Barnes & Noble and the limits of digital innovation

When Barnes & Noble announced in July that its Nook division lost nearly five hundred million dollars and its CEO was resigning, the business press converged quickly on the inevitable conclusion: the company is doomed. How can it compete with Apple and Amazon in the age of e-books? Ritual references to the music industry were made. Another victim of the digital revolution was laid to rest.

But those hastily-written obituaries left out some important and surprising facts. And it took The New Yorker of all publications to point them out on its July 29 Financial Page. It turns out B.&N. still makes good money, and thanks to the bankruptcy of Borders in 2011 it has no national competitors. In fact, the Nook is the only part of B.&N.’s business that’s losing money. E-books sales currently account for just one-fifth of the total market, and hardcover sales rose last year by a hundred million dollars.

In today’s environment there are brands and entire industries doing business based on fear and unproven assumptions.

Reading and buying habits haven’t changed as quickly as we thought either:

  • Browsing in stores is still a far more common way of finding new books than either online search or social media.
  • People of all ages still prefer print for serious reading.
  • 97% of people who read e-books say they are still wedded to print.
  • Only 3% of frequent book buyers read only digital.

The New Yorker went on to recommend that “instead of succumbing to the temptation to reinvent itself, B.&N. should focus on something truly radical: being a bookstore.”

Half empty or half full?

The story of B.&N. is being played out across the business spectrum. As digital innovation creates unprecedented threats and opportunities for brands, it has become increasingly difficult for leaders to discern the threats from the opportunities. As a result, many find themselves fixing things that aren’t broken or defending against threats that never materialize.

We saw this play out recently in the real estate business. Traditional real estate brands have been in a state of dread for years; convinced that their relevance was fading as new technologies and aggressive new aggregators like Zillow and Trulia captivated consumers. Like B.&N., they invested heavily in new features and experiences in a bid to outrun the future. But our research revealed a different reality.

It turns out that while digital innovation has transformed certain aspects of the home buying experience, such as our ability to quickly find every home on the market without a real estate agent, the underlying dynamics of buying and selling homes remain largely intact. The traditional model works, only digitally enhanced in new and exciting ways.

Reality check

Luckily, there are simple and proven methods for avoiding the panic trap and making better decisions:

  • Know your customers. Talk to them. Survey them. Observe them in the wild. Listen to what they’re saying and doing. Watch how they’re really using your websites, products and services. What you learn will keep you on course while other players struggle.
  • Understand your place in the universe. How quickly are consumer behaviors really changing? Where are the dollars flowing? What’s the actual adoption rate for that disruptive new technology? Is that hot new competitor making money or just headlines? Buy the research or do your own. Just do what it takes to get the facts.

The truth is out there

In today’s environment there are brands and entire industries doing business based on fear and unproven assumptions. But as the New Yorker piece demonstrated so well, the truth is out there if you choose to do your own homework. The cost of not doing it can be high.