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Digital Divide Propels Barnes & Noble Past Rival

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Digital Divide Propels Barnes & Noble Past Rival

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Digital Divide Propels Barnes & Noble Past Rival

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MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

The digital divide has created a chasm between the nation's two biggest bookstore chains. While Borders is trying to hold off bankruptcy, Barnes and Noble today announced its best holiday sales season in more than a decade.

The two superstores have been fending off competition from online book sellers and the e-book but in very different ways.

As NPR's Lynn Neary reports, Barnes and Noble put its money on a digital device with a catchy name - the NOOK.

LYNN NEARY: Thrilled was the word Barnes and Noble chief financial officer Joseph Lombardi used to describe the mood at his company today. Holiday sales at BarnesandNoble.com were up 78 percent over last year. Store sales increased by almost 10 percent.

And while sales of hardcover books were better than expected, Lombardi made it clear that Barnes and Noble's popular e-readers, The NOOK and the NOOKcolor were behind the good news.

Mr. JOSEPH LOMBARDI (Chief Financial Officer, Barnes and Nobel): We made a big decision to invest a lot of money this year in developing, you know, the hardware and software that has become NOOK, and we think we've done the right thing. And I think that's been the most satisfying thing coming out of this holiday for our company.

Mr. JAMES McQUIVEY (Analyst, Forrester Research): The NOOK is a tide that rises all boats.

NEARY: James McQuivey is an analyst at Forrester Research. McQuivey says the NOOK itself is a popular reading device, but it is also sold in the chain's stores. And that, says McQuivey, gives Barnes and Noble an added advantage.

Mr. McQUIVEY: Because people buy the NOOK at retail, and then they go and buy digital books, but because they're in the retail location, they might pick something else up while they're there. So the good residual feeling that Barnes and Noble has after Q4 last year is all because of the foot traffic that the NOOK drove. That's their salvation right now.

NEARY: While Barnes and Noble was developing the Nook, Borders was already having financial problems, leaving it ill-prepared to make the investments needed to meet the challenges of the digital age.

Michael Norris, an analyst with Simba Information, says some of Borders' problems can be traced back to its leadership.

Mr. MICHAEL NORRIS (Analyst, Simba Information): Because they've actually been through quite a few executives over just a short number of years, and every time there's been an executive change, it basically slows the company down, and it really just hasn't been as nimble or agile as it should have been.

NEARY: And, Norris says, even before the onset of e-books, Borders made a crucial error.

Mr. NORRIS: For a lot of years, Borders actually relied on Amazon to handle their e-commerce function. So if you were to buy a book from Borders, you would actually be buying it from Amazon, and Amazon would pay Borders a commission.

So Borders didn't have a lot of experience developing its own infrastructure, so compared to Barnes and Noble, Borders just really got off to a late start making the online business and the offline superstore business work as one.

NEARY: As 2010 drew to a close, Borders announced that it was looking for new financing and delaying payments to some of its vendors. Now, says James McQuivey it's possible that Borders will go under.

Mr. McQUIVEY: There's always a possibility of a resurrection here, but at this point, it looks like Borders is probably the Tower Records of books. It's probably the book company most likely to go under, and to be that big announcement that causes everyone to finally realize that digital has won the battle.

NEARY: That's not to say Barnes and Noble doesn't still face its own challenges. McQuivey says once the digital device market is saturated, a book store will still have to sell books.

Mr. McQUIVEY: That's the battle for the next couple of years, is how do I get you to buy not just the bestseller on your NOOK but to buy a whole bunch of older titles that you weren't even aware of and weren't even thinking about. And that's what Netflix has done in video, it's what Amazon appears to be doing quite well in the Kindle world, and Barnes and Noble needs to do the same with NOOK.

NEARY: And while Barnes and Noble may lose one of its major competitors, it still has another. Amazon and its popular e-book reader the Kindle still dominate the e-book and online market.

Lynn Neary, NPR News, Washington.

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