Technology Helps Barnes & Noble Survive ... and Thrive

As it watched small, independent bookstores going out of business across the country as well as its biggest competitor file for bankruptcy and cease operating, Barnes & Noble knew that a change to its business model was necessary for its survival. Specifically, that change meant shifting its focus to becoming a digital book seller. In his keynote address at the Internet Retailer Conference & Exhibition in Chicago yesterday, William Lynch, CEO of Barnes & Noble, detailed how the bookstore chain has used the web to redefine and grow its business.

Barnes & Noble wanted to remain true to its core value of as a company — the love of reading — but present it in a new way for its customers. The first step in its transformation was to develop its own e-reader, the NOOK. To accomplish this it needed engineers, something the company of 40,000 employees lacked. New York City-based Barnes & Noble opened its first West Coast office in the Silicon Valley (Palo Alto, to be exact) and started recruiting engineers. Lynch's recruiting pitch: You have the chance to change the future of reading, and do it by competing against the likes of Apple, Amazon.com and Google. Recruiting engineers isn't for the faint of heart and weak of checkbook, Lynch jokingly recalled. Barnes & Noble had an ace up its sleeve, however. It honed in on engineers that had a love of reading and education.

With its new engineering team in place, Barnes & Noble was able to create its original e-reader, the NOOK, followed by updated and improved versions including the NOOK Tablet and NOOK Simple Touch. The retailer's latest iteration is the NOOK Simple Touch with GlowLight. Lynch noted that 38 percent of reading is done in bed, often at night when a spouse or partner is trying to sleep. To address this problem, Barnes & Noble developed the NOOK Simple Touch with GlowLight to enable people to happily read at night without disrupting anyone else.

The NOOK has proven to be a game-changer for Barnes & Noble. It accounts for 27 percent of the e-books now sold in the United States. This number is driven by the retailer's catalog of 3 million e-books, the largest offering of any e-book provider. The NOOK is also responsible for more digital magazine subscriptions in the U.S. than any other provider.

Leveraging Retail Stores, Employees
Once the NOOK was developed and ready for production, Barnes & Noble turned its attention to leveraging the 700 brick-and-mortar stores and 40,000 booksellers it had at its disposal. We needed these people to change from "booksellers to NOOK sellers," Lynch said. "Our 40,000 booksellers needed to be aligned with our digital initiative."

Barnes & Noble updated its stores to include "NOOK counters" at all entrances, created NOOK digital shops and aligned its employee incentive structure on digital sales. Half of employees' bonuses are now tied to digital sales, and the brand's retail stores get credited for online sales.

Other steps that Barnes & Noble has taken to extend and improve upon the reading experience customers have had in the past to a digital realm include the following:

• provide e-book recommendations from its expert employees for NOOK readers;
• developed a lending technology for the NOOK so readers could share e-books just as they would print copies;
• launched "Read and Record," a tool where parents can read into the NOOK's built-in microphone when reading to their children, who can then play back the recording at a later time;
• built coalitions with trusted partners that are strategically aligned with it, such as the digital content partnership Barnes & Noble recently signed with Microsoft whereby its NOOK bookstore is available in all Windows 8 products;
• maintained strong relationships with its retail partners, including Target and Best Buy; and
• maintained strong relationships with book publishers, who, as Lynch noted, share the same goal as Barnes & Noble: to have people read more, whether that be in digital or print format.

Lynch credited the courage and resolve of Barnes & Noble's shareholders as a major reason why the company has enjoyed success with its digital efforts. Success didn't come easily, however. The retailer's initial efforts in the digital book space, particularly its color e-reader, were panned by the critics. Combine that with the fact that Barnes & Noble lost $140 million in the first year of developing the NOOK technology (which also happened to be Lynch's first year as CEO), and it would have been easy for the board to scrap the digital initiative. It didn't and Barnes & Noble has been reaping the benefits ever since.