This last week, Barnes & Noble announced its soon-to-be-released Nook e-book reader. While many have seen this as just another entrant into the already crowded market, I believe it represents a potentially significant shift in the industry. Strategists suggest that in order to successfully compete with a company in Amazon’s position, companies must embrace standards. And, in fact, Amazon’s competitors have done this. In August, Sony announced that its library would be converted to ePub, and last week, Barnes & Noble reiterated a similar, previously made commitment. However, despite this common commitment, Sony and Barnes & Noble’s strategies are very different from one another. This difference can be seen in analyzing the industry’s capability stack.
Stack analysis is a representation of the capabilities needed to deliver value to a consumer. At the bottom of this stack are those elements furtherest away from the consumer and those whose technical details the consumer is least concerned with. Additionally, each layer in the stack can use only those below it to transform data and increase overall value.
Within this framework, a company’s primary strategic decision concerns where it will compete in the stack and whether it will focus on a single layer or integrate across multiple. Amazon, for example, has chosen to integrate across multiple layers.
While this strategy of multiple level integration has brought Amazon considerable success, it can be difficult for multiple companies to follow because it often leads to significant network effects and considerable platform lock in. Recognizing this, Sony decided to alter its strategy and is currently operating in the following stack model:
While this strategy of market modularization is logical, it is certainly not the only option. Barnes & Noble, for example, is taking a considerably different approach. The c ompany, with its Nook e-reader, now has a dedicated device, additional e-book software (for the PC, Mac, iPhone, etc.), and its own content library.
However, as the above diagram shows, Barnes & Noble’s involvement in the ebook market does not end here. The company has chosen to compete not only through vertical integration but also within a single layer of the capability stack. The company sells content and makes available its platform to users of IREX and Plastic Logic devices.
Not only does this stack architecture provide Barnes & Noble additional sources of revenue, but it also provides the company options unavailable to Sony, Amazon, and other industry players. By integrating across multiple layers while simultaneously competing within a single capability, Barnes & Noble may be able to provide more value to its consumers. While the device is unproven and the performance of the overall ecosystem is completely unknown, it is possible that this stack architecture will allow Barnes & Noble to provide the benefits of an open format standard (multiple devices with no significant lock in) with those of vertical integration (solid user experience and multiple connected, synchronized devices).
