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Borders set to go online
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May 7, 1998: 7:50 p.m. ET
Bookseller will take on Amazon, Barnes & Noble in online retail
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NEW YORK (CNNfn) - Look out, Amazon. Borders Group Inc. will join the lucrative e-commerce fray Friday when it launches Borders Books and Music Online.
The original book superstore will take on Barnes & Noble Inc. (BKS) and online leader Amazon.com Inc. (AMZN) in trying to cash in on selling books online.
Along with selling books, music and videos, Borders Online will also offer a Net café chat room and listings of local author appearances to beef up its site.
Analysts agree that there's plenty of room for competition in the online book business. But the question remains whether Borders has joined the game too late.
"Amazon is two-and-a-half years down the learning curve. As of tomorrow, Borders will be a few hours down the learning curve," said Lise Buyer, an analyst at Deutsche Morgan Grenfell. "It's another option for book buyers, but we don't view [Borders] as a big competitive threat to Amazon. We see this as more of a defensive move than an offensive move."
Buyer also said Borders' core business, like Barnes and Noble, is in its physical retail outlets, and that will hamper its ability to get involved in discount pricing wars.
"They're restricted on price because they have to supply their land-based stores," Buyer said. "It's not in their best interest to undercut prices."
But Christopher Vroom, managing director at B.T. Alex Brown, believes that logic is faulty.
"Those are tech analysts who don't understand the income statements well," he said. "The cost structure differential across the three companies are similar. Borders pays 8 percent in rent. Amazon pays 7 percent for its Internet real estate. The cost structure for these companies is not important in dictating the pricing model."
In fact, Vroom noted, Borders will be able to use the Web site to leverage its core retail business.
"The site can be very important, especially as a form of indirect market research," he said. "Borders will know more about their customers than any other retail business."
Vroom predicts the online book retail industry will reach $4 billion in the next five years, which will represent about 15 percent of total U.S. book sales. He said which company will emerge on top may end up depending on the smallest details.
"The differentiating factor will be added value, whether that means speed, ease of use or even typing "a-m-a-z-o-n" instead of b-a-r-n-e-s-a-n-d-n-o-b-l-e," he said. "In the retail business, whether someone turns left or turns right can be the difference in success. So in online retail, keystrokes can matter as well."
Shares of Borders (BGP) finished down 3/4 at 32-7/16 at Thursday's close. 
-- by staff writer John Frederick Moore
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