VS. CONSULTANTS: Jack Chang Maria Dimoka Matthieu Guibourge Hiroo Oda Steven Zhang

Agenda Business Models Value Propositions Barnes & Noble/Amazon.com - Mission - Strategic position - Porter’s Five Forces Examine Strategies Recommendation Update of the case Questions

Online Retail vs. Brick & Mortar Shops Largest Book Retailer in US Revenue of $ 2.5 billion* 431 superstores 20,000 employees Major cities and shopping malls Largest Online Book Seller Revenue of $16 million 1 on-line store 250 employees Internet access only Bought by Mr. Riggio in 1971 Started by Mr. Bezos in 1995 Operating only in US Operating Worldwide “Sell All, Carry Few” *(Numbers in 1996)

Two value very similar propositions Variety (175,000 books in stores +2.5 million title DB) Superstores (Amusement) Low Price Cost Supply Chain Management Best Buying Power Speed Availability at Stores Quick Delivery for Online (7 days) Value Variety (2.5 million titles DB) Quick Access & Reliability 24H / 7 Days a week Low Price Cost Supply Chain Management Less Operation Cost Speed Quick Delivery (7 days)

Barnes & Noble’s strategic position Mission To sell books by all means to all Americans, at an affordable price Core Competencies Supply Chain Management Distribution Techniques STRENGTHS WEAKNESSES Competitive advantages High Structural Costs Costly Growth Engine Store Environment Leadership Multi Channel Penetration

Porter’s Five Forces: Barnes & Noble Potential entrants (-) E-retailing (-) New online books retailers (-) Chain stores (+) High competition, especially from Amazon.com with aggressive marketing strategy Industry Competitors Suppliers Buyers (+) Direct access to customer with on-line service (-) More reliable on less but bigger suppliers, which create centralized wholesale system (vertical integration) (+) More competition (+) More choices (+) More information (+) Lower prices (+) Usage of froogle services High competition, especially from Amazon.com which has a customer creation, with aggressive marketing strategy Substitutes (-) E-books, free information on-line (-) Leisure items (video games, cinema, theatre etc.)

Mission To become the biggest bookstore on Earth Amazon.com’s strategic position Mission To become the biggest bookstore on Earth Core Competencies Procurement System Short delivery times STRENGTHS WEAKNESSES No Recovery Plan Competitive advantages Brand Name Reliability User Friendly Web Page Inexperienced No Recovery Plan

Porter’s Five Forces: Amazon.com Potential entrants (-) E-retailing (-) New online books retailers (+) High competition, especially from B&N which has a strong brand and market penetration Industry Competitors Suppliers Buyers (+) Short time distribution from wholesalers. (+) More competition (+) More choices (+) More information (+) Lower prices (+) Usage of froogle services (+) Short time distribution from wholesalers could ship a book with one to five days if they had it in stock, permitting most books to be delivered within four to seven business days. Substitutes (-) E-books, free information on-line (-) Leisure items (video games, cinema, theatre etc.)

4 + 2 Formula for Success Clearly stated, focused strategy 5 8 10 Flawless operational execution 5 7 9 10 Performance oriented culture 5 10 Fast, flexible, flat company structure 5 8 9 10 Innovation that transforms the industry 5 10 Achieving growth via mergers and partnerships 5 7 9 10

A fierce competition Used wholesaler’s warehouses Centralized Procurement System Used wholesaler’s warehouses Build their own warehouse Innovation : Recommendation Service Innovation : Personalized Services for Availability Personalized Book Recommendation Service Used wholesaler’s warehouses Build their own warehouse Innovation : Personalized Services for Availability Personalized Book Recommendation Service Partnership : Associates Program Agreements with Search Engines Partnership : Associates Program Discounts : 20% to 40% Discounts : 10% to 30% Discounts : 20% to 40% Partnership : AOL Other Joint Ventures Partnership : Associates Program Partnership Associates Program Agreements with Search Engines

Barnes & Noble should leverage its opportunities Increase loyalty Sales to Non-U.S. Modify Advertising Policy New Cultural Commodity Market

Amazon.com should fasten its penetration Distribution for Independents Increase loyalty New Cultural Commodity Market New Geographic Market

Where are we now(2003)? Amazon, “The biggest Earth’s store” Six world-wide websites About $600m book sales 7,500 employees Diverse consumers products International sales still 30% Barnes & Noble, still US leader 628 superstores About $3,600m book sales 50,000 employees New products: music, DVD/video and online courses Sales growth in games/entertainment product Sales average per store from $4.3m in 1997 to $5.7m in 2003 1.7 million orders/day (= 20 orders/second)

Who do you think is the winner ? Amazon.com First time profitable in 2003 Worldwide presence Barnes & Noble Still dominating the US book market ($3.9B for the group in US vs $3.2B for Borders)