The Financial Post Magazine
TECH WATCH 2: Cyber Business Meets The Real World
Paper and wire: Death of the book? No way. With the boom in online book
retailers, the tome has never had it so good
Bruce McDougall
05/01/1999
National Post
National
Page 44
(c) Copyright 1999 Financial Post from National Post (formerly The
Financial Post Company). All rights reserved.
The Internet is best known as a disseminator of infinite streams of
digitized data, but it has also become the medium of choice for millions
of people who want their information packaged and presented in the form
of the world's most advanced reading technology: the book. Indeed, with
the rise of Amazon .com Inc.-and major Canadian competitors such as the
online arms of Chapters Inc. and Indigo Books, Music & Cafe-books have
never received as much attention.
From a state of non-existence four years ago, online book sales have
grown into a thriving US$1-billion business-with Amazon .com assuming
the role of the 500-pound gorilla. In a single month, according to
Publishers Weekly, Amazon .com sells at least 3 million books and
accounts for an estimated 80% of all online book sales. It has also
become one of the top five booksellers in Canada, according to estimates
by Boston Consulting Group. But despite everything that has gone on in
the world of online book retailing in the last couple of years, just
about anything can still happen. "This whole area is a script waiting to
be written," says Hart Hillman, president of CDG Books Canada Inc., a
Toronto-based publisher.
The great power of the Web is its ability to compile and organize masses
of information, and few industries are as information-intensive as the
business of books. Each of the book-retailing sites is really nothing
more than a very big and powerful electronic version of the old
library-card catalogue, containing, in some cases, most of the books in
print. Online technology allows the retailer not only to convert this
card catalogue into a shopping catalogue, but also shape it into a
marketing tool. It can alert customers to other titles in the same field
of interest or books by the same author. As well, you can often read
online reviews of books and summaries of their contents.
"Despite the omnipresence of bookstores in every community, many people
don't go to a store to buy a book," says Hillman. "These people now have
access to books 24 hours a day, seven days a week, and the experience
they're having with Net providers like Amazon .com has been very
positive." It's not uncommon for Web retailers to generate at least
one-third of their online orders between 10 p.m. and 7 a.m., when
brick-and-mortar stores are closed.
Clearly, Amazon .com is the originator here. The company began in July
1995, when founder Jeff Bezos set it up in a Seattle garage. By
September, Bezos and his five employees, including his wife, were
recording sales of $20,000 a week. The book industry gave Amazon .com
one great advantage over other retailers: in the 1980s, the two largest
book distributors in the world-Ingram Book Group and Baker & Taylor
Inc.-had begun compiling exhaustive electronic lists of available
titles. Conventional booksellers had already linked their computer
systems to these distributors; Bezos merely had to incorporate the lists
into his website and start selling.
In the last quarter of 1998, Amazon .com generated revenues of about
US$250 million-making it, potentially, a billion-dollar company by the
end of this fiscal year. That kind of success-despite the fact that the
company has yet to turn a profit-has given its stock price a rocket-like
trajectory; since going public in 1997, the stock has risen by more than
3,800% (as of March 1999), giving Amazon .com a market capitalization of
more than US$21 billion.
Such investor confidence in the company's future exists despite the fact
Amazon .com lost US$124.5 million in fiscal 1998, and continues to
operate in the red as it pours money back into new technology,
warehousing facilities and new ventures such as an online music store
and pharmacy. Despite the well-founded reservations of many mark
et-watchers, who see the stock price run-up as an unsustainable mania,
Amazon .com remains the darling of e-commerce investors.
Amazon .com's success has forced other booksellers to compete over the
Internet, whether they want to or not. Using Yahoo!'s search engine
alone, you can now locate the Web sites of more than 6,000 booksellers.
As a recent report from Ernst & Young observes, conventional booksellers
in North America are fighting an uphill battle. Amazon .com sells 10
times as many books as its nearest online competitor,
barnesandnoble.com.
However, according to Tracey De Leeuw of Ernst & Young's e-commerce
practice in Toronto, Amazon .com may not be able to maintain this
advantage indefinitely. "Some people don't like the way Amazon .com
sells books," she says. "They don't like the Big Brother aspects of
being told what else they might like if they choose a certain book. I
also wonder if Amazon .com can survive the media hype. At the moment,
it's almost nauseating. Unless the company lives up to its promise, I'm
not convinced it's sustainable."
