The way I look at it is that the future is more about etail than retail. Sure people will continue to pick up books at bookstores (at least for the next 25 years or so when ebooks and ebook downloads may make this distribution channel obsolete) but there will be very little growth in this category, and growth it is what excites investors.
Sure online bookselling is competitive hell, which is why BGP has been so slow out of the gate. It didn't want to hurt its margins. But now it must play catch-up because of the competitive threat. Problem is that its etail efforts threaten to cannibalize sales at the store channel. But you've got to compete so you offer it at list minus 10% at the store or list minus 30% online. Soon it will be list minus 70% online with no shipping costs but you will take delivery in bits into your ebook.
If you are selling a commodity at 1% more than the next guy in the new world of shopping bots, you are toast. In this kind of environment volume is king, because you can then command the best deals from the distributors. In this kind of environment you will probably be in trouble if you are just an online bookstore, because you will lose out on opportunities for cross-pollination and cross-subsidization with sales of other categories. Amazon knows this and has much bigger ambitions than simply to be an online bookseller.
The reason Amazon has targeted books, music and video first is that because these are information products, they have the greatest potential for electronic distribution. It is surprising that Amazon is not yet selling software. For this reason, I think they AMZN may yet prove vulnerable to others like buydirect.com (today bought by BYND) who have more experience with e-distribution channels. Note that @Home is a venture investor in buydirect and that a cable modem makes a download of a CD, book or software less than a one minute transaction.
Now this is far from Border's business model and I doubt if they will ever take the lead in the category of online booksales. Amazon is just the first of their worries there. Buy.com and a host of others will also be serious contenders. So the question to ask is what must Borders do to defend its turf and is this war winnable.
These are difficult questions with no easy answers. It will take strategic planning consulting engagements with McKinsey & Co to get the right strategy. I do not pretend to have the answers. Sure the stock is cheap, but the challenges are daunting. In the meantime, there's nothing wrong with offering a free cup of coffee to help get browsers into the stores. That's one strategy that Amazon can't touch! |
