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Amazon and BN.com James Oldroyd Kellogg Graduate School of Management Northwestern University 801-422-7888 650 TNRB.

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Presentation on theme: "Amazon and BN.com James Oldroyd Kellogg Graduate School of Management Northwestern University 801-422-7888 650 TNRB."— Presentation transcript:

1 Amazon and BN.com James Oldroyd Kellogg Graduate School of Management Northwestern University TNRB

2 1 Net Sales 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 Sales$4,870.4$4,375.8$3,486.0 Operating Profit (1) Retail Net Earnings (1) (2) Total Net Earnings (1) Retail Earnings Per Common Share (1) (2) Consolidated Earnings Per Common Share (1)

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


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