Will Starbucks Be Your Next Bookstore?

There are a number of reasons why companies fail and close like fraud, lawsuits, shifting markets, changes in government regulations, and many others. One of the key reasons, though it isn’t always identified as such, is the inability to spot, think through, and prepare for technology disruptions.

Last week as I browsed through the picked over selection of books at my local Borders Books during the Going Out Of Business sale, it had me thinking through the reasons chain bookstores like Borders and Books-A-Million were closing.

Essentially, they had failed to see and prepare for some major disruptions in technology, their markets, and their business models. These disruptions ended up causing the eventual failure of the company. Two of those disruptions were:

Online commerce: Today, buying and selling things online is commonplace. But in 1995 when Jeff Bezos launched Amazon as an online bookstore, right after NSF reduced the restrictions around commercial enterprises on the internet, this was still a fairly new and unique concept. Borders didn’t understand the potential impact of online commerce, so much so that in 2001 Borders contracted with Amazon to handle Border’s online book sales. Borders didn’t get around to launching their first web site until 2008, well after the damage had been done.

eBooks and readers: eBooks are a relatively old concept, first conceptualized at PARC in the early 1970’s. What really accelerated the market was the introduction of eBook readers such as the Amazon Kindle (launched in 2007) and Sony PRS-500 that were reading devices separate from a computer. Borders never launched an eBook reader and didn’t partner with Kobo, a competitive reader to the Amazon Kindle, until 2010.

There were also shifts in the marketplace such as increasing costs in rent, personnel, maintaining physical stock, and consumers becoming more familiar with eBooks and comfortable purchasing online. But the major impacts were technology disruptions.

Does this mean that Barnes & Noble (B&N) will be the next major book retailer to fall? Not in the immediate future, but I wouldn’t bet on B&N in the long term. B&N has taken significant strides to try to catch up and potentially gain parity with virtual stores like Amazon. But it is still a game of catch up and the prospects look dim. Why?

Customer experience. Even though B&N has shifted to more of an online sales presence, but the experience still doesn’t match Amazon’s. The number of products that can be purchased on Amazon besides books is tremendous, services like Amazon Prime and Remember This, and just the ease of use all make the customer experience better on Amazon.

Brick and mortar costs. B&N still has a significant retail presence which is costly. eReader market share. The B&N Nook reader is arguably a better device then the Amazon Kindle, but still was later to market, has a much smaller market share then the Kindle (Nook at 15.4% compared to the Kindle at 41.5% according to IDC), and it isn’t likely to catch up.

Could you imagine sitting in Starbucks, reading a book and drinking a latte? So could I and that is why long term I expect companies like Starbucks to become the next “bookstores” through partnerships with Amazon or Apple’s iBooks. It would be a logical extension of the path Starbucks is on. Starbucks already offers additional physical coffee themed products like coffee, mugs, teas, and Howard Schultz’s book, but it also offers music through a relationship with Apple’s iTunes and premium content via a local portal. The idea of offering an additional 3-5% discount on the order of a physical book or an eBook purchased while at Starbucks on the Starbucks network is not that much of a stretch beyond what they are already doing.

Bottom line: Disruptive technologies are something companies need to be scanning the horizon for, and not just the obvious technologies but also the tangential technologies.

Question: Would you purchase Barnes & Noble stock right now? Why or why not? And would you purchase your books when you are at Starbucks?