ECommerce: Boom or Bust

1
E-Commerce Boom or Bust?

• Marketing Group 2
• Lutao Ning
• Kevin Cassese
• Paul Jepsen
• Drew Ciepcielinski

2
Research Question

• E-Commerce has created a vast new medium for
  companies to market their product. The
  infrastructure issues and uncertainty that
  e-commerce brings, however, has many companies
  seriously debating whether or not the switch to
  E-commerce is worth it. Does E-commerce help a
  company become more profitable?

3
Approach

• To avoid any discrepancies across industries due
  to the dot.com crash, we chose four case studies
  within the same industry (books).
• 4 Ways to Approach E-Commerce
• Avoid e-commerce completely (The Regulator)
• Use it as a medium of advertisement (Borders)
• Embrace it whole-heartedly and invest heavily
  (Barnes and Noble)
• Avoid Brick and Mortar all together (Amazon.com)

4
Case 1 Amazon.com

• Amazon.com opened its virtual doors in July 1995.
  
• Jeffrey P. Bezos - President, CEO, Board Chairman
• Has always been strictly an online company
• Started by selling only books via the Internet
• Now they sell CDs, videos, DVDs, toys, games,
  electronics, kitchenware, computers, along with
  the books. They offer E-Cards, conduct auctions,
  and have added a section for apparel and
  accessories.
• As the internet has become more popular, so has
  Amazon

5
Customer and Financial Growth

• 1997 Customers 1.5 million Sales 148
  million
• 1998 Customers 6.2 million Sales 610
  million
• 1999 Customers 16.9 million Sales 1.64
  billion
• 2000 Customers 20 million Sales 2.76
  billion
• 2001 Customers 25 million Sales 3.12
  billion

6
Marketing Progress

• As the Internet has become more popular, Amazons
  marketing strategies have progressed
  exponentially.
• Marketing strategies are always customer centric
• Some of the strategies include
• Welcome banner uses the customers full name
• Your gold box feature allows the customer to
  see a special item offered at a discounted price
  solely for that customer (based on purchase
  history)
• E-mails are sent to customers thanking them for
  their order, giving them a confirmation number,
  and providing shipping information
• They offer secure credit-card payment with
  compensation for insecure credit-card
  transactions.
• Amazon.com Associate allows people to earn money
  by selling Amazon products on their websites.
• Online Z-Shops allow independent vendors to gain
  access to Amazons customers and one-click
  shopping system for a 10 per month fee.

7
Marketing odds and ends

• Personalized customer and employee
  recommendations
• Hassle free bid click auction bidding
• Wish List allows you to select items for your
  holiday list and send it to friends and family
  members
• Add any item to your wish list and win up to 350
  of products
• Wedding registry (same as wish list, but for
  weddings)
• Free Super Saver Shipping on orders over 25
  dollars
• 50 discount off bestsellers
• 30 discount off DVD new releases
• International affiliates offer thousands of
  additional items
• EYES program alerts customers when their
  favorite authors release new publications

8
Competitive Landscape
9
Case 2 BM First, E-commerce Second

• Barnes and Noble Inc. started in 1873 in Chicago
• Grew steadily until 1971 when Leonard Riggio
  bought the NYC store for 1.2 million dollars
• Offered best seller books for 40 off retail
  price
• Merged with B. Dalton in 1986 and Scribners in
  1989 and began streamlining their superstore
  design
• Went public in 1991

10
BN.com

• In the wake of the internet boom, the 1 book
  retailer in the country felt threatened by up and
  coming internet bookstore Amazon.com
• Started Barnesandnoble.com in 1997.
• Partnerships with AOL and book publisher
  Bertlesmann coupled with high growth in tech
  stocks caused Barnesandnoble.coms value to sore.
• Went public in late 1999. Now no longer part of
  Barnes and Noble Inc.

