From Gary Korn:
2/1/98 Searcher 12
1998 WL 10425782
Searcher
COPYRIGHT 1998 Information Today, Inc.
Sunday, February 1, 1998
Vol. 6, No. 2, ISSN: 1070-4795
Joining forces: unlikely bedfellows and shotgun marriages.(Barnes &
Noble signs
up partners to challenge Amazon.com as premier book seller on Internet)
Stephen E. Arnold Erik S. Arnold
Bookstores -- especially locally-owned and small bookstores -- reacted
vociferously this summer to the strategic relationship formed between
The New York Times and Barnes & Noble, the Wal*Mart of mega-bookstores
cum latte. Small booksellers snarled into television microphones, "We
will not provide sales data to The New York Times Company for them to
build a best-sellers list and then send people to the Barnes & Noble
Web site to buy best sellers."
What? Bookstores refusing to play ball with the gray lady of U.S.
journalism? The new service seems harmless enough. A visitor to the
Times' Web site (http://www.nyt.com) can click on the book link, browse
the book reviews section, and peruse the best-seller list. Another
click and a http:Hwww.nyt.com customer can order the book online -- no
schlepping down to the local bookstore. The orders go directly to
Barnes & Noble's Web site (http://www.barne-sandnoble.com/). The New
York Times takes a tiny step toward serious electronic commerce without
much risk. Barnes & Noble has thrown a digital karate punch at
Amazon.com, serious upstart and Internet competitor.
Amazon.com, of course, skipped the store front and biscotti jar and
zipped directly to the Web. Though not the first Internet bookstore,
Amazon.com became the first to snag media attention and paying
customers. Within months of its launch about a year ago, it became one
of the touchstones for electronic commerce. What got the attention of
Barnes and Noble? Hard to say. But Barnes and Noble wants to assert
itself in cyberspace, so strategic partnerships and a splashy Web site
became part of the firm's strategy. Like most big companies, one
excellent way to fight an innovative newcomer is with the "me too"
approach. Amazon.com locked up America Online, Excite, and Yahoo! as
partners. Barnes and Noble could play the same game. Start a Web site
and get some "better" partners. Barnes and Noble wooed The New York
Times and Web-indexer Lycos. At presstime, we heard that Barnes and
Noble had paid America Online (AOL) $40 million to become its exclusive
bookseller, shutting out Amazon.com and other major book outlets. The
deal locks up AOL for four years and expands its advertisements into
new sections and to international versions of the service.
Why did Barnes & Noble engineer these deals? For the following
reasons:
* Traffic. Barnes and Noble executives hope sales on its rather
new-ish Web site will soar with hyperlinks from The New York Times and
Lycos. If Barnes and Noble' strategy proves them to be exceptional
marketers, Amazon.com's sales will plummet.
* Publicity. The deal itself made news in print, electronic, and
broadcast sources.
* Image. Barnes and Noble connects to the intellectual establishment.
Few would argue the journalistic weight of The New York Times.
What does the Times get? Its benefits may include:
* Money. Backlinks -- that is, hyper-links that send a surfer to
another site -- can be worth dollars. The Times gets a commission on
every book one of its subscribers buys from Barnes and Noble.
* Knowledge. The Times learns lessons in emmerce first-hand and
without much risk.
* Visibility. The Times' electronic publishing group gets headlines
and not just in its own newspaper. Pretty soon everyone will know that
the Times is hip.
And what about the locally-owned or mom-and-pop bookstores? Books are
not big sellers like broadcast television shows, cable television,
recorded music, newspapers, or magazines. Publishers crank out more
than 58,000 titles a year in the United States. The amount of time
spent with books has remained flat. Americans like to watch television
-- "cool media," to use a Marshall McLuhan term. Books are hot. They
require time and mental effort. ("Cool" is "hot"; "hot" is not.)
Trampled Underfoot
Buyers of books are affluent. Enough of them use online services and
the Internet to make a site like Amazon.com a hot property. In
cyberspace, the battle rages for access to this market space and the
book orders placed in the digital arena. The gladiators are companies
that have a stake in this new commercial environment. The old elephant
is Barnes and Noble. The new elephant is Amazon.com. There is an
African saying that goes, "When elephants fight, only the grass gets
trampled." Owners of small bookstores have concluded they are grass and
they don't like it.
For decades, Times-selected local and regional bookstores have
provided information each week to the newspaper about book sales.
Times' staff use the figures to compile the list of best-selling books
printed each week in The New York Times' influential book review
section. The list helps small bookstores draw traffic to their shops.
Best sellers are rarely discounted at independent, small bookstores.
