Barnes & Noble Chairman Len Riggio has another reason to mourn his exit of the tablet business: Nemesis Ron Burkle was right.
B&N said yesterday it will stop manufacturing its own Nook tablet devices — a final admission of defeat in Riggio’s bold, four-year bid to challenge deep-pocketed tech giants, including Apple, Amazon and Google.
For Riggio, scrapping the Nook tablet is especially bitter because the ambitious, cash-sapping venture had been a major bone of contention three years ago, when Riggio fended off a proxy attack from Burkle.
The Los Angeles billionaire wasn’t vocal about the Nook in particular as he waged a well-publicized but unsuccessful war to unseat Riggio in fall 2010, citing corporate-governance concerns.
Nevertheless, sources close to the situation said Burkle had fretted over Riggio’s risky bet on the Nook, advocating instead that the company outsource the device’s manufacture to a big tech company.
Indeed, B&N chief William Lynch told investors yesterday that the bookseller is now in talks to find a manufacturing partner for the Nook. It will continue to design its Nook black-and-white e-readers.
“We want to move away from taking on all that risk ourselves,” Lynch said. “It was very capital intensive to build our own tablets.”
“B&N did better than most people expected, but I always felt a company the size of B&N is on a suicide mission when trying to compete against Apple or Amazon on hardware. That said, I respect Mr. Riggio for making a good effort,” said Burkle, who esold most of a nearly 20 percent stakein B&N a year ago.
Shares of B&N plunged 17 percent yesterday after the bookseller reported a fiscal fourth-quarter loss that was more than twice as wide as Wall Street expected.
The loss was driven entirely by the Nook, which hemorrhaged $177 million in cash as its sales dropped 34 percent.
Overall, B&N’s net loss was $118.6 million, or $2.11 per share, compared with a loss of $56.9 million, or $1.06 per share, a year earlier.
For the Nook, the writing was on the wall this past holiday season, when demand was disappointing amid increasingly stiff competition.
Riggio also raised suspicions earlier this year when he said he offered to buy the still-profitable bookstore chain, which would leave the Nook as a struggling stand-alone company.
The Nook’s implosion last fall was quick and brutal, occurring just months after promising spring sales had lured Microsoft to pump $600 million in cash into the Nook in May 2012.
This past December, British media company Pearson poured another $90 million into the Nook in exchange for a 5 percent stake, valuing the business at $1.8 billion — well north of what was suggested by yesterday’s bruising loss.
The Nook had 14 percent of the market in the first quarter of 2011, before Amazon had released its Kindle Fire tablet. This year, that figure had fallen to 2 percent, says IDC.
“Once rivals came into the market, the Nook quickly became irrelevant,” said Ryan Reith, an IDC analyst.