NEW YORK (CNNfn) - Microsoft Corp. and barnesandnoble.com launched a partnership Thursday to promote electronic books, predicting the agreement will help the still-unpopular e-books to dethrone paper books by the end of the decade.|
The companies announced the creation of a barnesandnoble.com e-book superstore, saying it will sell thousands of titles using soon-to-be released Microsoft Reader software, which the companies say dramatically improves computer screen text. Also, they said the marketing push of the two firms combined with the software and new hardware options will give the electronic books the visibility and support they need to rival paper books.
Barnes & Noble Inc., the nation's largest book retailer, will aggressively market the new e-book store through a variety of promotional activities in its retail bookstores nationwide. Barnes & Noble (BKS) owns just less than half of barnesandnoble.com (BNBN) in a joint venture with German publisher Bertelsmann.
Type quality a barrier so far
Microsoft said it expects to offer its Microsoft Reader software for free so consumers can read electronic books formatted with its new, clearer presentation. Officials of the companies said poor presentation of text was a major barrier to the acceptance of e-books.
"The quality of print (has been) generally very poor. It's hard on the eyes, hard on the nerves," said Steve Riggio, vice chairman of Barnes & Noble (BKS), at a press conference at the 2000 International Consumer Electronics Show in Las Vegas, where the venture was announced.
Riggio and Dick Brass, vice president of technology development for Microsoft, said they believe the improved presentation of text and the growth of new hand-held computers designed specifically for books and other media, such as music or videos, will help spur the popularity of e-books.
Brass compared Thursday's announcement to the introduction of the Model T, which while not the first car, was the break-through vehicle that sparked a rapid switch from horses to automobiles.
Image source: Microsoft Corp.
Can you judge this e-book by its cover? Microsoft and barnesandnoble.com announced a new partnership Thursday to push the sale of e-books, a move designed to dethrone paper books.
"We've been predicting this will overtake print books in about 10 years," Brass said. "In the first six months it will be a very small part of Steve's business. But three to five years out we see a billion-dollar marketplace."
Following Thursday's announcement, one of the electronic commerce analysts said it is too soon to say if those projections are overly optimistic or conservative. But he said the partnership should be good news for the companies.
"The important fact is they're a first mover in a high-margin business that will have increased adoption rates as we move forward," said Anthony Noto, the electronic retailing analyst at Goldman Sachs.
But, will book lovers want to switch?
But another analyst was not convinced. Barry Sosnick of Fahnestock & Co. said adoption of digital distribution of music over the Internet has not lived up to expectations, and he is not sure that consumers will rush to embrace this new technology. He also said that book purchasers are on average older consumers who may not be willing to switch to a new medium.
"You come away saying if music is the comparison, it does not flesh out," he said. "Will it be big in 10 years? Should it be something that generates tremendous excitement? The jury's out."
But Riggio and Brass said this has the opportunity to create more interest in books than before, especially among younger readers.
"Paper and leather binding for books are greatly appealing. It's going to be a transitional period," said Brass. "A fellow growing appreciating books might never buy an electronic book. But someone growing up using a game boy will find using an e-book is a very natural way of reading. And they'll find it a lot more attractive than carrying around 50-pound pack of school books."
Agreements with publishers due soon
The companies expect to announce an agreement with a majority of U.S. publishers in the next 30 days to greatly increase the number of books available in electronic forms. They insist that publishers can be helped, not hurt, by the e-books because it would significantly reduce production, distribution and inventory costs, and allow savings to be passed on to consumers.
"The publishers are going to join this revolution," said Riggio. "They're not going to be able to stop it."
A spokesman for Simon & Schuster Inc., one of the nations' leading publishers, said it is very hopeful for the potential of electronic books, especially for changing the basic economic structure of the industry.
"We are very, very bullish on the prospects for the electronic book," said Adam Rothberg, director of corporate communications for the New York-based publisher. "I don't think our projections are as optimistic as Microsoft's, but we definitely see it happening and being a substantial part of our future business. It could radically alter the economics of publishing. It will change the manufacture-ship-get returns model. You don't have to manufacturer five to sell three."
An official with the Association of American Publishers said while her group is supportive of the e-book effort, the concept still needs to be proven.
"We have files going back 20 years on e-books. This type of venture with two major players will start to show us how it's going to move, if it's going to move," said Nisha Tyree, director of copyright and new technology for the trade group. "A lot of our members are working in this arena. Some are more leery than others."
Riggio and Brass say the fact that the largest book retailer and the largest software company have joined forces will help bring about the change.
"You're going to have all types of entrepreneurs enter into the marketplace because these two giants have fired the starting gun," Riggio said.
Most of the e-books will be sold and transmitted over the Internet, rather than purchased in stores. But, Brass said that Microsoft chose as its partner barnesandnoble.com, as opposed to an exclusively Internet-based retailer, because of its network of brick-and-mortar stores to market the product.
Book retailers' stocks, sales gain
Barnes & Noble's stock was up 3-5/8, or 18.5 percent, to 23-3/16 at the 4 p.m. close Thursday, while barnesandnoble.com's stock was up 5/8, 14-13/16, after being as high as 17-1/4 earlier in the day.
Aside from the electronic book announcement, both companies reported strong holiday sales figures Thursday.
Barnes & Noble saw same store sales at its Barnes & Noble stores increase 5.8 percent for the period from Oct. 31 to Jan. 1. Overall sales at that division were up 10.3 percent to $719.2 million. Same-store sales at its B. Dalton stores were up 2.3 percent in the period, although overall sales declined 8.1 percent to $128.5 million due to the closing of 85 stores.
Meanwhile, barnesandnoble.com saw sales more than triple during the last quarter of the calendar year, increasing to $81.5 million from $25.9 million, and exceeding some estimates. In all, the company added 1.1 million new customers during the fourth quarter, the company said.
Microsoft's stock was off 3-3/16, or 3.3 percent, to 110 at the 4 p.m. close in what was a bearish day for technology stocks.