Big is good, particularly when ordering tangible items like books from
publishers. The small bookstores do not get the discounts that big
chains like Barnes and Noble, Borders, Books a Million, or Crown
receive. The independent bookstores depend on the substantial revenue
coming from customers who buy best sellers at list price. Losing these
sales could drive some book stores out of business.
So the booksellers cried "foul." Some threatened to stop providing
sales data to the Times. Why help the Times Web site user buy a book
from Barnes and Noble? In the world of big deals and partnerships, more
is at stake than a lost sale here or a lost sale there. Facing
Web-based regional and national competition could tip a mom-and-pop
operation into red ink.
There's another side to the matter. The independents know (and it
must gall them) that their courage in stocking "good books" -- the kind
that get reviewed in The New York Times' Book Review section -- and the
statistics on sales that they contribute to the Times give the list a
lot of its effectiveness and prestige. The original intent of the
bestseller list from the Times focused on the top books sold in the
best bookstores in 25 key areas in the country to the "best people."
You know the kind of books we mean -- small type and big thoughts. But
times have changed. James Twitchell, a professor at the University of
Florida in Gainesville, calls the trend the "carnival culture."
Everything is a midway with shills out front and trash inside. Already
the Times Web site has announced its own expansion of the best-seller
list to 30 items. Maybe the decision grew out of a concern over the
loss of quality titles if the independents pulled out their statistics.
Maybe. But maybe the money men decided that now that they get a
commission on sales, why limit it to 10 titles? Why not 30? Hey! Why
not 1000? (Thank heaven the New York Review of Books keeps plugging
away!)
At this point, smaller booksellers have begun banding together to
start their own best-seller lists. The American Booksellers Association
has announced that they have a new technology under investigation that
would let them produce a rival list. And, of course, they would
probably publish it on the Web!
Rules of the Deal
If we step back from this pair of strategic relationships, we can see
some characteristics of deals that make headlines, irritate
competitors, and threaten different operations buried in the commercial
food chain. First, Barnes and Noble is using strategic relationships to
fight a newcomer in the electronic marketplace. Amazon.com figured out
how to use backlinks to stimulate orders. Orders placed online do not
go over the faux wood counters in Barnes and Noble mega-stores.
Second, Barnes and Noble is fighting back by cutting deals with
partners who have more clout than Amazon.com's partners. No doubt about
this fact: The Times' book review section has a weightier reputation
among the readers of the books above 51st Street and east of Madison
than Excite does. This may be a niggling point, but it is unclear if
Internet users value the Times' book reviews as much as Barnes and
Noble does.
Third, Barnes and Noble may have to sweeten the deal with its
partners in order to preempt Amazon.com or other booksellers and get
the backlinks up rapidly. Money motivates prestigious organizations to
act. Deals like this occur everywhere, and they share some common
characteristics. One party must feel a strong desire to make some pain
go away, enough to approach another organization. Despite the fancy
lingo, getting a "relationship" underway is almost as painful as
walking across the gymnasium to ask someone to dance as one's friends
watch laughing and giggling -- sweaty hands and lifelong nightmares.
Motivation for most of these deals involves a changing market reality
that caught one partner napping at the keyboard. Alliances are not
altruistic.
Second, both parties have to get something, but one party, often the
one with the most at risk, must give something up. Barnes and Noble is
probably giving money or some other consideration to its partners. In
public the partnership may seem to have no strings attached. Behind the
curtain, a sticky spider's web of requirements often quivers in the hot
breaths of the new partners. Rarely does the public see numbers on the
money involved, such as the $40 million payment Barnes and Noble made
to AOL. Finally, the deal must do something -- something as basic as
sending a message to Wall Street via the media or as complex as
actually generating revenue. Outsiders rarely know the motivations,
triggers, or details of the deals that the information industry spawns
like violent thunderstorms.
Everyone wants to partner. It is a logical extension of Faith
Popcorn's now legendary "nesting" instinct among aging Baby Boomers.
Many alliances look like a drowning person's final thrashes --
alliances positioned to save a failing company. Other linkages aim at a
perceived competitor. Reed-Elsevier's deal with Microsoft Corp. pivoted
on LEXIS-NEXIS' hunch that Microsoft's Active Desktop and integrated
Office software suite would form a rock-solid platform to attack
vertical markets (attorneys and bankers, for instance). The table below
summarizes selected partnerships in the traditional and electronic
publishing industry:
Strategy Example Comment
Defensive wagon Dow Jones, World Reporter database.
train number of Financial Times, Liaisons provide a
and Knight-Ridder psychological benefits.
Difficult to determine
if the strategy produces
significant revenue
opportunities.
Offensive quick Reed Elsevier Fast, strategic moves can
move leave the competition
flat-footed. Even if the
"partnership" does not
produce significant revenue,
a competitor has one avenue
of attack partially blocked.