11
Financials

• Year Before IPO
• 26 weeks ended
• 
  ---------------------
  -------------
• 
  Fiscal Year August 2,
  August 1,
• 
  1997 1997
  1998
• 
  ----------- ------------------
  ---------------
• 
  
  (unaudited)
• 
  
  
• Statement of Operations Data
• Net sales.........................................
  ... 100.0 100.0
  100.0
• Cost of sales.....................................
  ... 80.5 82.5
  76.6
• Gross margin......................................
  ... 19.5 17.5
  23.4
• Operating expenses
• Marketing and sales..........................
  ... 60.3 46.7
  134.6
• Product development..........................
  ... 34.3 38.9
  19.8
• General and administrative...................
  ... 13.8 14.7
  22.4
• Depreciation and amortization................
  ... 18.3 25.5
  14.0
• 
  -------- -------
  -------
• Total operating expenses.........................
  ... 126.7 125.8
  190.8

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Financials Since IPO
13
Competitive Landscape
14
Conclusion

• Competing directly with Amazon.com has greatly
  damaged BN.com profitability. Amazon had first
  mover advantage and has diversified its inventory
  while BN.com remains primarily on books.
• BN.com as a company has been generally
  unsuccessful despite financial backing from its
  name-sake, Barnes and Noble Inc.
• Barnes and Noble Inc. has lost millions in
  investments while BN.com continues to generate a
  loss.

15
Case 3 Borders Group Inc.Overview

• Company is leading global retailer of books,
  music movies and other information and
  entertainment items.
• Second largest operator of book and music
  superstores and the largest operator of mall
  based book-cost stores in the world (based on
  sales and of stores)
• Operates over 385 Borders Books and Music Stores
  in the U.S. and 25 international Borders Books
  stores
• Approximately 800 Waldenbooks locations and 36
  U.K. Books etc. stores
• Added online shopping at borders.com in 99
  (through 01)

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BordersFinancial Summery
02 01
00 99 Total Sales
3,387.9 3,271.2 2,968.4
2,595.0 (Dollars in Millions) Increase
5.1 8.6 14.4 14.5
Breakdown of total sales
17
Rise and Fall of Borders Online, Inc.

• 99 Leading global retailer decides to try their
  hand at the internet Borders Online, Inc.
• Originally functioned as complete online store
  similar to amazon.com
• As online store Borders.com was losing money
• 2001 2000 1999
• Net losses at 18.4 17.2 10.5
• Borders.com
• (In millions)

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Why Was Borders Online losing ???

• Cost of operations outweighed total sales
• Impairment charges
• Borders Annual Report 2000-2001
• The net loss for 2000 increased primarily as a
  result of an 11.3 million after-tax asset
  impairment charge related to the computer
  hardware and software at borders.com. The
  increased loss in 99 and 00 was due to a full
  year of the sites operating expense, (which was)
  required to develop and operate the site and to
  fulfill costumer orders.

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The death of Borders Online, INC.

• 2000 Annual Report
• Our online investment will be channeled to
  support out in-store platform. We have targeted
  loss reduction as a major goal in this area. The
  first step took place in the fourth quarter when
  we wrote off certain hardware and software assets
  of borders.com. We took this step with the
  realization that the direct-to consumer segment
  of our online business will not produce profits
  in the foreseeable future. Therefore, we plan to
  continue to mitigate losses throughout 2001 via
  partnerships that take advantage of excess
  capacity in our industry.
• Bordersstores.com
• Check inventory and find closest stores
• Borders.com teamed with amazon.com
• borders gets a small cut from amazon

20
Competitive Landscape
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Case 4 The Regulator Book Store

• Founded in 1977 by Tom Campbell and John
  Valentine
• Privately held company (thus no public earnings
  statements)
• Primarily targets local residents/Duke employees
• Students buy textbooks once in a while, but not
  much profit off of students because they dont
  read for pleasure
• Sales increased by 40 since 1998

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Website www.regulatorbookshop.com

• Belongs to the American Booksellers Association
  (Trade organization)
• Booksense.com uses the large database of the ABA
  to market books
• Gives the Regulator a presence but the Regulator
  has not spent any overhead for the website

23
Competing with Online Retailers

• Difficult to compete with Amazon because Amazon
  can incur large debt and still function as a
  business
• Regulator competes well on prices
• Provides much better personal service and faster
  delivery

24
Staying Away From E - Commerce

• Costs of hardware and compiling a database was
  cost prohibitive
• Majority of customers still shop via BM rather
  than online
• Moderate profits regardless of no E-commerce
  presence

25
Conclusion

• E-commerce allows companies to reach a much
  broader customer group
• High overhead brings little increase in actual
  profit
• Companies that have invested heavily in
  E-commerce are in large debt and have suffered
  huge losses
• Companies who invest very little, or not at all
  in e-commerce will enjoy modest profits and net
  gains