Advertising


"The online traffic at Barnesandnoble.com is growing rapidly, but it's only about half that of Amazon.com. Still, if any of them had jumped in early -- the debut of Barnesandnoble followed Amazon's be nearly two years -- they could have prevented what will be intense competition from now on,' Judson said."

In a year-end survey of 125 traditional retailers, 76% of the respondents were selling on the Web, or would be soon (Kaufman, 2). While the list did not include very many familiar names, Barnes & Noble was among them. But investors question whether traditional retailers will ever catch up to the internet-only companies who were there first. Kaufman believes that Amazon.com is one of those companies who "got it right" by beginning so soon, and because of the wise decision, they are now in a position to dominate online sales far into the future.

Amazon.com may have an advantage of selling goods online: the ability to reach a mass audience with a virtually unlimited, searchable selection of products -- without incurring huge overhead costs. But unfortunately for investors who didn't get in early, Amazon's stock price already reflects much of the company's potential. At more than $200 a share, shares of the fast-growing but still money-losing company may offer more of a risk than a reward. Barnes's stock price is certainly more reasonable than Amazon's. But, the problem for BKS shareholders, is that the huge expense of operating and marketing barnesandnoble.com, is hurting earnings and obscuring the impressive growth at Barnes & Noble superstores. The cost of keeping up with Amazon.com is one reason for the disappointing earnings. Barnes & Noble is scrambling to take back market share from Amazon.com, and doing so involves spending money on Internet advertising and marketing (Wang).


Here are two examples of Amazon's simple advertisements used on the world wide web. The one on the left is a simple logo: when the visitor clicks on this, it will take them directly to Amazon.com. The example on the right is used to begin a direct search. Usually accompanied with their logo and a spot for the visitor to type and begin a search.


Barnes & Noble is on track to sell more than $3 billion worth of merchandise in calendar year 1998 -- still a far sight more than the $540 million Amazon is expected to sell. The company's biggest problem is that its Web-site expenses are eating up profits from their stores.

Meanwhile, Barnes recently announced a plan to purchase Ingram Book Group, the world's largest book distributor, for $600 million. The acquisition, which includes 11 distribution centers, should allow Barnes to deliver books faster and cheaper.

Although Barnes & Noble and Amazon.com are often compared, in a few years they may not be in such direct competition. Amazon's game plan is to reconstruct from an online book seller into an Internet mass marketer that sells a range of products. But Barnes & Noble remains in the book business.


An example of a Barnes & Noble ad in Time magazine, advertising its' website, BarnesandNoble.com


Barnes & Noble Inc. and Bertelsmann AG on Thursday disclosed plans to sell up to a 20 percent stake in their jointly owned on-line division, barnesandnoble.com, raising needed cash to go up against rival Amazon.com and other Internet book sellers.Barnes & Noble and Bertelsmann a German book-publishing giant, each own half of barnesandnoble.com, the No. 2 on-line bookseller after Amazon.com. In September, Barnes & Noble filed to take the on-line business public, but it shelved the plans after Bertelsmann bought a 50 percent stake in barnesandnoble.com for $200 million. Bertelsmann will contribute $50 million to barnesandnoble.com after the stock is publicly offered, the remaining part of $100 million it had pledged to contribute to the joint venture. Still, investors in Internet stocks focus more on potential growth than on current losses of companies that are well-positioned to benefit from the explosion of Internet traffic and sales.

If E-commerce grows as expected in coming years, the book business isn't a bad place to be. Demographics are in its favor due to rising educational levels and an aging population. And while Amazon clearly has the lead brand name with today's Internet audience, some analysts believe that when mainstream Americans start flooding online, Barnes & Noble will be the name they turn to for books. Amazon's sales may grow faster. But given the newbie's sky-high stock price, right now Barnes & Noble seems a better buy for investors.

"This is really part of a war,'' Louis Ehrenkrantz, an analyst with Ehrenkrantz King Nussbaum, said. ``Barnes & Noble is considered No. 1 in the industry, but it looks like a No. 2 in the stock market."