Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Internet Analysis - Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (233)	3/28/1999 4:35:00 PM
From: Chuzzlewit	Read Replies (5) \| Respond to of 419

Part 4 and perhaps final part The BKS paradigm Disclosure: I have a long position in BKS One of the most interesting twists that I have seen in the war for the hearts and minds of investors is centered around a fascinating little guerilla war that Amazon and Barnes and Noble have been fighting. Barnes and Noble sells books at it website, barnesandnoble.com. Amazon sells at amazon.com. I think that while Amazon has been raking in the press notices and growth, Barnes and Noble is clearly winning the war. Many analysts have valued internet retailers on the basis of sales growth, but, as I hope I have demonstrated, topline growth is a very poor metric if the bottom line is constrained. This is exactly what BKS managed to do to Amazon, while at the same time enhancing its profitability. It pulled off this neat maneuver by buying the book wholesaler Ingram. This purchase creates a structure that is similar to to the hybrid retail model I discussed earlier, in that it leverages profits from an existing retail operation. But there are two notable differences. The website, barnesandnoble.com, sells books at comparable prices to amazon.com thus limiting amazon's ability to raise prices. But, since BKS owns the wholesaler/distributor, it can rake in huge profits because Amazon purchases some 60% of its book inventory from Ingram! So, barnesandnoble.com keeps the pricing pressure on Amazon which keeps demand high, and can rake in the profits through Ingram. Barnes and Noble is in a joint venture agreement with Bertelsman, a very large European retailer/publisher/distributor and the two will spinoff the internet company. But I think the profit will be in the parent. How's that for a Machiavellian analysis? I think I have shot my entire intellectual wad on this sector. I welcome discussion and criticism. What have I missed? TTFN, CTC