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.
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.
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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.
In one corner, a small mountain of John Grisham's new novel The Testament awaits delivery to devotees around the world. Barnesandnoble.com's customers began to receive the book on its release date, without ever leaving home.
Clearly discernible on the seemingly endless conveyor is another side of online bookselling. Barely known book after barely known book – The Osmond Family Trivia Book, Miller's Antiques Checklist, High Converting Water Reactors – snakes back and forth inside the warehouse. You might not want these books, but somebody does – and online bookstores provide perhaps the only truly orderly way for the public to satisfy its niche interests.
But here's the rub. The current model of book distribution is highly inefficient. When you order a book from barnesandnoble.com on a PC, if it's one of the 750,000 titles on hand, a "picker" is summoned to pluck it from the shelf and to "induct" it into the delivery system. If it's not there, barnesandnoble.com has to search the inventories of its wholesalers, and then ship the book to the distribution center. If the wholesaler is in Nashville, a book might make the journey from Nashville to New Jersey, for example, before being sent back to a customer in Chattanooga.
The man who oversees barnesandnoble.com's distribution center is a boisterous Tennesseean named Tom Clarkson. Asked what he does when the system breaks down, Clarkson genuflects, looks toward the ceiling, and starts reciting the Lord's Prayer – a distribution joke.
If the Riggios are correct in their long-term strategy for barnesandnoble.com, such breakdowns will end, along with the paper, bindings, mailing envelopes, and barcode tracking systems that engender them. Instead of being printed on milled pulp and trucked to stores, the works of everyone from John Milton to Michael Crichton will be stored digitally, and as likely downloaded from the Internet onto personal computers and electronic books, or dashed off on home printers, in small, highly efficient print runs by high-speed presses, or on-demand right in the bookstore. In this vision of bookselling's future, trigonometry students won't have paper textbooks anymore; they'll access texts over the Web, paying perhaps by the chapter. The sales exec who has to cram a book about a potential client he's meeting the next day will just download the text onto an ebook, and read it on the red-eye. A journalism professor who needs 20 copies of an out-of-print collection of A. J. Liebling's essays will place an order over the Web to have the books printed and delivered overnight.
Amazon seemed to go against everything that worked for Barnes & Noble. There were no books to flip, no girls to ogle, no cappuccinos!
To capitalize on the Reader Revolution, barnesandnoble.com and the Riggios have to survive to see it – and that means overcoming three years' worth of grave errors.
Len Riggio began selling books near New York University in 1965 from a single bookstore, which he opened with $5,000. Six years later, the 30-year-old bought Barnes & Noble, then a single 100-year-old bookstore on lower Fifth Avenue. In 1974, Riggio opened a giant "Sales Annex" across the street and implemented what would be his signature sales ploy: deeply discounted best-sellers, which lured customers who would also buy lots of full-price titles.
Len Riggio is tempestuous, 5' 7", wears an anachronism of a mustache, and spits out quick jagged sentences in a comically stereotypical outer-borough accent. He likes to brag that he's "not tweedy." He never finished college and has said that if he were not a bookseller he would have opened a hardware store and become Home Depot. "I've always been an entrepreneur," he says. "It's just one of those talents I have."
In the mid-1980s, with a loan and $130 million in junk bond financing, he acquired the B. Dalton chain. It was soon after this time that he began to lay the groundwork for his greatest – some say his most dastardly – accomplishment, the superstore.
The superstore concept was driven by a simple notion: Independent bookstores were too small to be efficient. When their customers couldn't find the books they wanted, they often had to wait weeks for special orders. One solution was to assemble a warehouse full of books. But readers, who wanted to feel edified by their shopping experience, didn't want to shop in warehouses.
To remedy that problem, Riggio put sofas and coffee bars in his stores, transforming the cold warehouse into something more like a raucous college library – one part books and two parts social scene. Three-foot-tall portraits of Proust and Virginia Woolf broadcast the image that Barnes & Noble appreciated literary culture. The strategy not only attracted traditional readers but tapped a whole new market – those who purchase the 53 percent of American books sold through supermarkets, mail-order clubs, or large wholesalers like Wal-Mart.
