Barnes & Noble got a lot of buzz a few days ago when it released a big new software update for its Nook HD tablet.
The software update adds the Google Play store, which is the online shop for Android phones where Google sells apps, music, movies, magazines, etc. That makes the Nook update a great deal for Nook owners. They now have access to much more content than they did through Barnes & Noble's own limited app and content store. The update also incorporates a lot of other excellent Google services like Gmail, Chrome, and Google Maps.
But it's also a bad sign for Barnes & Noble, which is still working through the uneasy transition from physical bookstore to hardware manufacturer and seller of online goods and services.
With its Nook tablets, Barnes & Nobles took a page right out of Amazon's playbook for the Kindle Fire tablets. Like Amazon, Barnes & Noble took Google's Android operating system and stripped it of all things Google. Instead of using Google's services and apps, Barnes & Noble tried to create its own Nook-branded ecosystem.
It didn't really work. The first Nook tablet didn't have an online store for buying music, movies, TV shows, etc. You could load content from other sources using a SD card or plugging the Nook into your computer, but that was hardly as convenient as directly downloading stuff like you could with the Kindle Fire. The Nook HD, which launched last fall, was Barnes & Noble's first device to finally include a way to directly download some of that content, but the selection wasn't nearly as good as Amazon's.
Then there were apps on the Nook. Again, like Amazon did with the Kindle Fire, Barnes & Noble attempted to create its own store for Android apps to run on the Nook. But Barnes & Noble had a tough time getting developers on board and the selection was pretty weak compared to what you could find on the Kindle Fire, iPad, or other Android tablets. Meanwhile, Barnes & Noble's Nook division continued to collapse, with digital content and device sales down 26%, according to the company's last earnings report.
Like Amazon, Barnes & Noble's strategy was to sell its devices for super cheap –– the Nook HD now starts at $149–– and lock users into an app and content ecosystem. The new Nook update essentially turns the Nook into just another bargain Android tablet packed with Google's services and content, and that's really bad news for Barnes & Noble if it wants to continue selling its own digital content on its own hardware.
Barnes & Noble won't make a penny off stuff people buy through Google Play; all that revenue goes through Google instead. And since the Nook HD is so cheap, Barnes & Noble is likely either selling the device at a loss or at a negligible margin. Meanwhile, the Google Play store is much more robust than what the Nook store can offer in everything except books. (Even then, you can still download the Nook reader app from Google Play and get all your books there.) There's almost no incentive for a Nook HD owner to buy their digital goodies from Barnes & Noble.
It's a major Catch 22 for the Nook business. Either offer the best stuff through Google Play and miss out on revenue from digital content, or risk losing customers to Amazon because the Kindle Fire offers more content and apps for about the same price.
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