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Google and Barnes & Noble Unite to Take On Amazon

By ALEXANDRA ALTERAUG. 7, 2014

Google Shopping Express in New York. By adding Barnes & Noble to its list of 19 retail partners, Google is making a more explicit grab for Amazon’s turf.

Google and Barnes & Noble are joining forces to tackle their mutual rival Amazon, zeroing in on a service that Amazon has long dominated: the fast, cheap delivery of books.

Starting on Thursday, book buyers in Manhattan, West Los Angeles and the San Francisco Bay Area will be able to get same-day deliveries from local Barnes & Noble stores through Google Shopping Express, Google’s fledgling online shopping and delivery service.

Google Shopping, which began operations about a year ago, allows online shoppers to order products from stores like Costco, Walgreens, Staples and Target, and have them delivered to their doors within hours.

The partnership could help Barnes & Noble make inroads into online sales when its brick-and-mortar business remains stagnant. The company has closed 63 stores in the last five years, including some in bustling areas of Manhattan and Washington, leaving it with a base of about 660 retail stores and 700 college campus stores. Its Nook business fell 22 percent in the fourth quarter compared with the period a year earlier, according its most recent earnings report.

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Book buyers in some areas can get same-day delivery from Barnes & Noble via the  Google Shopping Express mobile app. Credit Google, via Associated Press

Michael P. Huseby, Barnes & Noble’s chief executive, called the arrangement with Google “a test” and said that he viewed it as a way to increase the bookseller’s online reach and improve sales from its physical stores.

“It’s our attempt to link the digital and physical,” Mr. Huseby said.

Amazon poses a persistent and growing threat to Google and Barnes & Noble. Its rise has contributed to lagging sales and diminished foot traffic in Barnes & Noble’s physical stores, and it dominates the online market for print books.

Amazon’s popularity as an online shopping destination has the potential to undercut Google’s lucrative search engine advertising business. By adding Barnes & Noble to its list of 19 retail partners, Google is making a more explicit grab for Amazon’s turf. The partnership also comes at a moment when many authors and book buyers are frustrated with Amazon because of what they say are its punitive negotiating tactics in its standoff with the publisher Hachette over e-book pricing.

“Many of our shoppers have told us that when they read a review of a book or get a recommendation from a friend, they want a really easy way to buy that book and start reading it tonight,” Tom Fallows, director of product for Google Shopping Express, said by email. “We think it’s a natural fit to create a great experience connecting shoppers with their town’s Barnes & Noble.”

The competition to provide faster shipping has been increasing in recent years as retailers have scrambled to claim a piece of the growing e-commerce market.

Amazon has already taken the lead in same-day delivery, and on Wednesday the company announced that it had expanded its same-day delivery service to 10 cities from four. Amazon’s same-day service costs $5.99 for members of its Prime program, and $9.98 for others. Walmart and eBay have also introduced same-day deliveries.

Google’s approach differs from that of Amazon and other big retailers. Instead of relying on warehouses full of merchandise, Google is using a fleet of couriers who collect products from local stores, sort and bundle them and deliver them within a three- to four-hour window selected by the customer. Delivery is free for subscribers to Google Shopping Express, and costs $4.99 per delivery, per store for others. Membership is free for the first six months. Google has not announced what the subscription fee will be.

Google has said it plans to expand its delivery service to Brooklyn and Queens.

Barnes & Noble stores participating in the partnership with Google, which include the Union Square store in Manhattan, the Marina del Rey store near Los Angeles and a store on Stevens Creek Boulevard in San Jose, will have someone on site to take online orders for books, toys, games, magazines and other items. Google will collect the orders and hand them to a courier. Barnes & Noble stores have 22,000 to 163,000 titles, depending on the store size.

Barnes & Noble is not processing Google Shopping orders on its own website, which also offers free express shipping to its members, and free shipping for orders that are $25 and up to everyone. (In New York City, Barnes & Noble.com customers can get same-day shipping). Instead, it expects to pick up incremental sales from Google Shopping’s customers, said Jaime Carey, chief merchandising officer at Barnes & Noble.

“Google has their own vast customer base,” Mr. Carey said. “They’re going to be reaching a new customer for us.”

