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Battle ahead for book fans
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February 19, 1997: 11:00 a.m. ET
Longtime retailer Barnes & Noble, Internet upstart set for cyber-duel
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NEW YORK (CNNfn) -- From the moment the World Wide Web and America Online became household names, businesses have tried to cash in on the new medium in a variety of ways.
Naturally, retailers were among the first to try and capitalize on fortunes available online. Both established names and upstarts saw a great potential in being able to take their products to millions at a much lower cost than catalogs or traditional retail outlets would allow.
Now the stage is being set for one of the first big battles between online retailers. The principle players are online book retailer Amazon.com and Barnes & Noble.
Amazon.com has been selling books over the Internet since July 1995. Besides the obvious advantage of being the first out of the gate, Amazon.com boasts a much larger selection of books than is available through a typical retail store.
Recently, Barnes & Noble announced it had inked a deal with America Online to launch a virtual store on the service's marketplace section. That has many wondering whether book lovers will go for the more famous name or the young upstart.
Steve Riggio, Barnes & Noble's president and chief executive officer, said the company chose to deal with America Online because its seven million members "give the retailer a chance to capture a big share of the market quickly."
Riggio views the transformation into the online world as a natural extension of the retailing business (283K WAV) or (283K AIFF). In addition to its retail stores, Riggio said Barnes & Noble's direct marketing unit is responsible for than $25 million in annual revenue.
"We bring a lot of experience to the table. We are booksellers first and foremost. We've been in business more than 30 years and have innovated just about every aspect of the business," he said.
Amazon.com President Jeff Bezos is confident that his firm's 19 months of experience -- which is the equivalent of a lifetime on the Internet -- combined with increasing sales will make for a formidable fight.
Bezos didn't originally set out specifically to start an online book store. He wanted to start an online retailing operation, but wasn't sure what product would make the best match. He finally picked books out of a list of 20 products.
"We were optimistic when we wrote our initial plan, but we've vastly exceeded those expectations. The key thing we have done and the reason we have been success if we've focused entirely on creating a value proposition for the customer. Books are the best product to sell online," Bezos said.
Growth has forced the company to relocate four times. It has grown from seven employees to more than 200.
The clear advantage available to Amazon.com, Bezos said, is that its customers can choose from a database of 1.1 million books. He said the largest bookstores stock only 170,000 titles and mall bookstores only 30,000.
"Online, you can have infinite shelf space. Selection is an important criteria for people when they decide what they value.
"The reason it has to be so strong is the Web is inconvenient to use in many ways. You have to compensate people for (using) primitive technology by offering incredible selection," he said.
Both Barnes & Noble and Amazon.com discount a large portion of their selection from 20 to 30 percent.
Bezos said doing business online has allowed Amazon.com to grow its customer base much faster than traditional retailers. He attributes that to the power of word of mouth which he said is 10 to 100 times more powerful online.
Despite his success, Bezos is well aware that convenience and lower prices won't make conventional book retailers disappear.
"I still buy half of my books at physical bookstores. One of the big challenges for us is to make shopping every bit as fun and engaging as physical bookstores. A lot of it revolves around customer interaction," he said.
Walker Smith, a managing partner Yankelovich Parnters, a New York-based market research firm, said whether or not retailers will find success on the Internet depends largely on what they are selling.
"There are some categories that seem to be better suited for the Internet as a distribution vehicle than others. A lot of it has to do with the nature of the product and the nature of the buying decision.
"If you're talking about auto retailing, it's a different kind of issue. You can get online and look at the best price, compare and contrast, but you can't take them for a test drive. That kind of experience is going to be important to some people in making a decision," he said.
Just as many like to take cars for a test drive, so do book buyers, Smith said. While customers can go online and search by title and author, that ability doesn't substitute for the experience gained in a traditional store.
"There's a huge opportunity for book retailing online, but the ultimate impact is not going to lead to it completely displacing retail bookstores. There will be certain aspects of it that the online world can't provide," he said.
What book retailers should do, Smith said, is to redefine the way they do business by thinking outside conventional boundaries.
"If book retailers are smart about this, what they will do is recognize that they're really in the business of making information available for sale to people. If bookstores could think outside the walls of a retail bookshop, they can develop a concept of their business that's probably a little closer to the way consumers see it," he said.
The challenge for the future for all retailers, Smith said, is to decide how the technology is relevant to their traditional business.
"Business-to-business retailers have a much greater sense of what it is that makes online technology relevant. For FedEx and UPS, it's a tool that can be used to better and more efficiently accomplish customer service," he said.
Now that advertisers are becoming more Web-savvy, Smith said they are demanding solid plans that prove any money spent on the Web will be a good investment.
While they're demanding solid numbers, Smith said the retailers themselves are trying to evolve their Internet business models. That means those with solid business models will be the winners.
"We can't just assume that five years from now, everything will be worked out. If we do that, we'll suffer the same fate as Whittle Communications. Chris Whittle invented targeted vehicles to get audiences for ads. That failed because he couldn't quite cross the threshold and convince marketers to put a substantial portion of their budgets in his new media vehicles," he said.
Smith said the biggest challenge to online retailing is the lack of a universal standard to measure the number of people on the Web and identify which sites they regularly visit.
"Marketers aren't going to accept information that Internet service providers have just as they don't allow CBS to tell them what the ratings are for their programs. They want an objective, third party to provide that information," he said.
Despite all the possible hurdles to making the Web a retail vehicle, Bezos is confident.
"I think as the Web technology improves, which it is doing rapidly, every product is going to be sold online. It's just a question of when," he said.
--Cyrus Afzali
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