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Technology Stocks : VarsityBooks.com (VSTY) -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (25)	8/21/2001 4:50:32 PM
From: Glenn Petersen	Respond to of 44

From Forbes.com: Adapt quickly or die. forbes.com A New Chapter For VarsityBooks.com Penelope Patsuris, Forbes.com, 08.21.01, 2:07 PM ET NEW YORK - Selling discounted college textbooks online should have been a gimme for VarsityBooks.com. After all, undergrads constantly complain about waiting on long lines at university bookstores to spend as much as $100 per tome. And college kids are plenty wired; most of them get online every day. They each spend an average of $390 a year on books, creating an industry worth $6.8 billion. But Varsity is tanking. For the second quarter the company reported a $954,000 loss on $887,000 in sales, off 61% from second-quarter 2000 revenue of $2.3 million. Its shares got booted off the Nasdaq in March and are now trading over the counter at 45 cents a pop. Not surprisingly, Varsity has abandoned its original plan to go head-to-head with college bookstores. What went wrong? The business that seemed like an e-commerce natural was in fact stymied by students' unwillingness to buy books long-distance through a third party. "Students are concerned about shipping charges and being able to return books when a class is dropped or canceled," says a spokeswoman for the National Association of College Stores (NACS). Another Varsity misstep was to underestimate the battle against well-endowed schools for the hearts and minds of their students. While only 6% of textbooks are now sold online, according to NACS, students who do shop online use a site that's affiliated with their college store. Indeed, 75% of students say they'd be willing to buy books online from a site run by their own college. "They'll shop online as long as they can walk to the store if they have a problem," says the NACS spokeswoman. Traditional textbook players recognized this early, which is why they're now this market's leaders. Players like privately held Follett ($1.4 billion in 2000 sales) have since stepped in to work with college bookstores to bring them online instead of working against them, and they've snapped up the lion's share of that business. Follett runs 681 physical college bookstores and has also partnered online with 1,000 campuses like Stanford, Notre Dame and Georgetown that pay a flat fee for the service. "Since we're already on campus, we can immediately update course and professor changes online," says a spokesman for the company. Efollett's books are shipped from their campus stores so students can return them easily. NACS itself created software licensed to 350 college bookstores that want to sell online. Recently that technology, which is used by schools including The Ohio State University, Cornell University and Boston College, was sold off to bookstore services company Sequoia Peripherals. Varsity also wants to team up online with college bookstores now, but the only dance partners left are small colleges, private high schools and vocational centers. These schools can't necessarily operate their own stores in cost-effective ways, so they have Varsity manage a store online instead. Varsity Chief Executive Eric Kuhn says that the switch in business model is why last quarter's sales dropped so steeply. Last year the dot-com was still marketing to lure students to its site to buy second-semester books. Since most of its new customers are private high schools, Kuhn expects that most of its sales will take place in the third quarter as they return to school and buy the year's books. Varsity has probably hit upon the right strategy, but it may be too late for the company to turn itself around with this new model. The tony New York City prep school The Dwight School is now one of Varsity's 90 partners. "If you think about all the steps in process [of ordering and distributing books], outsourcing the bookstore electronically becomes very attractive," says chancellor Stephen Spahn. Varsity has $16 million in cash but needs little capital for its new model. "Now we don't have to pay for marketing or discount the books to draw students," says Kuhn. "We post the schools' book lists and we know exactly how many people will buy a title, so we can stock inventory accordingly." Kuhn says he makes money on the books, but has yet to ask schools to pay a fee for Varsity's services. "Our expectation is that we will reach profitability in the third quarter," he adds. He admits that he has about 1,000 potential customers, which is a small customer base upon which to build a successful business. And even if Varsity does manage to get into the black before it burns its remaining funds, its success will clearly be a tiny one. The textbook purveyor has learned a textbook lesson: Adapt quickly or die.