K@W

Kevin Werbach on Microsoft's Mojang Purchase

9/23/14

What’s behind Microsoft’s $2.5 billion acquisition of Mojang, the video game developer that created Minecraft, an open-ended building environment? When the purchase was announced on September 15, Microsoft CEO Satya Nadella said the deal would bolster the company’s mobile efforts, as well as fortify its standing in video games. “Gaming is a top activity spanning devices, from PCs and consoles to tablets and mobile, with billions of hours spent each year,”Nadella said in a statement. Pointing to the more than 100 million downloads of the game on the PC since its launch in 2009, and the two billion hours played on Microsoft’s Xbox 360 game system alone, Nadella argued that Minecraftis “rich with new opportunities,” noting that it is “more than a great game franchise —it is an open world platform.”

In an interview on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111, Wharton legal studies and business ethics professor Kevin Werbach said that Minecraft’s origin sets it apart from other popular games. “Minecraft is different. It didn’t come from gaming companies like Electronic Arts, King or Zynga,”Werbach noted. “Minecraft came from a tiny company and one developer who built a company with a few of his friends. One reason a big company didn’t build Minecraft is because they didn’t think something so simple would be so enduring. Minecraft isn’t linear. It’s easy to understand, but sophisticated.”(Listen to the full interview using the player at the top of this page.)

In many ways, Microsoft’s primary challenge is not to mishandle Minecraft. After news of the sale of Mojang became public, many of the game’s diehard fans took to the Internet to bemoan the news, worried that the tech giant would do just that. The success of the Microsoft acquisition of Mojang will hinge on the long-term prospects for the platform: Is Minecraft near the end of its growth trajectory? Or can it become an enduring franchise akin to Lego, and cultivate the learning, engineering and programming skills of children and adults for years to come?

“If you look at the product life cycle and where Minecraft fits, it’s unclear whether the kids will move onto something else,” says Wharton emeritus management professor Lawrence Hrebiniak. “Minecraft can be enduring, but my gut feeling is that it’s a video game at the mid-point to end of its lifecycle.”

“If you look at the product life cycle and where Minecraft fits, it’s unclear whether [its users] will move onto something else.” –Lawrence Hrebiniak

As Microsoft announced the acquisition, Mojang detailed how co-founders Markus “Notch” Persson, Carl Manneh and Jakob Porsér would depart once the deal was complete. Microsoft will have to install new management to replace CEO Manneh and hold onto Mojang’s remaining developers. Persson said selling Mojang was about his sanity more than the money: The business of Minecraft had grown far beyond just the game he created and had taken on a life of its own.

“I’ve become a symbol,”Persson wrote in a very personal blog post. “I don’t want to be a symbol, responsible for something huge that I don’t understand, that I don’t want to work on, that keeps coming back to me. I’m not an entrepreneur. I’m not a CEO. I’m a nerdy computer programmer who likes to have opinions on Twitter. If I ever accidentally make something that seems to gain traction, I’ll probably abandon it immediately.”

A Strategic Fit

Strategically, Microsoft’s acquisition of Mojang allows the software giant to beef up content for the Xbox and its game developer division. Minecraft is also popular on multiple mobile platforms, including Apple iOS and Android. Nadella’s strategy for the company is oriented around cloud computing, mobile platforms and productivity; Microsoft is increasingly interested in selling its software as a subscription, even if it’s not going to be used on the company’s Windows operating system.

Minecraft, the top game on Xbox and the leading paid app on iOS and Android in the U.S., could join Microsoft Office as a cross platform juggernaut. In addition, the acquisition of Mojang ensures that Minecraft will have a version for Microsoft’s Windows Phone mobile operating system.

In addition, buying Minecraft gives Microsoft the chance to become relevant to a younger generation that has thus far paid little attention to the company’s products beyond the Xbox. “For Microsoft, the demographics of Minecraft users would have been a big factor,”Wharton operations and information management professor Kartik Hosanagar says. “Minecraft is used heavily by kids under 15. For Microsoft, this is a great way to remain relevant to that demographic and even introduce many of them to Xbox.”