Brand identity Ebsco Traditional "library"
information companies
need to create a brand
awareness outside of
their traditional market.
Example: Collectanea
Replacement Newsnet The company announced that
revenue it was moving portions of
its service to the Internet.
The firm shut its doors at
the end of August 1997.
The outcome may shed some
light on the effectiveness
of this "strategy."
Supplemental Information Access A unit of Thomson, IAC has
revenue Co. two for-fee sites. These
provide for-fee services to
the company's core markets.
Franchise SBC, US West, The Baby Bells are extending
extension Ameritech, and their "franchise" with a
Bell South compilation of up-to-date
telephone numbers.
Thrust, feint, Excite, Lycos, These services are moving
and parry Infoseek fast and adding new
features to keep their
sites fresh. These me-too
companies are becoming
more like America Online.
Incremental Microsoft Microsoft moves rapidly
momentum in specific "jumps." The
company is carrying the
Active Desktop toward
content delivery from
established publishers,
start-ups
Hottest Individual, Inc., These aggregators are
technology Wired moving to provide
for PR impact for-free customized
services. Filtering
and other advanced text
technologies hold
off the "free news
services."
Information Oracle, Netscape, The companies "partner"
transfer Sun Microsystems in order to exchange
information about technology
and perceived threats to
their core businesses.
May lead to financial deal;
e.g., Oracle's investment
in Navio, a Netscape
subsidiary.
Customer SIRSI and other Customer listings;
publicity library system e.g., sirsi.
companies com/Profres/sites.html.
Content McGraw-Hill, Sites are corollaries of
extension John Wiley, print models. Provide a
other traditional presence on the Web.
"print" publishers Intranet applications
for writers and service
providers.
Attack from Tibco/Yahoo! stock Low-profile technology
within on a high-profile site.
Tibco, a unit of Reuters,
adds value to otherwise
"flat" or commoditized
information.
What Happens When "Power Houses" Connect?
In December 1996, three blue-chip information companies -- Dow Jones
& Co., Knight-Ridder Information (now Dialog Corporation), and the
Financial Times -- announced a cooperative online project, the World
Reporter database service. Each of the three power houses contributes
stories about international business to a common data center managed by
the Financial Times. Each partner can brand, package, and price the
database to meet the needs of its customers. Financial details of the
"relationship" have not been disclosed, nor has the service commanded
headlines in the potent media properties these "friends" control.
Is a "relationship" like the one from three of the most powerful news
companies unusual? The answer is a resounding, "No!" One of the
interesting characteristics of "strategic relationships" lies in the
powerful magnetic attraction they can have for executives with money,
egos, and power -- Messrs. Gates (Microsoft) and Malone (TCI), Ellison
(Oracle) and McNealy (Sun Microsystems), Levin & Turner (Time Warner),
etc.
Relationships among industry heavyweights make life difficult for
rivals, large and small. The lust for economic growth has blinded the
various governmental entities charged with keeping markets reasonably
open and nonmonopolistic. A wise information professional may wish to
make a mental note that "strategic alliances" ideally will create a
substantial advantage for one of the partners; otherwise, why do the
deal?
More importantly, everyone wants to ride the economic gravy train.
Big engines go fast and pull long lines of freight. Smaller companies
sometimes benefit from mega-alliances. When folks get too big they
sometimes have trouble bending over to see an untied shoelace. Smaller
organizations can use their agility to exploit the gaps between the
cars on the long-haul train.
Strategic partnerships are not confined to companies. Companies can
partner with individuals, worker "drones," once below the sight line.
Microsoft has created a new position to manage "developer relations. "
The idea is to form "relationships" with promising programmers so that
Microsoft's approach to programming can influence the applications
these individuals create.
Not surprisingly, alliances often prove fragile. They can reach a
breaking point when one or more of the partners believes that group
actions will harm its proprietary interests. "Strategic relationships"
sometimes have quite a bit in common with arranged marriages or people
thrown together in a bomb shelter during an enemy attack. An outside
"force" overcomes natural inhibitions and the parties find strength and
reassurance in numbers. Partners bolt when they feel threatened or lose
control. Keeping an alliance is as difficult as making one.
"Partnerships" may not spit out progeny every nine months. Handled
correctly, they can make 1 + 1 = 3.
Time and Tide
Until recently, the traditional information industry has been
comparatively "open," even collegial. In the early 1970s, only other
propeller heads wandering the fringes of interactive computing even
knew what a machine-readable file was. In the Online Stone Age, many
databases had no direct competition: for example, Chemical Abstracts,
Investext, ERIC, ABI/INFORM, and others.
In today's apparently fertile economic environment, competitors have
become like miasmata of different hues. They appear; do damage;
disappear; and defy the remedies of witch doctors consulted by the
afflicted. However, business life can be quite cruel in the midst of a
robust economy. Robust performances in the U.K. and the United States
put happy smiles on brokers' faces.