Many market-watchers continue to wonder how Amazon .com's stock can
sustain its astonishing performance, and whether in hindsight, it will
all end up looking like a re-run of the 17th-century tulip mania, when a
crash succeeded a monumental price spike. Amazon .com's current share
price makes the company five times as valuable as Barnes & Noble, in
terms of market capitalization. But Barnes & Noble owns more than 1,000
stores in the U.S. and is the industry's largest book wholesaler. "I
tell you," says Manuel Asensio of Asensio & Co., an investment-banking
firm in New York, " Amazon .com will be the brand name for a tulip
someday."
Bezos shakes off the naysayers, arguing that most booksellers are merely
holding on to traditional customers and traditional ways of doing
business, while his company is "inventing the future of electronic
commerce." But at least one Canadian bookseller says she isn't just
playing catch-up with Amazon .com. "I think it's true that some
traditional booksellers are defending their turf. But we're not," says
Heather Reisman, CEO of Indigo Books. However, she admits that the
Canadian market lags behind the U.S. by two to three years. "Only this
coming Christmas"-traditionally the period when booksellers generate
more than half their revenues-"will we see the impact in Canada of
Internet sales," she says.
In addition to new books, you can also buy used and out-of-print books
on the Web. Bibliofind Inc., based in Cambridge, Mass., lists more than
9 million used books and rare titles, all posted on its Web site by
thousands of booksellers around the world. Similarly, East Bay Book
Company in San Francisco grossed US$375,000 after its first year in
business, selling first editions and rare and out-of-print books.
You can also buy virtual books over the Internet-although they often
cost more than the real thing and require special hand-held terminals
for reading. A hardcover version of Angela's Ashes by Frank McCourt, for
example, sells online for US$17.50, but barnesandnoble.com sells the
electronic version for US$20-and the special computer needed to read it
costs another US$300 to $600.
For obvious reasons, electronic books haven't caught on yet. But people
may turn to virtual books as a source of specialized information that
requires constant revision. "I think the Internet will have its greatest
effect on specialty booksellers," says Frans Donker, owner and founder
of Toronto-based Book City, an independent bookseller that has not yet
established itself online. "If you need a book on surgical procedures
for the brain, you might download it on the Internet rather than buy it
at a bookstore."
In fact, electronic encyclopedias and similar reference guides,
initially offered in the form of CD-ROMs and more recently in formats
accessible over the Internet, already outnumber their paper
counterparts. A U.S. company, Franklin Electronic Publishers, has sold
18 million electronic books, mostly reference titles displayed on a
little handheld device called the Bookman.
With companies like Microsoft Corp. now spending millions on electronic
books, the technology of downloading novels, textbooks, Bibles and comic
books will continue to improve rapidly. If most people still prefer the
feel of a hardcover book to a light-show of electronic data on a screen,
it could some day make sense to deliver real books, virtually. "You may
go into a bookstore and order a book," Donker speculates, "then sit down
in our living room for 10 minutes with a cappuccino while we download
the book in our back shop and bind it for you."
At the moment, publishers are wary of offering electronic titles
directly to readers over the Internet in case someone uses the
electronic files to print thousands of unauthorized copies of their
books. In the near future, however, security is expected to improve,
perhaps allowing a purchaser to download only one copy of a file before
it self-destructs.
Eventually, authors may even bypass the middleman and communicate
directly with the reader, although retailers like Reisman doubt this
will have a big impact on bookselling. "Theoretically, it's possible,"
she says, "but psychologically, it's unlikely. Authors and publishers
would have to understand consumers and cater to their demands, and I
don't think many of them are prepared to do that."
But with the speed at which online book retailing is developing, no one
is counting anything out.
Chapters Inc.
www.chaptersglobe.com
Amazon .com
www. amazon .com
Indigo Books
www.indigo.ca
Bibliofind Inc.
www.bibliofind.com
East Bay Book Company
www.eastbaybooks.com
Franklin Electronic Publishers
www.franklin.com
Barnes & Noble
www.barnesandnoble.com
Color Photo: Karen Moskowitz /Jeff Bezos, founder of amazon .com, has
forced other booksellers to compete over the net.; Color Photo: David
Laurence / Indigo's Heather Reisman is meeting the internet
challenge...; Color Photo: Jeff Speed / ... book city's Frans Donker
thinks not.
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