Microsoft (MSFT) and Barnes and Noble (BKS)announced today that Microsoft will invest $300 million and take a 17.6% equity stake of the spin-off of the digital and college businesses of Barnes & Noble. The investment along with the placement of a Nook Application in Windows 8 creates three major platforms for the distribution of digital content. This provides Windows 8 tablets and smart phone an application that makes them competitive more competitive with those from Amazon and Apple. At the same time, this action raises question about the future of the Android operating system unless equipment manufacturers tie themselves to the digital marketplaces offered by Apple, Amazon, or Barnes & Noble/Microsoft.
With this investment and the incorporation of the Nook application into Windows 8 only Apple and Microsoft will have an operating system platform, with a common app environment that covers an individual’s or corporation’s range of computing needs from a desktop to a smart phone.
For the courier express and post industry, this investment raises an interesting question abouts the future of printed periodicals and catalogs as well as the potential impact of the expanding tablet market on parcel deliveries
Potential Impact on Print Periodicals and Catalogs
One of the major features of all three digital content systems is their newsstands that offer nearly every paid-subscription magazine or newspaper in digital format. Here are the links to each format’s newsstand.
The Microsoft investment in Barnes and Noble’s digital business adds the Nook Newsstand to all of the Windows 8 devices that will be introduced later this year. Microsoft is likely to promote the Nook app and the Nook Newsstand when it introduces its Windows 8 software and the tablets, smart phones laptops, and PC’s that use it. This promotion will focus attention on the value of getting content that people want on a device that is easy to use and most importantly has more value than just as a web surfing and video viewing device.
The introduction of Windows 8 tablets, will likely increase price competition in the tablet market both in the the 10 inch (i.e. iPad size) and 7- inch (i.e. Kindle Fire and Nook Tablet size). It is conceivable that price competition could force 7-inch tablet prices below the current $199 price point, and may find up-to-date Android and Windows 8 10-inch tablets selling at prices under $400. When this occurs, the tablet market will expand fairly quickly from the 8% in 2011 to 27% in 2012 according to a USC Marshall study.
When that occurs, Tablets will become a real market for periodicals. It will be large enough to warrant spending money to promote digital editions as targeting advertising to owners of tablets will be less important. Most importantly, low cost tablets will expand access to web based digital periodicals and books to a broader population including many whose primary Internet connection is through a smart phone and/or do not have high speed access at home but have access to free high speed access at hot spots in public libraries, coffee Shops including Starbucks and Caribou Coffee, and fast food and casual-dining restaurants including McDonald’s, Panera Breads, and Cosi.
From a demographic perspective this could have the biggest impact on access on the African American and Hispanic Community whom are significantly less likely to have high speed access communities than white non-Hispanic Americans but are just as likely to have access the Internet through a mobile device such as a smart phone. While all periodicals and books will see growth in digital purchases, those that cater to African Americans and Hispanics are likely to see a bigger impact as these communities already are more likely connected to the web when they are not at home and these devices just make that experience better. For more information on web access see: Digital Differences, by the Pew Internet and American Life Project , published April 13, 2012
Potential Impact on Parcel Shipping
Parcel shipping should see further growth in two ways. First, tablets will likely be the top gift item next Christmas and most of these tablets will be sold on-line and delivered by a parcel carrier. Second, tablets will likely expand electronic shopping the online shopping window beyond when a person is home and allows shopping to occur in every room at home as well as any place with a free high-speed hot spot. While the Pew study shows that non-Hispanic white Americans and African Americans are equally likely to use the Internet to shop, fewer Hispanic Americans shop online. To the extent that tablets expand high speed access to the Hispanic community through mobile hot spots, it should increase in their use of the web for shopping. [There may be other issues including differences in banking and credit card use that could reduce on line shopping as well.]
The partnership of Microsoft and Barnes and Noble for digital content keeps Barnes and Noble’s brick and mortar and and online sales of sales of under the legacy Barnes and Noble name. Given the uncertain future of a business focused only selling products that are losing favor in the market, the future of that side of the business depends on how it transforms itself to ensure a future.
What is clear is that the legacy business will likely expand its role as a retailer of Nook app enabled devices manufactured by the Microsoft-Barnes and Noble joint venture and possibly other vendors selling Windows 8 devices. The legacy business will likely be burdened with a questions about the future of its business selling hard copy books, DVD, toys and other products as that business declines unless it can find a way to partner its physical distribution business with other retailers that sell items that fill holes it its portfolio. There are still many single or limited category retailers on-line and many have joined together to be part of shopRunner that offers a free shipping and discount affinity program to a broad set of retailers, all of whom are outside of Barnes and Noble’s product silo.
Another option for Barnes and Noble wold be to de-emphasize its retail origins and shift to being a service company for e-retailers. If it decides to go in this direction, it will need to beef up its portfolio of digital, financial management and logistics management services to other web-based retailers so that it becomes a platform for e-commerce that is tested using its own on-line and brick and mortar legacy business.