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

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

3. 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)

4. 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)

5. 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

6. 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.)

7. 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

8. 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.)

9. 4 + 2 Formula for Success Clearly stated, focused strategy5 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

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

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

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

13. 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)

14. 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)