Our term paper will deal with the competition of the traditional bookseller Barnes & Noble and the web-based bookstore Amazon. com in online book retailing. Based on an article of the Harvard Business School1, we will take a closer look at bookselling in the US and we will show which measures are taken by the two companies to establish predominance in the online market for books. First, we will give some general information about bookselling. Then, we will look at the business models of Barnes & Noble and Amazon.
com. Finally, we will illustrate how the battle between the two developed. In our conclusion, we will work out who the winner of this battle is and for which of the two companies online retailing is more successful today. The appendix includes several tables to illustrate the figures we give in the different parts of our essay and to provide further and more detailed information. In 1996, every US citizen bought an average of 10 books which means that all in all they spent $26 billion on books.
The highest concentration of buyers was found among adults between ages 35 and 75 with incomes of $45,000 or more. Although consumer expenditures on books grow every year, the annual growing rate decreasing because of the growing popularity of 'book substitutes' such as cable TV, VCRs, and video games. The bookselling chain began with authors who sold the rights of their works to publishers in return for a royalty. Publishers usually sold books to wholesaler who distributed them to retailers where the books were bought by individual customers.
In the United States, there are almost 40,000 publishers but 88% of all sales were restricted to the 20 biggest publishing houses. The largest publisher, Simon & Schuster, held 11% of the complete market. Several unifications of larger number of publishers under big media conglomerates happened in the early 1990s and enforced cross-border ownerships of publishers. In order to get their books distributed by wholesalers, publishers offered wholesalers volume-based discounts that varied from 40% to 60% off suggested list prices.
Moreover, they financed promotion activities, such as end-caps, in-store recommendations, and other marketing events. Traditionally, books were sold to wholesalers on a consignment business. This means that books could be returned to publishers for full credit. Returned books had to be destroyed or sold through other ways at a discount. In order to reduce the growing return rates in the mid-1990s, publishers began to offer additional discounts and introduced on-demand publishing so that demand forecasting errors could be avoided.
The biggest US wholesaler, Ingram, stocked nearly 500,000 titles. It shipped most of the orders the day it received them which arrived at the retailer within a day or two. Wholesalers proposed volume-based discounts between 40% and 50% off suggested list prices to the retailers. Moreover, they offered free and faster delivery, which should encourage retailers to order from wholesalers and not directly from publishers, which was also possible.