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Dylan’s Desk: It would take a miracle for the Nook to win now

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I was flabbergasted at the news that Microsoft had invested $300 million into Barnes & Noble’s Nook business, making the e-reader subsidiary, at a $1.7 billion valuation, worth more than B&N itself.

Sure, Microsoft has a penchant for investing in promising also-rans: Nokia, for instance.

But the Nook has so far to go to be competitive with the dominant player in this market that it’s not even funny. The only advantage the Nook has over Amazon’s Kindle is that it can display EPUB files, the open format used by a large number of publishers and e-book readers, whereas the Kindle cannot.

That would be a trivial feature for Amazon to add, if it ever decided that EPUB support was a competitive feature. For now, though, it’s content to divide the market with its own, proprietary KF8 and AZW formats. Because Amazon readers are the only devices that read those formats, and because files in those formats are (apart from some hacking) only readable on Kindles, Amazon knows it has a captive market. Once you start stocking your library with Amazon’s e-books, you won’t want to switch to a different kind of e-book reader on which you can’t read them.

I say this as an early proponent of the Nook. I bought one, and used it for nearly a year, until I got fed up with its lack of features and frequent lockups. There was only one software update during that year, and it didn’t fix the shortcoming I cared most about, which is the ability to email documents to the device so I don’t have to sync it with my computer. Eventually, my wife gave me a Kindle, and I haven’t looked back since.

Here’s a short list of advantages Amazon’s Kindle has over the Nook:

  • Variety. The Kindle is available in a wide variety of form factors, with and without keyboards. The Nook’s designs are more limited.
  • Margin. Amazon can afford to sell its e-readers and its Kindle Fire tablet at very low (or even negative) margins because it knows that they could essentially be physical shopping carts for purchasing anything Amazon sells. All Barnes & Noble can hope to sell are magazines, newspapers, and books.
  • Delivery. Both readers offer free wireless delivery of books via 3G networks or Wi-Fi. But only the Kindle gives you an email address so you can send files to your reader.
  • Developer Network. That email address renders the Kindle far more accessible to developers like Instapaper, which can easily integrate their reading apps with the Kindle by arranging an email delivery to the customer’s Kindle address. Add in Amazon’s extensive Android store, and the developer network looks even bigger.

Microsoft might be planning to fold the Nook into its plan for Windows 8 dominance, by turning it into a Windows-powered platform. That would tie it into the vast universe of Windows developers as well as the cloud-based assets of Skydrive, so you could store your books in the same place you store your files and photos. That would be smart. It would also be a major overhaul for the device.

Microsoft might figure that $300 million is a small price to pay for a piece of a lucrative market. Even in second place, it’s conceivable that the Nook will still generate revenues for its parent companies in the form of e-book sales. As a book retailer, Barnes & Noble is a far less threatening figure to book publishers than Amazon is, so it might have an edge in signing contracts with those publishers.

Still, I’m doubtful that the e-reader market is anything more than a temporary stopover on the way to a multi-screen, tablet-centric future. I figure this market has three to five years left in it, tops. Most people will elect to buy full-color tablets, now and in the future. Eventually, those of us who like reading on E Ink screens will be able to choose those as an option for a second (or third) “satellite” screen that’s connected wirelessly to our main tablets or notebooks. Where will the single-purpose reading devices be then?

In all, the Nook investment seems like a strange sideline for a company that already has its hands full trying to drive a wedge into a smartphone and tablet market, where it also faces extremely long odds. How many markets can Microsoft hope to open up simply by pouring in huge amounts of development time and marketing dollars?