The rapid expansion of Barnes & Noble superstores came at a severe price to the independents, and Len Riggio became identified as a kind of publishing Antichrist, a scorn he seems almost to court. By the mid-1990s Riggio was sitting masterfully atop the American publishing industry. His 25 percent interest in Barnes & Noble Inc. and his 90 percent ownership of Barnes & Noble College Bookstores, a separate company with locations on 300-plus college campuses, are reportedly worth in excess of $1 billion. (See "The Textbook Case," page 138.) He lives the life of modern mogul, with an apartment on Park Avenue, an expansive summer home in Bridgehampton, Long Island, an art collection, and, in the basement of Barnes & Noble's headquarters, a palatial wine cellar.
Despite his millions, Riggio maintains, "I've always been a little guy." But from his lofty vista, he couldn't see the shifting landscape below, or the little company that, in 1995, was on the verge of causing a huge upheaval in the bookselling business.
Amazon.com seemed to go against everything that worked so well for Barnes & Noble. Consumers, Riggio had shown, wanted to shop at "destinations" – large, comfortable places that felt like public squares. Ecommerce, by contrast, was about the absence of destinations. There were no books to flip through, no shelf-side serendipities, no cute girls or guys to ogle, no cappuccinos!
Riggio was used to the "hand-to-hand combat" of local battles, says Jay Farmer, an associate partner at Andersen Consulting who advises retailers on how to cope with the Web. Instant competition in every neighborhood in America, on the other hand, was more "like thermonuclear war – one bomb can take the whole game."
Len's younger brother Steve knew a little bit about the Internet: He had been a Delphi user for several years. And Steve Riggio, who had been working as a generalist and deputy to Len at Barnes & Noble and who often butted heads with his micromanaging brother, was ready to run his own show.
Steve Riggio had an epiphany: "It's better to cannibalize yourself than to be cannibalized."
Steve and Len Riggio couldn't be more different. While Len lives a high-profile lifestyle, Steve resides quietly in the New Jersey countryside and spends most of his spare time with his children. Where Len is a boisterous extrovert, Steve is taciturn and averse to confrontation. "Len is the tough one and he's an incredible negotiator," says designer Tibor Kalman, a family friend and former store consultant. "Steve is more intellectual and reads a lot of books."
In early 1996, nearly a year after Amazon was actually ringing up sales, Steve convinced Len that they should look into the Web. He assembled some of Barnes & Noble's younger, tech-oriented employees and got to work. But at first, Steve didn't think the Internet would be anything more than an innovative marketing tool for Barnes & Noble's brick-and-mortar stores. That complacency was reflected in his project's management. The staff met infrequently, and Daniel Palmer, one of the first to sign up for the new venture, remembers "people pasting stuff on a wall and talking about 'community' and 'online loyalty.' I kept saying, 'Where's the computer?'"
While the online staff was engaging in high-minded colloquia, Amazon.com was selling books. Moreover, Amazon was doing electronically what Len Riggio had done in his superstores: making a vast and potentially alienating landscape feel comfortable. Jeff Bezos's Seattle start-up scanned book covers and posted them on the site, and encouraged customers to post their own reviews, creating the feel of a vibrant fellowship of readers.
The Riggios soon confronted the true dilemma: They needed to sell books online, but an online business could potentially cannibalize the margins of the company's offline core. Those stores were located in prime real estate, and they depended on high volume to turn a profit. Ultimately, Steve had an epiphany that one barnesandnoble.com employee put this way: "It's better to cannibalize yourself than to be cannibalized."
To hear Steve tell it, Len quickly endorsed his ecommerce plan. "From Day One," Steve says, "he was on board not just with the vision thing but with the company mandate that the venture had to be funded." The brothers were energized. They had no doubt that once they went online, they'd crush the rubes at Amazon. "There was a definite idea that strategically we could defeat Amazon because of our distribution, and, with the deep pockets of Barnes & Noble, that we could outlast them and outdiscount them," says one barnesandnoble.com employee.
