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Issue 7.06 | June 1999
this article for free.
Barnes & Noble's Epiphany
The brick-and-mortar giant burned through $100 million online to get smacked by Amazon.com. So what does it do? Go public. And oh, yeah - reinvent the book.
By Warren St. John
PLUS The Textbook Case
Steve Riggio, a wiry guy with a wild nest of brown hair and a close-cropped beard, is sitting amidst the OfficeMax-like décor of Barnes & Noble Inc.'s lower Fifth Avenue headquarters in Manhattan, exhibiting the kind of cocky behavior the world has come to expect from the company that, for better or worse, reconfigured the book world. "No one is going to beat us at selling books - it just ain't gonna happen," says the creator of barnesandnoble.com, as if reciting an irrefutable mathematical certainty.
But there's an easy way to ruin the mood: mention Amazon.com.
The confident Riggio instantly turns sullen. He slumps in his chair, fiddles with his tie, and assumes an expression somewhere between despair and rage.
"This business has evolved rapidly and to a point that we did not see three years ago," he mumbles, recalling Barnes & Noble's first plans for the Web. "Clearly, we thought there was going to be room for us and Amazon."
Actually, he wasn't planning to share. Two and a half years ago, Riggio predicted that barnesandnoble.com would use its national brand identity, its superstores, and its network of publishers to make "a quantum leap beyond the current level of online bookselling." His brother Len Riggio, founder and CEO of Barnes & Noble Inc. and one of the most feared men in bookselling, boasted that barnesandnoble.com would "dominate the online book business."
"I don't see a bookless world," says Jonathan Bulkeley, barnesandnoble.com CEO. "But some people could get cut out of the food chain."
Instead, Amazon.com has mopped the floor with barnesandnoble.com. Amazon currently sells 75 percent of all books bought online; barnesandnoble.com, a pathetic 15 percent. The time-tested retail expertise of the Riggios is worth roughly $4 billion to investors, while still-unprofitable Amazon is valued by the market at close to $20 billion. If you imagine the competition as a digital version of the cola wars, barnesandnoble.com isn't even Pepsi - it's more like RC. This reality prompts brother Steve to make what for a Riggio is an unusually candid admission: "I would characterize our first year as a humbling experience."
The Riggios are accustomed to making other people feel humbled. The middle-class, Bronx-born sons of a semiprofessional boxer, they began their bookselling business with a single store and now boast 1,000-plus outlets that have squeezed countless independent booksellers into oblivion. But with the online retailing boom, the Riggios, like a lot of established retailers, have come to find the assumptions that ordered their lives totally inverted. Despite their announcing an initial public offering during the heat of the IPO orgy this spring, barnesandnoble.com has become a textbook case of near-disaster. The Riggios' situation has given rise to a new term for what happens when a conventional business gets coldcocked by an online competitor: "getting Amazoned."
The Riggios believe the postmortems are premature. Post-IPO, they are especially eager to prove they're no longer intimidated by the digital future. Their new strategy:planning for the time when books as we know them cease to exist. And the Riggios want a piece of what replaces them.
Because Amazon, the dread enemy, is expanding to sell everything from flowers to pharmaceuticals, some think a narrow concentration on the evolution of the book will be the brothers' salvation.
"One of the irrefutable laws of brands is, once you expand the brand, you lose the niche," says Scott Heiferman, CEO of the online marketing firm i-traffic. "As Amazon becomes the place to sell anything online, it presents an opportunity for barnesandnoble.com to own books."
Steve Riggio puts the company's strategy in even more sweeping terms: "We intend to be the dominant portal for the delivery of information."
Barnesandnoble.com's distribution center is a giant, low-slung sarcophagus in an area of New Jersey dotted with dozens of similar crypts full of consumer goods. Inside, the 300,000-square-foot warehouse is eerily quiet; the only motion is the steady stream of flat brown wafers - up to 25,000 boxes of books a day - that trundles along a serpentine roller conveyor from one end of the building to the other.
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