While the marketplace's air raid signals howl, some firms still
choose not to hear. These organizations have been left behind to die or
struggle along on the scraps the war dogs ignore. Examples of these
types of firms abound, particularly in the traditional library market.
In traditional publishing, the Encyclopedia Britannica stands as a mute
reminder of what happens when the Microsoft stallion pulls an Encarta
into the market. Publishers look at the Britannica as the remnant of a
once-strong media franchise. NewsNet fell, fatally wounded by the very
publishers who nurtured the company since 1982. Former wunderkind like
Internet Service Provider BosNet collapsed in a puff of bits, pressured
by technology, customers, and competitors with no strategic partner to
protect them.
Not surprisingly, customers can rebel, using the new technology and
deciding to form their own digital liaisons across town or around the
world. Tools from Firefly, Netscape, Lotus, etc., allow individual
consumer organizations to form "relationships" that can last moments or
months. Anyone can aggregate information from several sources and
provide a value-added service inside of an organization. Sometimes the
"information catalyst" is not the librarian or designated knowledge
officer.
College professors, primary publishers, government agencies, trade
associations become the new competitors. Database companies form
partnerships with customers. Dialog -- by whatever name -- supported
many consulting companies that spent big money for their databases. In
a flash, the customer/partner becomes a competitor. Gartner Group's
atvantage.com Web site offers information and discussion
threads for free and for paying customers. The Gartner Group out
dialogues Dialog.
Warning lights are flashing even in these cornucopia times of strong
economic performance: unabated interest in remote access to electronic
information and rapid-fire innovation in computers, software, database,
and related technology.
Small information companies -- often the ones closest to the heart
and soul of information professionals schooled in indexing, cataloging,
and research -- will likely have a difficult time. One's instinct is to
discount the "problems" as anomalies. The new reality is that
"strategic relationships" are going to become the tool of the largest
organizations. These organizations will take the steps necessary to
keep their economic engines churning and the cash flowing.
In summary, strategic deals show the importance of visibility and
access to deep pockets in today's market. Small information companies,
in fact, all information companies and all information entrepreneurs in
libraries or out, should realize that in order to grow they must make
their products more accessible to a larger audience. That means
providing better interfaces and reducing costs. Just look at the
Encarta example. You can still sell one or two Encyclopedia Britannica,
but a company dominates by having low-cost, easy-to-use information.
Right now you can buy a low media CD-ROM of Encarta for less than $50,
but if you move up to the one priced at over $100, you get more video
clips, more multimedia, seamless links to live updates on MSN. In
Microsoft's Internet Explorer 4 environment, you can click to Encarta's
dinosaur coverage and maybe see an ad for the latest Jurassic Park
sequel. If you do, figure that the movie company paid Microsoft for
your eyeballs.
This is a completely different model from the past. The information
industry is very close to becoming a "media" industry. Information
professionals must think of themselves in those terms if they want to
survive or show increasing, not flat, sales growth. LEXIS-NEXIS,
Microsoft, The New York Times, Barnes & Noble, Bloomberg -- each is
becoming its own television channel. Yahoo! is no longer an index; it
is a full-service information resource, complete with Tibco-generated
stock quotes and hot links to current business news. These examples all
demonstrate 'traditional' information companies attempting to make the
leap into media.
Media is not easy because there are no subscription fees or "hit"
charge fees running $5 to $20 and more per item. Revenue must come from
generating traffic and selling products or services. The products may
include some information, but the real sale may become the users with
resources to pay. And when we speak of users, we include the users
behind the screen, the OPM (Other People's Money) benefactors who keep
the Web seeming free -- corporations for employees, universities for
students and faculty, trade and professional associations for members,
governments for taxpayers, etc. These larger organizations will pay
information companies that can deliver the eyeballs they serve, just as
other vendors will pay for eyeballs they can sell to.
A new economic model fuels the engines of strategic alliances and the
future of information professionals everywhere.
TABULAR OR GRAPHIC MATERIAL SET FORTH IN THIS DOCUMENT IS NOT
DISPLAYABLE
table illustration
---- INDEX REFERENCES ----
COMPANY (TICKER): Barnes & Noble Inc.; Amazon.com Inc. (BKS AMZN)
ORGANIZATION: BARNES AND NOBLE INC. AMAZON.COM INC.
KEY WORDS: BOOKSELLERS
NEWS SUBJECT: High-Yield Issuers (HIY)
INDUSTRY: Limited Product Specialty Retailers; All Specialty
Retailers (OTS RTS)
SIC: 5942
Word Count: 3318
2/1/98 SEARCHER 12
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