Steve Riggio felt confident that he could develop Barnes & Noble's Web strategy himself. He contrived a rollout plan for his online operation that was remarkably akin to the one his brother had used for the superstores. Len had opened them up serially. Steve decided to debut barnesandnoble.com in the smaller, more controlled realm of America Online before going live on the broader world of the Web, and he cut a deal with AOL to be its exclusive book retailer.
Steve also made the decision to build barnesandnoble.com around the brick-and-mortar brand. Leveraging the existing brand online seemed to him and his designer, Roger Black, a print veteran who had repurposed himself as digital design impresario, more sensible than trying to create a new and potentially hipper brand from scratch. It also laid the foundation for cross-promotions between the stores and the site.
But barnesandnoble.com's early design was woefully lacking. Unlike Amazon, it provided no way for readers to post reviews. The clickthrough paths were sloppy, and there were doubts among some working on the project that the company was prepared to handle the many customer-service issues that would present themselves when the site went up.
There was another, potentially larger problem. Amazon was deeply discounting its books, eschewing profits for "eyeballs" in order to build its brand – the very same trick Barnes & Noble had implemented in the mid-1970s. Steve knew he needed to match those discounts, and thought about using the superstore network to drive customers to the site, thereby gaining an edge on Amazon in traffic. But most states' laws would require these customers to pay sales tax, even for books ordered online. Amazon's customers paid sales tax only in Washington and Nevada, where the company's headquarters and warehouses were located. Steve faced a choice: Use the superstores' marketing muscle and charge sales tax, but discount the books even further to match Amazon's end prices; or forgo using the superstores entirely, and save a bit of the margin on each book sold.
Riggio chose the latter path, ceding what may have been his principal asset in the war with Amazon. Barnesandnoble.com's marketing department had to scrap the innovative online strategies it was planning – selling gift certificates redeemable in stores, placing search terminals in the stores, and allowing online customers to return books at their local Barnes & Noble.
By the end of '98, the Riggios had spent roughly $100 million online. "They had a heap of money to blow, and they were blowing it."
"It's a missed opportunity," says James McQuivey, a senior analyst at Forrester Research. "Amazon got all the attention because they were first – that's hard to fight if you don't push the cross-promotional possibilities between your physical stores and online."
Two days before the AOL launch, the project managers met with their outside tech consultant, and employees voted one by one in favor of opening the virtual doors. The consultant, however, gave an emphatic thumbs-down. Even in the relative confines of AOL, he said, the site simply wasn't prepared to handle the traffic and orders. Steve Riggio discounted that advice, and on March 18, 1997, barnesandnoble.com went live.
Ironically, the separation from the superstores couldn't force Riggio to commit his energies fully to the new medium. Even after barnesandnoble.com was actually going head-to-head with Amazon.com, Steve wasn't a daily presence in the new venture's offices. "If you are trying to significantly compete against your archenemy," asks one executive, "do you think it's smart to have the chairman treating it as a part-time job?"
"I was a part-time executive," concedes Riggio, who still had duties to perform for Barnes & Noble Inc. "I was running two companies at the same time."
When Steve was around, he sometimes baffled people with his concern for the most minute details of the site, at the expense of desperately needed broader strategy. "He would say, 'We need to get this book on the site,' or, 'There is a word misspelled,'" recalls a former barnesandnoble.com employee.
Then in May 1997, the Riggios lashed out at Amazon with that most traditional of competitive weapons: the lawsuit. Barnes & Noble Inc., which calls itself the "World's largest bookseller," sued Amazon for claiming it was "Earth's biggest bookstore." Amazon countersued. The case was settled that fall with the slogans intact, but it reinforced the view of Barnes & Noble as an old, tired, unhip giant – exactly the wrong image to project to the burgeoning Web audience. "Suing Amazon," one dismayed barnesandnoble.com employee says, "just wasn't cool."
In July, another bit of misfortune befell the Riggios. Their exclusive arrangement with America Online eroded when the service provider struck a deal that made Amazon.com its sole bookseller on the public AOL.com. (Barnes & Noble continued to be the only bookseller within AOL's proprietary Marketplace.)