“When those Minecraft customers are older, they can move to Halo, to the Surface [tablet], to Microsoft Word.” –Kevin Werbach

Werbach noted that Minecraft’s demographic sweet spot is children ages eight to 15. “Five years from now, that sweet spot will include totally different people,”he pointed out during his interview on SiriusXM. “There is no reason to think there won’t be [future] interest in Minecraft, and when those Minecraft customers are older, they can move to Halo, to the Surface [tablet], to Microsoft Word.”

But Hrebiniak is skeptical about the cross-selling potential from the Minecraft customer base. “If the preteen customer base is what Microsoft is buying into, it’s unclear whether they’ll grow up and pursue other products.”

Cultural Hurdles

The cultural issues clouding the deal were highlighted as soon it was announced. Mojang issued a statement stating the founders would leave the company, but noted “there are only a handful of potential buyers with the resources to grow Minecraft on a scale that it deserves.” Mojang leadership also said that it has worked closely with Microsoft since 2012 and has been impressed with “continued dedication to our game and its development.”

But can Microsoft enhance the game without being accused of ruining what makes it unique? “Microsoft has shown in the past that it gets involved when it acquires a company. It’s in Microsoft’s DNA to meddle,” says Hrebiniak.

Werbach added that Microsoft will inevitably change Minecraft, but has to tread lightly. “The story of Mojang is tied to the notion of thumbing noses and staying true to a vision. It’s difficult for big companies to act that way.”For instance, if Microsoft made Minecraft exclusive to the Xbox “it would destroy goodwill” with the game’s players. “Microsoft will keep Minecraft on other platforms,”he predicted. “Remember, Microsoft is trying to be cool here and wants to be on the lips of kids who will [soon] be in college and then the workforce.”

Forrester analyst James McQuivey said in a note that Microsoft will struggle with letting “Minecrafters be Minecrafters.”He noted that “Minecraft is what it is because its users are free to make it whatever they want it to be. Will Microsoft be able to let the people run free with Minecraft the way the founders did and continue to do? The right answer, to preserve the value of the property, is yes,” explained McQuivey. “But that is not usually the corporate answer, whether at Microsoft or elsewhere.”

“The first step for Microsoft is to figure out how not to kill [Minecraft].” –Kevin Werbach

The struggle for Microsoft’s Minecraft integration partially revolves around how the company is organized, according to Hosanagar. Because Microsoft has so many hardware and software units, the Minecraft deal highlights how being cross platform can cause internal strife, says Hosanagar, adding that Microsoft has an interest in selling its Nokia phones with Windows Phone mobile operating systems, but Office benefits from being on Android and iOS. Thus, one product does well at the expense of another.

“Similarly, Minecraft is available on devices that compete with Microsoft: On Sony’s Playstation that competes with Xbox, as well as Android and iOS, both of which compete with Windows Phone,”he notes. “So that inherently puts two divisions at odds with one another.”

The Future of Minecraft

Though the Minecraft purchase has its risks, the $2.5 billion price tag was reasonable relative to other purchases. Microsoft paid $9.5 billion for Nokia. Mojang’s revenue was roughly $290 million annually with Minecraft generating more than $100 million in profit, according to press reports. Microsoft said the purchase would be neutral to its fiscal 2015 earnings.

“Minecraft has had a good run, but it’s scary that it has been up there for a long time,” says Hrebiniak. “Will something else come along?”Werbach notes that there are a number of Minecraft knock-offs, and Microsoft will have to defend the franchise, as well as add new features to the game.

However, Werbach views Minecraft as more than just a game—it’s just as much a community and a social network. He noted that schools are using the platform to teach concepts ranging from architecture to computing. Minecraft players have created numerous how-to videos that gain large followings online.

If all goes well, Minecraft DNA could fit into every unit of Microsoft, Werbach noted. In a decade, it’s conceivable that Minecraft will be used in corporations for training and education. After all, Second Life, an online virtual world that faded in popularity after a brief surge of enthusiasm, was initially seen as a corporate collaboration tool. “Minecraft can potentially be a new kind of virtual environment platform,” Werbach said. “The first step for Microsoft is to figure out how not to kill it, and then figure out how to grow, develop and advance it.”