Barnes & Noble, Inc. (NYSE:BKS) is a company in crisis. Large losses suffered at its NOOK division have weighed on the bottom line, and its last two earnings reports were disastrous. But even the retail operation could be in peril. The company’s founder and chairman, Leonard Riggio, announced that he would be abandoning his efforts to acquire it.
No doubt, Amazon.com, Inc. (NASDAQ:AMZN) is responsible for much of Barnes & Noble, Inc. (NYSE:BKS)’s woes. From the beginning, the online retailer was built around selling books over the Internet; the introduction of the Kindle and the shift to digital only enhanced Amazon.com, Inc. (NASDAQ:AMZN)’s dominance. But now the company is planning a hybrid of the two. By mixing digital with paper, Amazon.com, Inc. (NASDAQ:AMZN) could doom Barnes & Noble, Inc. (NYSE:BKS) once and for all.
A big discount
Starting in October, Amazon.com, Inc. (NASDAQ:AMZN) customers who buy paper books from the retailer will have the option to buy a digital copy at a steep discount — $1-$3, and in some cases, for free. This program, dubbed Kindle MatchBook, will even include books that have been purchased from Amazon.com, Inc. (NASDAQ:AMZN) in the past.
Not all books will fall under the program. At present, only 10,000 titles are included. Still, Amazon.com, Inc. (NASDAQ:AMZN) says it will work to expand the program to other publishers, and it seems likely that many of them will eventually sign on. The ability to squeeze an extra $3 out of most customers could prove enticing.
If Amazon didn’t already have a competitive advantage, it definitely does now. Why buy a paper book from Barnes & Noble, Inc. (NYSE:BKS) when Amazon bundles a cheap digital copy? Even if the book in question isn’t currently part of the program, its potential to be added in the future could sway many customers.
To be fair, Barnes & Noble, Inc. (NYSE:BKS) could copy the program with something of its own. But given that its NOOK division is already struggling, and there’s talk that Barnes & Noble, Inc. (NYSE:BKS) could spin it off or sell it to Microsoft, that seems unlikely.
Amazon’s advantage over digital competitors
Amazon and Barnes & Noble aren’t the only companies that sell digital books. In fact, Apple Inc. (NASDAQ:AAPL) might sell as many e-books as Barnes & Noble. Unfortunately, there are no hard market share numbers, but based on the Justice Department’s recent e-book price-fixing lawsuit, Apple Inc. (NASDAQ:AAPL)’s share of the e-book market might be 20%.
If Amazon’s market share is near 55%, a figure from Bowker Market Research, Barnes & Noble’s is — at most — 25%, and likely much less, given that there are other players in the space, including Google.