Come winter, Steve Riggio began to have a crisis of confidence. With his measly market share, he had little choice but to secure – and try to expand – key portal space at any price: The Riggios paid a whopping $40 million to continue being AOL's bookseller for the next four years. "They started feeling they weren't hip enough," says Roger Black. "Riggio then started watching the enormous run-up of the Internet stocks and looking at his own market cap, and the astonishing success of Amazon swayed him that he was doing the wrong thing."
It dawned on Steve that he needed someone with a strong tech background, and in December he hired Jeff Killeen – a former president of Pacific Bell Interactive Media – as his chief operating officer. Together they hired a new design company to help them reconceive the site. Killeen also began to address a growing morale problem, one exacerbated when sales figures for the just-concluded Christmas season came in. From news reports, Riggio's team learned that Amazon had sold upwards of $20 million; barnesandnoble.com's take: a disappointing $5.6 million. If barnesandnoble.com hoped to compete with Amazon, Killeen needed a staff of raving, start-up-minded maniacs.
In early 1998, the COO called a series of all-hands meetings at barnesandnoble.com's new headquarters on the 11th floor of the Port Authority building on Manhattan's West Side.
You're not just here to sell books, Killeen told his troops, gathered around the sealed glass room that contains barnesandnoble.com's thrumming and blinking servers. You're here to annihilate the competition, to kill it dead! He went further, imploring staffers to think of themselves as Hercules, not just because Hercules was a model of fortitude, but because he was something else – the killer of Amazon women. Some women in attendance took offense. And some others thought Killeen's speech was the hokiest claptrap they'd ever heard. But most of the staff responded. They wanted to be maniacs!
"I'm not going to greet everyone at the site, 'Hey, Bill, welcome,'" says Bulkeley. "But that's the challenge – if you get big, can you act small?"
If barnesandnoble.com’s employees had once ignored Amazon, under Killeen’s leadership they became consumed by it. Some staffers were assigned to monitor Amazon's site to see which books were being promoted and what design changes had taken place overnight. Killeen stopped using the word "Amazon," and instead insisted that the company be referred to as "Brand X." He began his mornings by ordering a book from Amazon, then turning around and ordering the same book from barnesandnoble.com, comparing clickstreams, delivery time, and ambience. Before going home in the evening, he repeated the procedure.
Yet this new period of intense competitiveness was arguably more damaging than the earlier inattentiveness. Instead of trying to leapfrog Amazon, Killeen's crew obsessively tried to copy it.
"Once you try to emulate," observes Regis McKenna, chair of Palo Alto-based marketing firm the McKenna Group, "you're de facto no longer a leader."
The company debuted its Killeen-supervised makeover in May 1998. The redesign incorporated a number of technological advances – it had a cleaner look and more efficient clickthrough paths, and would soon accommodate reviews from readers. But the site failed to differentiate itself from its primary competitor – a failure that persists to this day.
And, by the end of 1998, the Riggios had thrown roughly $100 million at the online operation. "They had a heap of money to blow, and they were blowing it," says one gleeful beneficiary of their largesse.
That money was coming out of Barnes & Noble Inc.'s bottom line. The situation was now becoming dire. There was a chance the Riggios' unprofitable business could shave enough off the margins of the profitable company to harm them both.
There was a solution, though: barnesandnoble.com could be spun off as a separate company, and the Riggios could raise capital by taking it public or by partnering with another firm. Each choice carried disadvantages. Partnering seemed anathema to Len Riggio, a hardhead who liked to run the show. And an IPO for a company so clearly struggling was inherently risky.
But there was at least one man out there in the wide world who could appreciate the Riggios' bind: Thomas Middelhoff, the 46-year-old CEO and chair of Bertelsmann AG.
In its 164 years, the German corporation had grown into the world's third-largest media company through acquisitions of such American brand names as Doubleday, Dell, Bantam, and, most recently, Random House. But Bertelsmann had actually made its fortune through direct-mail book clubs. Middelhoff, a forward-looking executive who took the helm of the company as CEO-elect in mid-1997, saw great promise in the Web and oversaw the development of Bertelsmann's own online retailing site, bol.com.
But by the beginning of '98 a planned American-based version of the service was fast becoming a sinkhole. So Middelhoff had unleashed a pack of deal hounds to see if there might be some way to partner with a better-established online bookseller. Amazon was an obvious choice. But Middelhoff engaged barnesandnoble.com in talks as well.
