1. Amazon and BN.com James Oldroyd Kellogg Graduate School of Management Northwestern University j-oldroyd@northwestern.edu 801-422-7888 650 TNRB

2. 1 Net Sales 200120001999 Books, Music and DVD/Video $ 1,688,752 $ 1,698,266 $ 1,308,292 Electronics, Tools and Kitchen $ 547,190 $ 484,151 $ 150,654 U.S. Retail $ 2,235,942 $ 2,182,417 $ 1,458,946 Interna tional $ 661,374 $ 381,075 $ 167,743 Service s $ 225,117 $ 198,491 $ 13,150 $ 3,122,433 $ 2,761,983 $ 1,639,839 Books, Music and DVD/Video $ 453,129 $ 417,452 $ 262,871 Electronics, Tools and Kitchen $ 78,384 $ 44,655 $ (20,086) U.S. Retail $ 531,513 $ 462,107 $ 242,785 Interna tional $ 140,606 $ 77,436 $ 35,575 Service s $ 126,439 $ 116,234 $ 12,285 Gross Profit $ 798,558 $ 655,777 $ 290,645 Amazon

3. 2 Pro forma income (loss) from operations Books, Music and DVD/Video $ 156,753 $ 71,441 $ (31,000) Electronics, Tools and Kitchen $ (140,685) $ (269,890) $ (163,827) U.S. Retail $ 16,068 $ (198,449) $ (194,827) Interna tional $ (103,112) $ (145,070) $ (79,223) Service s $ 42,042 $ 26,519 $ (78,321) Pro forma income (loss) from operations $ (45,002) $ (317,000) $ (352,371)

4. 3 BN’s Financials FISCAL YEAR in millions of dollars, except per share data 200120001999 Sales$4,870.4$4,375.8$3,486.0 Operating Profit (1) 250.3240.7232.1 Retail Net Earnings (1) (2) 123.6109.5122.9 Total Net Earnings (1) 66.640.5124.5 Retail Earnings Per Common Share (1) (2) 1.701.691.72 Consolidated Earnings Per Common Share (1) 0.970.631.75

5. 4 Continued BARNES & NOBLE.COM SALES (3) (4) in millions

6. 5

7. 6 5.8 Billion 1.5 Billion Market Capitalization

8. B&N vs. Amazon Summary B&N and Borders was in the process of consolidating the industry before Amazon’s entry Acquisitions and numerous new sites reduced number of players, thereby increasing B&N’s market power and bargaining power over suppliers. Use of costly Superstores (with highly specific assets) both a) created barriers to entry (brick & mortar), and b) differentiated the bookstores (greater selection; food, etc.) The internet effectively reduces the barriers to entry into many industries, including bookselling; Amazon.com uses an entirely different business model (value chain) to attack B&N.

9. B&N vs. Amazon Summary The online book selling model has a number of potential advantages relative to the traditional model Costs are significantly lower due to little investment in brick and mortar (9 percent of sales for B&N). This reduces equity investment and dramatically increases ROE Wider selection of titles is possible Allows for creation of a database of customers with insight into revealed customer preferences (captured electronically) Customer transaction costs are reduced (can order at home; don’t have to search through the store). Customer currently does not have to pay sales tax The disadvantages of the online model include: (1) can’t see/feel product, browse, or get advice from salesperson, (2) time to ship, (3) fewer impulse purchases

10. Amazon.com: Sustaining its Advantage Resources/Capabilities that may make Amazon’s advantage in online book-selling sustainable Reputation (bookmark/favorites share) Database on customer preferences Relationships/alliances (links) with other Internet companies (40,000 affiliates in Amazon’s affiliates program) Access to capital (market value) Threats to Amazon’s advantage B&N’s supplier bargaining power due to greater volume Potential for B&N to leverage distribution network for quick delivery (or order and pick-up at store) New online navigators that search across existing on- line booksellers for the best price