electronic reading device market, is the top seller of digital magazine copies and is on track in fiscal 2012 to deliver combined digital book and Nook e-reader sales of about $1 billion, Lynch told attendees. “We set out to build the Nook business from our strength and foundation,” he said.

To compete against other early players in the electronic reader space such as Sony Corp. and Amazon.com Inc., Barnes & Noble opened a small office in Palo Alto, CA, and began recruiting a pool of  engineers that would develop the initial Nook e-reader and its subsequent technology upgrades. “We realized we had to innovate at a faster pace than anyone else, but to do this ourselves we needed great engineers,” Lynch said. “We had to know who we are and what we are trying to do.”

Barnes & Noble has ambitious goals for its Nook business. “We are out to change the future of reading today,” Lynch said. But in order to become a dominant seller of digital content and electronic readers, Barnes & Noble also set out to leverage the company’s base of about 700 book stores, its deep understanding of consumers and how they read, and relationships with publishers. “We had to align the stores with our new mission,” Lynch said.

Over three years Barnes & Noble has developed lighter, faster and technologically enhanced versions of the Nook, including in May the launch of Nook, The Simple Touch Reader, which features a full touchscreen, extra-long battery life, and lighting features that adjust for better reading in the sun and allows consumers to read at night in bed without turning on a light that might bother a partner.  With its latest release, Barnes & Noble’s studied readers’ habits to make its latest electronic book reader more user-friendly, Lynch said. “We know that 38% of our readers read in bed,” he said.

Barnes & Noble is now firmly established in the digital media and electronic reader business. The Nook digital content library carries more than 3 million titles, including 12,000 children’s titles and 2,000 children’s picture books that especially take advantage of the color features of the Nook. “We want to help readers develop the digital experience and connect with the experts in digital reading,” Lynch said.

Barnes & Noble continues to transform the company, especially with the retailer’s new separate Nook organization and relationship with Microsoft. In April Barnes and Noble announced that Microsoft would  invest $300 million in a newly formed Barnes & Noble Inc. subsidiary that will contain the bookseller’s e-book business and college bookstore unit.

Microsoft also will preload a Nook application in the next version of its computer operating system, Windows 8, which is scheduled to begin rolling out this summer. The inclusion of a Nook app in Windows 8 will extend the reach of Barnes & Noble’s digital content to Windows users around the world, Lynch said. Having the right technology partners to continue to build Nook into a $1 billion business—and to continue to reinvent Barnes & Noble from a traditional books retailer and into an e-commerce organization—was critical, Lynch said. “We set out to build a coalition of the willing,” Lynch told attendees.

To transform their own companies into organizations that can embrace change quickly and keep up with ever increasingly digitally connected consumers, Lynch told IRCE attendees “to build from your strength and foundation.”

New thinking and innovation also are required to keep up with constant change in online retailing. To overcome store employees’ fears and concerns about losing print book sales to more online sales, Barnes & Noble has implemented a  new employee compensation program where up to 50% of a store employee’s bonus is tied to Nook-related sales.

Barnes & Noble also is in the process of re-outfitting stores with bigger Nook areas that let readers use various Nook devices to browse and thumb through digital books at their leisure—just as they would with a physical book. “We set out to transform an army of book sellers into army of Nook sellers,” Lynch told IRCE attendees.

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