Bezos was responsive to the idea of a Bertelsmann investment. But Amazon at the time looked expensive; it had a market cap around $1 billion – one-twentieth of its current valuation. As Bertelsmann thought it over, Amazon got more expensive by the day.
Barnesandnoble.com, by contrast, was cheap and eager. Len bigfooted in past his brother to take over negotiations with Bertelsmann.
However, Middelhoff was continuing negotiations with Amazon. In June, he tracked down Bezos, who was vacationing in Turkey, and sent a plane to pick him up and shuttle him to the company's Gütersloh, Germany, headquarters for more talks. The conversation seemed promising. But soon after, all hell broke loose. On June 10, Amazon announced that it would sell music on its site, and the company's shares nearly doubled.
That sudden spike was the greatest stroke of luck to come the way of the Riggios in years. Len and Middelhoff soon met in New York. Bertelsmann was interested in an equal partnership, not a minority stake, and ultimately Riggio acceded to forming a separate company as a joint venture.
He had plenty of incentive; Bertelsmann was willing to pay $200 million for a half-interest in a company the Riggios had spent just $100 million on. And Bertelsmann was eager to put cash in the company. In October Barnes & Noble and Bertelsmann agreed to invest an additional $100 million each in barnesandnoble.com.
Equally important, the company got a new CEO. Steve Riggio stepped aside at the end of 1998 to make way for an executive with substantial online marketing experience – Jonathan Bulkeley, the former head of AOL UK. New York tabloids gossiped that Steve had been demoted. He angrily describes the characterization as "just dead fucking wrong." One Bertelsmann executive says that throughout the talks between Middelhoff and Len Riggio, it was a given that Steve "was an interim CEO."
Bulkeley is a kind of anti-Riggio. Unlike Steve, his job from the get-go has been to increase the shareholder value of his company independent of its impact on Barnes & Noble's brick-and-mortar stores. Bulkeley is a tall, shiny-headed Hartford WASP with an easygoing attitude, who hangs with a crowd of information-age impresarios. He went to Yale, worked for Time Warner, and was hired as the 162nd employee at America Online. As managing director of AOL UK, he helped the company become the continent's largest service provider.
Although Bulkeley developed a reputation as a supermellow exec in Europe, he can't afford the casual approach at barnesandnoble.com. On the heels of the IPO, he has to see that his Amazon-obsessed staff starts to think for itself, to create a brand that is more easily distinguished from Amazon.com. His first step: removing, in late February, Steve Riggio's handpicked COO and chief Amazon watcher, Jeff Killeen.
"I don't think the site has a distinct personality right now," Bulkeley said recently. "I'm not saying every time someone walks into our Web site I'm going to be saying, 'Hey, Bill, welcome.' But that's the challenge – if you get big, can you act small?"
There's little chance that barnesandnoble.com will ever get big enough, of course, unless Bulkeley can find his way onto a new strategy that markedly differentiates it from its competition. With the blessing of the Riggios and Middelhoff, Bulkeley is betting the company on a not-unreasonable hunch that within the next three to five years, electronic distribution of books will begin to displace conventional distribution.
Bulkeley likes to introduce the subject with a rhetorical question that goes to heart of his company's survivability. "What is a book?" he asks. "It's just data. And what does the Internet do best but distribute data?"
The analysis may seem hopelessly jejune, not least because digital distribution of books has already begun. The site etext.net offers more than 3,000 public-domain titles for a nominal fee. There are a growing number of "instant publishers" that bypass traditional presses and put authors straight on virtual shelves. Textbook publisher Prentice-Hall has established an online component for every textbook it publishes. Titles like Philip Kotler's Marketing Management, the best-selling textbook, come with a videocassette or computer disk shrink-wrapped with the printed volume – a DIY multimedia kit ideally much better suited for the Web.
Publishers "can't wait until they go electronic," says Albert Greco, a Fordham University business professor who studies book retailing. "By going electronic they can change the text instantly. Their cost of doing business will disappear because there's nothing to print."
