While Barnes & Noble Inc. (BKS) Chief Executive Officer William Lynch describes Apple Inc.’s (AAPL) iPad as a great product, even a “juggernaut,” he also has a few criticisms. Mainly that it’s expensive and weighs too much.
Once Lynch could be certain that New York-based Barnes & Noble could build a tablet with similar dimensions to the best- selling iPad that was also cheaper and lighter, he went ahead with the project after killing it twice. The result is the 9- inch Nook HD+ that goes on sale today for $269. The newest iPad starts at $499 and weighs 27 percent more.
“We think there is a big market there” below the pricing of the iPad, Lynch said yesterday in an interview. “We’re starting this product at $269 for a large-format tablet, which is a wow, disruptive price point.”
The largest U.S. bookstore chain’s new devices, which also include a 7-inch Nook HD starting at $199, will also take on Amazon.com Inc.’s (AMZN) updated set of Kindle Fires that were announced Sept. 6. The online retailer, which also pitched its new devices as a cheaper competitor to the iPad, starts its 7- inch tablet at $199 and an 8.9-inch at $299.
Both Amazon and Barnes & Noble have increased access to content beyond digital books and touted specifications such as screen resolution and processing speed as selling points to expand their customer base beyond readers.
Nook Video, announced yesterday, will allow users to buy movies and television shows from providers such as HBO and Walt Disney Studios. The video, like other Nook content, can then be stored via cloud computing and accessed on multiple devices.
“Side by side with the new Kindle Fires, they are competitive,” said Sarah Rotman Epps, an analyst for Forrester Research Inc. in Cambridge, Massachusetts. Getting consumers to choose the Nook over an iPad will be much more difficult because Apple customers care less about price, she said.
Barnes & Noble has anchored its future to digital books by investing in the Nook at the expense of profits as more readers embrace the technology. Revenue from the Nook unit, which includes devices and e-books, surged 34 percent to $933 million in the fiscal year through April 28 while sales at its retail and college units declined 1.6 percent to $6.6 billion.
Releasing new devices is part of Barnes & Noble’s plan to maintain and expand its 25 percent share of the U.S. e-book market -- a portion it never attained in the market for printed books. Digital content sales, which are more profitable than printed books, more than doubled last year to $483 million.
This marks the fourth straight year that Barnes & Noble has announced a new device for the holiday shopping season after unveiling the first Nook in October 2009. This time it will face more competition following new tablets being released by Google Inc. (GOOG), Microsoft Corp. (MSFT) and possibly a smaller version of the iPad.
That hasn’t stopped Barnes & Noble from producing the most Nooks ever for the holidays, Lynch said. The devices will help it gain share in tablets as well as it being featured in Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT) outlets while top competitor Amazon isn’t, he said. Wal-Mart said it would stop selling Kindles last week after Target took similar action in May.
“For new customer acquisition, that’s a strength,” Epps said.
The majority of Barnes & Noble’s shoppers are women, and the retailer kept them in mind when designing the new devices. The 7-inch Nook is skinnier and lighter than a comparable Amazon device, making it easier for holding by a woman’s smaller hands, the company said. Less weight also makes it easier for any user to read a book or watch a movie for several hours, Lynch said.
Barnes & Noble is going after moms and families by offering customized profiles. This would, for example, enable a parent to create a profile for their children that would keep content such as an R-rated film out of their library.
“If you are making a portable media device and you don’t solve for women, you are paying attention to the wrong consumer segment,” said Lynch. Women buy 57 percent of books and more than 60 percent of magazines, he said.
The new devices also have a revamped store that offers a recommendation service called Nook Channels that combines the knowledge of human booksellers with algorithms to serve up options.
The products will ship in late October and be available in Barnes & Noble stores and other chains, including Best Buy Co. (BBY), in early November.
The new devices will also be sold in more than 1,600 locations this holiday season in the U.K., including Dixons Retail Plc, Argos stores and John Lewis Partnership Plc. This marks the first time the Nook will be sold outside the U.S.
Barnes & Noble agreed to a deal in April with Microsoft that would give the software-maker a stake in a unit that combines the Nook and college divisions for $300 million. As part of the agreement, Microsoft will help develop a Nook application for Windows 8, the latest version of the operating system to be released next month, and also spend $305 million over five years to help the Nook expand overseas. The deal will be signed in the next few weeks, Lynch said.
The international expansion will be led by Patrick Rouvillois, the former global chief marketing officer at Carrefour SA, Barnes & Noble announced yesterday.
“This looks to be a great hire for Barnes & Noble, as the company expands,” David Strasser, an analyst for Janney Montgomery Scott in New York, wrote today in a note to clients. He recommends buying the shares.
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