BuyPlayWin Industry # 1 - E-commerce

We believe that BuyPlayWin is a fresh and unique customer experience, joining several industries together for the first time. This is the first of a 3 part series of posts that give our perspective on each industry.

1. E-commerce

2. Web 2.0 Advertising
3. Gaming.

(Post Updates At The Bottom In Italics)

Just now breaking news: “William Ackerman, the billionaire hedge fund manager who is a major stakeholder in Borders Group Inc., said Wednesday the bookseller should consider approaching online retailer Amazon.com Inc. about a possible acquisition.”

Ackerman owns a 30% stake in Borders, so he does want the stock to go up in anticipation of a merger. However, he is proposing to open new “Apple-like” renovated and chic boutique Amazon stores to replace all of the old Borders brick and mortars, producing his cliche, “bricks ‘n clicks”.

If you find yourself scratching your head, here’s a quick recap:

1. Borders ends Amazon e-commerce deal
2. Amazon directs shoppers to Borders
3. Borders Relaunches Online Bookstore Sans Amazon

This is not a joke. We just got a confirming email from Amazon, and I’ve pasted it below:

The following are key excerpts from the afore-linked articles above:

After a lengthy hiatus from its solitary existence as an online bookseller, it’s back as an independent entity, and it’s come with a major facelift clearly meant to increase interest in its brand. A visit to the site today will show users a storefront with rich visuals. The site’s centerpiece is a browser window that users can interact with to view highlighted book, music, and movie titles. Border’s has dubbed this feature “The Magic Shelf.”

Borders’ Web site announcement came as the company said it was shuttering nearly half of its Waldenbooks stores.

Before 2001, Borders had its own Internet business, but it wasn’t profitable, Roman said. That led to the arrangement with Amazon, which operated Borders’ Web site, took orders and delivered books.

Amazon obtained all the sales and gave an undisclosed cut to Borders, Roman said. Amazon also runs the Web sites for Target and Bebe and fills the orders.

The loss of Borders could cost Amazon $80 million to $160 million in annual revenue, according to an estimate by Scott Devitt, an analyst with St. Louis-based Stifel, Nicolaus & Co. Amazon and Borders wouldn’t confirm or deny those figures.

Devitt said the loss isn’t material to Amazon, which had revenue of $10.7 billion last year and $190 million in profits.

Devitt said the loss of Borders could result in a 2 percent decline in profits for Amazon.

Perspective:

Borders has struggled for a long time to get its book business booming online. They’ve received a lot of criticism for their past performance, and this continuing tragedy. We’re not sure, but most deals like this go bad when one party realizes they’d be more profitable on their own. Why are they just realizing this now? One answer:

Amazon’s EC2 Cloud Infrastructure

This was the reason that Borders bedded with Amazon in the first place: to leverage Amazon’s superior technology infrastructure. The difference? Today, it’s being basically given away to millions of startups through Amazon Web Services. Borders has been giving their business away to Amazon for a very long time, accepting a small cut for their own business. Now, they see the folly of their ways, but it’s probably too late.

Borders plans to outsource server costs to Amazon through EC2 Cloud Computing, like so many other dot com’s, but the paperback book margins are slimmer now. A lot slimmer. Technically, the data ain’t really goin’ nowhere. We tend to think, same server, must be same sys admin’s.

Kindle has started taking off. Digital books are going to take over reader’s preference as the device becomes more popular and cheaper. Yes, just like your first iPod that you bought after prices came down.

This will be an interesting corporate soap opera for all of us. Stay tuned!

Post Update 1: Borders US partners with Alibris

Significance: This is serious competition folks. This partnership is a move to differentiate Borders online book selling from Amazon online book selling, in a way other than the eventual price war. The split between Amazon and Borders will hurt both companies over the long haul, but the cost of your books will come down.

Post Update 2: Alibris Creates Global Online Marketplace for Borders.com

Significance: We think that Borders and Alibris it’s not going to hurt Amazon at all, as far as we can see. Like they said, maybe 2% of Amazon’s total revenue. It’s going to be tough for Borders.

If you check the Alexa rankings, it does look like they’ve had a big spike lately, but maybe just nothing was happening on borders.com before. The click n bricks thing is a cliche, but it could be a powerful one. We’ve used it a couple times: the ability to check and see if a book was in stock at the store before driving over. If not, we ordered from Amazon. If they can make that work, it could really be something.

However, that won’t work if they try to be a boutique. It’ll only work if they operate like they do now and have a deep inventory. It’s hard to find a real bookstore with a deep inventory these days, and borders is better than B&N.

Compare the rankings: B&N is way ahead of Borders now, and they’re both way behind Amazon. Borders has a steep hill to climb just to catch up with B&N. The difference in number of stores could be significant.

(Thanks Steve)

Filed under: E-commerce |