If books exist as stored data, then no work will ever go out of print. Whenever a demand arises for a particular title, a book can quickly be dashed off electronically or in a small but still cost-efficient print run. Returns, the bane of the business, would cease to exist. Inventory, a damaging cost, wouldn't have to be warehoused. The dependence on assured, multimillion-copy best-sellers by already established authors, a residue of the superstore phenomenon ushered in by the Riggios, would diminish.
"The economics of it now are that if you print less than 1,500 copies of a book, it doesn't make sense," says Morgan Entrekin, president and publisher of New York-based imprint Grove/Atlantic. "For some books, that might be six years' stock. Print-on-demand is going to enable small books to stay in print."
Barnes & Noble has already begun to place bets on this eventuality. So far, it has invested in the Rocket eBook, and barnesandnoble.com sells a growing list of titles that can be downloaded and stored on the device or the desktop. And with the impending $600 million acquisition of Ingram Book Group, one of the nation's largest wholesalers, Barnes & Noble also gets Ingram's print-on-demand division, Lightning Print, which already has agreements with more than 100 publishers to instant-publish their books.
There are, of course, several substantial hurdles to the electronic distribution of books. First, publishers have to deal with technological issues of finding a standard format for their digital texts. And they're reluctant to digitize their stocks when electronic information can be so easily pirated and copied. On the demand side, electronic distribution is not yet entirely efficient. After you choose an ebook on barnesandnoble.com, you must wait from five minutes to three hours to be emailed a link to the actual download site. The Rocket eBook itself retails for around $500, and the pricing of each download ranges from $5 to $25, with some publishers initially charging the hardcover rate. Even a free copy of Moby Dick downloaded from the Web could cost as much as the $4.95 paperback if printed out on a home printer. But the biggest question – whether consumers would be willing to access book-length texts online – was answered last November when the public clicked up Kenneth Starr's infamous report to Congress.
"The market isn't quite ready to buy into electronic distribution," Greco says. "But it will."
As the shift to digital occurs, the challenge facing Bulkeley and barnesandnoble.com – and in fact everyone involved in the book business – is anticipating how their roles in the process will change. While it's unlikely that agents or publishers or bookstores will disappear, they will almost certainly find the hierarchy between the writer and the consumer collapsing, and the once-separate tiers in the process will increasingly compete with each other. "I don't see a bookless world anytime soon," Bulkeley says, "but some people could get cut out of the food chain."
If there has been a maturation at barnesandnoble.com over the last six months, it is evident in Bulkeley's awareness and indeed obsession with the ways technology is changing the model of book retailing. Where Barnes & Noble not so long ago ignored the Internet, it now operates on the assumption that the Internet is the driving force of change in bookselling. Steve Riggio is once again certain – that is, absolutely positive – that barnesandnoble.com's futuristic vision will propel the company past Amazon.com.
"Our core business was college bookselling, and we began with a single store. We're in the wholesale textbook business; we were the number-five player when we began that. The superstore business? When we began, Waldenbooks was the largest bookseller in America," Riggio says. "It just so happens that we've emerged as number one in all those categories."
But what may be good for barnesandnoble.com could be bad, if not devastating, for the company's parent, Barnes & Noble Inc. That's because, according to Fordham's Greco, the market for books is barely expanding. Greco has undertaken a five-year statistical outlook on the book industry, and although final results will not be published until summer, his preliminary findings show that business will expand only enough to keep up with inflation. "We're not going to have significantly more books sold," Greco says. The growth of online retailers, in other words, "is going to be a cannibalization" of brick-and-mortar stores.
So while Bulkeley works hard to catch up with Amazon, Len Riggio has to rethink the role of his bricks and mortar in an increasingly electronic world. Though he's vague on specifics, that process may entail a complete redesign of the Barnes & Noble superstore. "We have our sketchpads out," Riggio says, "and we're beginning to outline the drawing."
Indeed, while his younger brother seems content to make bold predictions, Len Riggio – a man who once prided himself on his company's ability to vanquish competitors – now has more modest goals. "At this point in time anyone who has a strategy that requires them 'winning it' is somewhat delusional," he says. "A much more appropriate strategy would be making it."PLUS The Textbook Case Go Back to Top. Skip To: Start of Article.