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The Book on Amazon.com

'Earth's Biggest Bookstore' Helped to Pioneer Shopping on the Web. But Can It Survive With Barnes & Noble Now in the Fray?

July 20, 1997|JONATHAN LITTMAN | Jonathan Littman, author of "The Watchman' (Little, Brown), lives in Mill Valley and writes about technology. He can be reached at jlittman@well.com

She stands poised in her heavy black boots, a tattoo on one arm, an X-Acto knife in hand. The UPS man heaves the boxes up, and she and her longhaired partner start slashing. A quick turn of the box, like a cowhand wrestling a bull, and then a short, deft slice, splitting out a plastic-wrapped slab of books. * The grunge workers at Amazon.com, the Seattle online bookseller, fan out like wayward librarians. Each drags a large metal cart of books and waves a hand-held scanner like a laser gun, the red beams of light letting the computer know where each volume is placed on the gray metal bookshelves. * Two laser printers, dubbed Beavis & Butt-head, spit out the day's lists of customer orders that the workers match to the temporarily shelved books. Tacked high on a post in the basketball arena-sized warehouse are handwritten deadlines: 4:30 p.m. for the West Coast, 6:30 p.m. for the East. * The scene is full of the realities of old-fashioned trade, like timely delivery, inventory and gross margins. And therein lies Amazon.com's paradox. To succeed as the first major business in the budding world of online commerce, Amazon.com must first master the essentially physical realm of books. And that's just the first of many challenges in a cyberspace adventure that, depending upon whom you believe, is either the next light bulb or another Edsel. * Internet surfers are well-acquainted with Amazon.com. From its Web page, you can choose from 2.5 million titles, shipped to your doorstep, or click through an online book lovers' bazaar. Anyone who visits the site can post a review of any book on its list or check into a "chat' room to hash out the merits of Stephen King's latest. And later this summer, Amazon.com's customers probably will begin receiving electronic book recommendations based on the purchases of like-minded buyers--a high-tech twist on the venerable book club.

Amazon.com marks its second year of operation this month just as the future of online shopping--once hailed as the "killer app' that would carry the Internet into the mainstream--seems more uncertain than ever. Nobody really knows whether large numbers of consumers will take to shopping by computer, forsaking catalogs and the convenience of telephone shopping or even the ordinary pleasures of seeing and touching products in a real store. IBM recently zapped its World Avenue shopping mall on the Web, sending shudders through the industry. "That's not a good sign,' warns Steven Zenker, a portfolio manager at McCabe Capital Managers. "IBM had a lot of money behind it. If they can't make it work, can it work?' Adds Neil Weintraut of 21st Century Internet Venture Partners: "We're still looking at a 2-month-old baby. We're trying to decide if it's a successful lawyer or doctor when it hasn't gotten to kindergarten yet.'

The expectations for Amazon.com have been higher than a yuppie parent's. When it filed its offering with the Securities and Exchange Commission in March, the company was so confident of its prospects that it raised the offering price twice. At the opening bell May 15, the stock shot up from $18 a share to $30--placing the upstart's initial market valuation at about half a billion dollars. But by the day's close, the stock had settled back to an earthly $23.50, and it sank to $16.75 the following week. What happened? The same week of Amazon.com's offering, Barnes & Noble, the world's largest bookseller with annual sales of $2.45 billion, launched its competing online bookstore (on America Online and a dedicated Web site) and filed suit against Amazon.com, challenging its slogan, "Earth's Biggest Bookstore.' Goliath had spoken.

The cyber cheerleaders, it seemed, had overlooked Amazon.com's underbelly: that very real, very physical warehouse. Before Amazon.com can sell anything, publishers or distributors must first ship the books to the company's centralized Seattle warehouse, where individual orders are packaged and sent to customers. The just-in-time inventory comes with a price: Amazon.com actually stocks only its 2,000 or so best-selling books and must order the rest on a piecemeal basis. Inventory may not gather dust, but as a relatively small buyer, Amazon.com's margins are slim, an estimated 16%. If you want non-bestsellers (the majority of the book business) Amazon.com may be about as fast as that river it's named after.

"The virtual bookstore was [Amazon.com's] early model,' argues Steve Riggio, the feisty chief operating officer of Barnes & Noble. "I don't think it will cut it in the long term.'

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