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Internet

New chapter in bookseller rivalry

The success of online booksellers may depend more on marketing and content partnerships than price or technology.

Melissa Bane does a lot of book browsing but, because of the Internet, she rarely has to set foot in a store to do it. And she's convinced that there are millions of others like her.

But Bane is equally sure that there will always be many others who still choose to shop the traditional way among the stacks. That's why she thinks all the talk about online book wars between Amazon.com and Barnes and Noble may ultimately prove to be much ado about very little.

"It's not unheard of that they both will do well," said Bane, a market analyst with the Yankee Group. "Getting out there early was important for Amazon, but Barnes and Noble can afford to be late."

Most analysts agree that success for Amazon, Barnes and Noble, and other online booksellers depends more on marketing and content partnerships than price discounts or technological wizardry. For example, the two main players in the field have set up similar marketing programs to sell their books on other Web sites, including CNN Interactive, ESPNSportsZone, and USA Today for BarnesandNoble.com and Yahoo, the Atlantic Monthly and Upside for Amazon.

BarnesandNoble.com relies on its parent company's name and resources to draw consumers online. Amazon, on the other hand, touts its reputation as an Internet start-up success story and appeals to the techno-savvy population known for its fierce independence.

Amazon has been successful thus far in attracting what Bane calls "TAFs," or "technologically advanced families." These consumers, who number an estimated 16 million, "tend to adopt new technology faster," she said. "The entrepreneurial-based spirit of Amazon may be more attractive."

In fact, many industry observers believe that Barnes and Noble settled its false-advertising lawsuit against Amazon last week because the high-profile dispute was serving only to provide free advertising among TAFs and other potential supporters of its online rival.

Moreover, Barnes and Noble realized that it was foolish to follow through with the potentially costly legal action while earnings were still being eaten up by marketing and advertising, said analyst Tony Blenk of Everen Securities.

"They finally figured out that this suit was just costing them money and generating nothing but free publicity for Amazon," Blenk said. "The bottom line is that Amazon is not going to be wiped out by Barnes and Noble."

Financial concerns are significant to both companies at this volatile juncture in electronic business development. Following the only real tradition of Internet commerce to date, both online ventures offer strong revenues but no profits.

Amazon.com last week announced a net loss for the third quarter of $8.5 million, or 36 cents per share. But book sales increased by 36 percent over the previous quarter, to $37.9 million, and the company has sent representatives to Tokyo to deliver the 1 millionth book sold on the Web site to a Japanese customer. Analysts expect the company to be profitable by 2000.

Amazon is also the beneficiary of $54 million raised in its initial public offering earlier this year. Blenk believes that the start-up will have no trouble securing additional financing when or if the need arises.

BarnesandNoble.com, for its part, can dig into its parent's deep pockets. However, the company said earlier this month that its Internet business will take longer than expected to turn a profit. Earnings have been pulled down by the weight of marketing and advertising costs for the launch of its Web site, as well as by the suit it filed against Amazon.com on the day of the start-up's IPO.

Before launching its site, Barnes and Noble reported earnings for the quarter ended January 31 at 91 cents a share. In the next two consecutive quarters after the site debuted, the company recorded earnings of 6 cents per share and 2 cents per share respectively.

According to BarnesandNoble.com's director of marketing, Susan Boster, the company expects to be profitable by 1999, winning over the next 40 million people online. "The mass consumer that's coming on the Web over the next three years is a Barnes and Noble customer. The brand loyalty is incredible," she said.

Bane did not rule out Barnes and Noble's chances for success as the Internet and e-commerce acquire more mainstream popularity. "That may be a different kind of shopper who may be more comfortable with their book brand," she said.

"It's more of a race to make sure that these marketing deals are attracting the kind of customers they're going after," Bane added. "Defining who wins in this space is going to be very subjective."