by Leo J. Shapiro, CEO SAGE LLC
Microsoft’s purchase of a 17.6% share of Barnes & Noble’s NOOK division gives Barnes & Noble a fighting chance to take market share from Amazon’s Kindle.
The NOOK division was valued at 1.7 billion dollars which is roughly double Barnes & Noble’s total market value. This valuation treats Barnes & Noble’s 691 brick and mortar stores as a liability rather than an asset.
But Barnes & Noble’s continued control of its 691 brick and mortar bookstores is essential to its survival and continued success in reaching and persuading consumers to buy a Nook instead of buying Amazon’s Kindle. But, the stores are faltering and unlikely to remain viable in the face of competition from Amazon for paper books as well as for e-books.
The Nook has demonstrated its competitiveness by capturing recently a larger share of the e-book web traffic than the Kindle Fire. The question now is whether Barnes & Noble can afford to support its chain of brick and mortar stores to give the Nook a solid market platform.
Given the experience of Borders, Barnes & Noble’s one-time head-on competitor, Barnes & Noble stores are of dubious, more likely of negative, value. Before becoming bankrupt, Borders operated 508 bookstores nationally each roughly comparable in size and offerings to Barnes & Noble stores.
After Borders declared bankruptcy in 2011 and no one purchased it as a going business, its stores were sold. As of October 2011, the Borders.com website was redirected to the Barnes & Noble website effectively shutting down Borders. Border’s 508 stores and website disappeared without delivering a lasting benefit to Barnes & Noble’s sales.
At this moment, the odds favor Barnes & Noble losing its independence to a company that wants to own the Nook division but is not likely to want to continue to operate its faltering chain of brick and mortar book stores.
Long term, the odds are not only against the survival of Barnes & Noble’s Nook but also Amazon’s Kindle. Both are obsolescent. Command of the retail market for e-books readers will go to the company that controls an innovated “reading device” that is inherently superior in value to the Nook and the Kindle and paper books.
To anticipate its nature of the superior e-reader requires understanding first how and why the value of an e- book is determined by the ability of the words it contains to trigger memories of experiences that contribute to the happiness of the user and, second, how the value of an e-book is diminished by the amount of work or effort that the user must make to decode the words and reconstruct the experience.
Well before printing was developed, authors used meter and rhyme to “package” words as poetry rather than prose to establish a rhythm that reduces the effort required to remember, decode words and apprehend their meaning. The task of decoding words was further reduced by imposing constraints on the way words can be packaged as poems by specifying rules for writing a sonnet or a haiku.
The recent development of the Tweet which conveys information in 140 characters further eases the work of decoding words and reconstructing experience. Langston Hughes anticipated Twitter in some of his poems:
- “I am the darker brother. They send me to the kitchen to eat when company comes, but I laugh and eat well, and grow strong.”
- “To some people love is given, to others only Heaven.”
- “Folks I’m telling you, birthing is hard and dying is mean – so get yourself some love in between.”
The actual value of an e-reader is the difference between its ability to trigger happiness with words from an e-book less the amount of work or effort required to decode those words.
Happiness is a pursuit of pleasure to mitigate pain. Experiences which trigger pain and those that trigger pleasure are decoded in separate regions of the brain. The combination of painful and pleasurable experiences is experienced as something like a “harmonic” which conveys the mixture of pain and pleasure that is happiness.
What people call happiness has the ambiguous, indescribable taste of drinks like Coke, Pepsi or a Starbuck’s Latte — sweet, delicious with enough bitterness not to cloy and a hit of caffeine to light up the world.
Well before words could be transmitted in printed form, melody was added to words to overcome the indescribability of happiness. John Lennon seeks to overcome that indescribability by resorting to metaphor in his song:
“Happiness Is a Warm Gun – Bang Bang – Shoot Shoot – When I hold you in my arms – ooooh, oh yeah – and feel my finger on your trigger –ooooh, oh yeah – I know nobody can do me no harm -ooooh, oh yeah – happiness is a warm gun momma momma –bang bang – shoot shoot – Yes it is gun!”
Given the value of easing the task of decoding words, it is likely that current e-readers and physical books will be made obsolete by innovated devices that transmit not only words but also simultaneously transmitting auditory, visual, tactile, olfactory and visceral sensations which will ease the task of decoding.
