Barnes & Noble (B&N) has been portrayed in the past as a big bully that drove small independent bookstores out of business with aggressive pricing tactics and an unbeatable inventory of books. Today, B&N finds its role reversed as the company fights a fierce battle to survive in the inevitable era of e-books. Booksellers were one of the many industries disrupted by the Internet and, more specifically, the rise of e-books and e-readers. B&N hopes to change its business model to adapt to this new environment before it suffers a similar fate as many of its competitors, like Borders, B. Dalton, and Crown Books, or their peers in other industries, like Blockbuster, Circuit City, and Eastman Kodak.

More than ever, consumers are reading books on electronic gadgets—e-readers, iPods, tablets, and PCs—instead of physical books. Although B&N still depends on its physical, brick-and-mortar stores to drive its business (B&N operates 691 bookstores in 50 states, as well as 641 college bookstores), the company has thrown its energies behind development and marketing of the Nook series of e-readers and tablets. Once simply a bookseller, B&N now styles itself as a seller of e-books, devices to read them on, and apps that enhance the reading experience. The company has had success gaining market share, but at a steep cost, and to stay afloat, it will need to contend with increased competition from Amazon, Apple, and Google—not exactly feeble opposition. B&N has a market capitalization of $1 billion.

Amazon, B&N’s current top competitor, has a market capitalization of $98 billion. How can B&N compete against these tech titans?

The answer remains to be seen. B&N was likely the only bookseller big enough to complete the considerable task of developing an e-reader, marketing it, and setting up manufacturing and retail operations for the device. Even if its competitors had been faster to react to consumer demand for e-books, it’s unlikely they would have made the inroads that B&N has achieved into the e-book space. Reaction to the Nook has been positive, as B&N has grabbed a significant market share from Amazon and Apple in the e-book marketplace. In 2011, analysts estimated that B&N controlled approximately 27 percent of the digital book market (Amazon held 60 percent)...........

1. Use the value chain and competitive forces models to evaluate the impact of the Internet on book publishers and book retail stores such as B&N.
2. How are B&N and the book publishers changing their business models to deal with the Internet and e-book technology?
3. Will B&N’s new strategy be successful? Explain your answer.
4. Is there anything else B&N and the book publishers should be doing to stimulate more business?