Dramatic Challenge to Barnes & Nobles Business Model

This one of the most vivid examples of challenges to the existing business model of a firm. The Wall Street Journal reports:

After nearly 17 years of consistent growth, Barnes & Noble is stumbling. Revenue fell 3% to $5.12 billion for the fiscal year ended Jan. 31, 2009, while earnings dropped about 45% to $76 million.

When it launched the iPad last month, Apple championed a new approach to e-book pricing. Earlier this year, most large publishers agreed to establish a so-called agency model, where the publisher receives 70% of the digital price while e-book sellers act as agents and receive 30%. While some best sellers remain at $9.99, many major authors are priced at $12.99 or $14.99.

 

For many digital booksellers, the new model is good news: Instead of having to pay publishers half, or $12.50, for the e-book edition of a $25 hardcover book, and then sell that book at a loss—for, say $9.99—to match Amazon’s cutthroat prices, the bookseller now gets 30% of the newly-set $12.99 price, or $3.90. Since it hasn’t paid anything for the title, it is ahead of the game.
But for Barnes & Noble, the model can’t hide a brutal reality: $3.90 is a fraction of the $12.50 it now earns on a full-priced hardcover priced at $25. If e-book sales become a quarter to a third of the market, store revenue would plunge.

Faced with such a scenario, Barnes & Noble is re-examining its business model.

 

Read the full story in the Wall Street Journal.