To find out whether the anticipated technology that will obsolete current books is actually in development, the author instituted a patent search, a strategy he learned from W.J.J. Gordon, inventor of Synectics. To evaluate its patentability, the concept of the innovated reader was disclosed to David Rosenbaum, a patent attorney. Rosenbaum found that the innovated e-reader was actually patented.
Excerpts of the report from David Rosenbaum which follow include a drawing of the device and a description of its capabilities:
RE: Preliminary Patentability Search for E-Reader
To evaluate the patentability of the disclosed e-reader with the appearance of a hard bound book, while incorporating A/V media content.
The most relevant prior art is US Patent 5,517,407, which discloses:
“An enhanced book includes, in addition to printed material, enhancing material such as additional text, graphics and sounds, the nature of which is limited solely by the ability to store the additional information in digital format, stored in a memory device attached to the book, together with a connector for allowing the enhanced book to be connected to an external computing device for accessing and presenting the enhanced information to the reader.”
The most relevant figure from the ‘407 patent is included as the next page.
Patent/Pub./ W.O. #
|4425098||Sound-illustrated, bound book|
|6865367||Voice book device|
|6788283||Book with electronic display|
|20080124695||Non-intrusive audio book|
|20080046818||NON-ELECTRONIC BOOKS WITH DISPLAYS|
|5749735||Interactive book, magazine and audio/video compact disk box|
|7111774||Method and system for illustrating sound and text|
|5897324||Multimedia-book operable with removable data storage media implemented with universal interfacing book-adapting processor|
|20040016809||Method and system for illustrating sound and text|
|5517407||Device for including enhancing information with printed information and method for electronic searching thereof|
Drawings of the patented device follow:
Neither the technological feasibility nor the commercial value of the patented device has been evaluated by the author. However, nothing has been discovered by the author that would preclude making the Nook, Kindle and other e-readers obsolete.
It is seemingly inevitable that a patented device that fulfills claims made for the patented device will come to market. But, it is not possible to anticipate when such a device will come to market or anticipate who will develop it.
The device could come from an established company or from a mature professional working out of a garage or from a teenager gripped by curiosity. Alan Turing invented the computer when he was fourteen years old. He conceived of it as a machine he could send into the world to observe everything, record what it learned on paper tape in binomial code and report back to Turing.
To avoid misunderstanding, it is important to emphasize that the author does not mean to suggest that Amazon’s hold on the book market will be shaken by competition from Barnes & Noble or other conventional booksellers.
Amazon’s long term survival is in jeopardy whether or not it succeeds in sending Barnes & Noble to join Borders in history.
Amazon’s humongous automated distribution centers enable it to achieve a cost advantage and become the dominant seller not only of books, electronics and a range of other products that can be ordered from home including food, fashion and other products and services.
However, as Amazon becomes increasingly inflexible and unable to adapt to change as it continues to commit capital to its distribution centers while remaining dependent on third party companies like UPS and FEDEX for delivering purchases to customers
Historically, Amazon’s growth has been sustained by the trend for stores becoming larger and larger that has been in progress since Sears opened its first retail store in 1925. That trend toward large stores reversed sometime around 1976. Its reversal is marked by Aldi opening its first stores. Since then, the pace at which small stores are opening has accelerated.
Not only Aldi’s but Trader Joe’s, Save a Lot, Dollar General and Staples are fast growing chains of small retail stores that can survive and grow in head to competition with Amazon. As the density of population increases and logistics become increasingly efficient, the trend accelerates toward retail stores becoming smaller and smaller and locating near customers.
The eventual collapse of Amazon is hard to believe until one learns that WalMart, which grew by building larger and larger stores, is now building small stores that sell WalMart’s core merchandise offerings.
Stores like Costco and Staples that retail products to consumers and wholesale products to nearby businesses achieve efficiencies in marketing and logistics that enable them to survive and grow in direct competition with Amazon.
It seems certain that as the future unfolds the United States will witness rapid growth of small sized retail stores forcing the demise of large sized stores.
It is not possible to anticipate when Amazon will begin to wither and how long it will take before it dies. It may collapse suddenly or may suffer a lingering death of the sort currently being experienced by A&P and Sears. Both of these retailers were once seen as invulnerable because of their ability to achieve a cost advantage by virtue of their size and command of logistics.
© 2012 All rights reserved by Leo J. Shapiro