Barnes & Noble's Nook plan: Get smaller, ride shotgun with Samsung

Barnes & Noble on Thursday said it would relocate its Nook unit into smaller facilities to save money and outlined a co-brand with Samsung to deliver a "digital reading experience" on the Galaxy Tab 4, a 7-inch device.

The moves highlight how Barnes & Noble has had to cut its Nook expectations dramatically. The Nook unit started with high hopes, but posted losses repeatedly and simply couldn't keep up with the likes of Amazon's Kindle or a bevy of tablet makers.

A deal with Samsung would position the Nook more as an ingredient brand. It's worth noting that Amazon gets a lot of play on Samsung devices too. The joint Nook-Galaxy Tab will be displayed along with Barnes & Noble's e-readers and sold at the company's 700 bookstores and Web site.

Barnes & Noble CEO Michael Huseby said that the company's distribution power and partnership with Samsung shows commitment to the Nook and its digital content business. Nook will still offer the Glowlight and support existing customers, but is looking to minimize its exposure---and cash outlay---on the hardware business.

Indeed, Barnes & Noble is also downsizing its real estate footprint. The company said its Nook employees will be moved from a 208,000 square foot facility to a new location with 88,000 square feet. The move---from Palo Alto to Santa Clara and Mountain View will cut lease commitments in the future by about $102 million. Barnes & Noble said the relocation will be complete at the end of its first fiscal quarter and cost about $30 million.

It's about engagement and software

For Barnes & Noble, the move to cut hardware expenses and partner makes sense. The catch is that it's unclear whether Barnes & Noble's Nook division can transition to completely focus on software and customer engagement.

Barnes & Noble, primarily a retailer, will use Nook to be an ingredient brand and partner going forward. That reality means that the Nook presence will have to be all about engagement and software on multiple devices.

The Nook experience is solid, but it'll face the following challenges:

• Amazon is excelling at hardware and has been improving every time out. 
• Amazon can use its stores to sell Nook killers.
• And Barnes & Noble will need Nook functionality that offers something really compelling to break Amazon's lock on the e-reader market.

In other words, Samsung is the start of Nook's new approach, but it's just the first installment in what will be a long turnaround.