The Death of a Tablet

I wanted to Nook to keep on keeping on, but it was like wanting to have a pet store goldfish live to see seven years old: It just wasn't going to happen. In hindsight, that's an easy call to make. At the time, I thought that the Barnes & Noble (NYSE: BKS  ) would have more success if they spun the business off, funded it with equity, and spent the cash on more development to compete with other tablets. I certainly didn't think it was going to get cut. Now that it's happened, the path it took the grave has become clear.

A promising beginning
While we can look at the end product and pass harsher judgment, the early Nook tablets were easy to love. The Nook tablet was announced as the successor to the Nook Color in late 2011. From the very first days, commenters saw that the tablet had the hardware to be a champion. The two issues that would plague the tablet, starting in those early days, were competition and the lack of a robust ecosystem.

At the time, Amazon (NASDAQ: AMZN  ) was already running strong with the Kindle line, having announced the Kindle Fire just a month or so ahead of the Nook tablet. The Kindle was Amazon's answer to Apple's (NASDAQ: AAPL  ) iPad. Then the Nook was Barnes & Noble's answer to the Kindle, and maybe to the iPad -- it's not totally clear.

The lack of clarity was the problem. Before the announcement, a survey by ChangeWave Research asked potential buyers to rank the available tablets. The tablet they were most likely to buy was the iPad, with 65% of respondents picking it. Kindle came in with 22% of the results, and then nothing else broke the 5% barrier.

Muddling in the middle
Given the dichotomy that Barnes & Noble was jumping into, it needed to have a clear message. Either the Nook was going to challenge the Kindle's consumption of media, with its easy-to-buy books, music, movies, and games, or it was going to be the shining, flawlessly designed answer to the iPad. Instead, it was kind of neither. The Nook never caught on because it didn't offer a real alternative to either system.

As a result, Nook sales puttered along through 2012. The tablet never really moved up the sales list, and Apple never felt threatened. Once the year was over, it was clear that the Nook just hadn't caught on. Holiday sales were a huge disappointment, and the company lost out on its already small market share.

The end
Along the way, Nook fans and Barnes & Noble investors got little glimpses of an alternate future. Microsoft and Pearson jumped into the Nook division, investing millions of dollars and at one point driving the value of the Nook division higher than the whole company's market capitalization. That's the future that I bought into -- the future where the Nook became its own business.

In the end, it just wasn't enough. The writing on the wall was the Nook's falling market share. Really successful devices gain market share because customers need to have them. No one seemed to really need a Nook, and so the Nook never built itself up into anything. If I had paid more attention to the consumer perception around the Nook instead of to what I thought the Nook could be, I would have seen this coming in February. It's a shame that I learned the lesson too late, but it's a good one to have learned, nonetheless.

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