Case Analysis Questions on Leadership Online (a): Barnes & Noble vs. Amazon.Com

Q1: Summarize Barnes & Noble’s business strategy and business model based in the case descriptions. How have these strategy and business model been evolved since the case was written?

Barnes & Noble’s business model simply put was lower cost, and SCM. They sold merchandise at lower cost and they also decreased cost associated with procurement by obtaining better discounts from publishers than other book retailers and by publishing certain titles themselves. Since Barnes & Noble’s held a huge portion of the market share they were able to leverage scales of economies when it came to reducing costs. Lastly, they were able to achieve reduced inventory cost through the business perks provided to them such as longer payment terms and access to books in short supply. Barnes & Noble’s business strategy was to use economies of scale and economies of scope. They used economies of scale through procurement and logistics. Since they were able to get bigger discounts from publishers they were able to produce more revenue when selling merchandise. As far as economies of scope is concerned one can clearly see that Barnes & Noble’s implemented this because they offered other services and they acquired other companies as well as certain percentage stakes in them. They acquired a mail-order book business, a membership club, and a 20% stake in Canada’s largest book retailer to try and broaden their scope. I think one can argue that Barnes & Noble’s business strategy and business model in theory hasn’t changed (I.e. that they use economies of scale still) that they just added new products or services; however, I‘ll make the argument that both has changed. Barnes & Noble realized how big the virtual storefront became so not only did they try to create an on-line presence they also created the nook an e-reader device. They self-manufacture this product along with a couple other devices and currently sell them in their stores. They are aggressive in trying to obtain portions of market share in the virtual book retailing industry. Also in June 2011 consumer reports stated that the nook beat the kindle (amazon e-reader device) by one point. So it is apparent that Barnes & Noble is changing their business strategy and model we’ll just have to wait and see how successful they are.

Q2: Summarize Amazon.com’s business strategy and business model based in the case descriptions. How have these strategy and business model been evolved since the case was written?

The case describes Amazon.com’s business model as “sell all, carry few”. What that means is that Amazon will make money though SCM and though reduced cost. Amazon was able to achieve reduced or low inventory cost by only carrying a few select titles in their own warehouse in Seattle while offering over one million titles though publishers and wholesalers. Their business strategy revolved around virtual economies of scale. Amazon was able to sell a lot of books at lowers prices by leveraging their buying power with publishers and wholesalers. Amazon.com’s business strategy and business model have expanded a bit. As far as business strategy is concerned amazon is now offering a variety of services and products such as cloud services and other products that aren’t books. Amazon also just implemented a trade in service were you can trade cell phones, video games, and other electronics and books for an Amazon gift card. So this will put them under implementing economies of scope. Their business model is following the same path as there are making money from their new services and by leveraging their buying power with other non-book products. One can also argue that they followed the one of a kind business strategy by offering products through a virtual storefront as opposed to the traditional brinks and motor.

Q3: In your opinion, how well did Barnes & Noble counter the moves that Amazon.com had made (up to when the case was written)? How about now? How is Barnes & Noble doing vis-à-vis Amazon.com?

I think Barnes & Noble did very well in countering Amazon.com’s moves. They created College Bookstores, a student oriented on-line book site. They also launched a new transaction system as well as launch their own web-site and make a deal with AOL. They also embarked on other system develop projects and marketing ventures. However, even though Barnes & Noble made good stride I don’t believe many of their ideas were successful. Jump into 2012 Barnes & Noble is still competing with Amazon.com and I think they’re doing ok but Amazon.com is playing chess with them and using economies of scope to capitalize on other opportunities. As I mentioned earlier a June 2011 consumer reports stated that the nook (Barnes & Noble) beat the kindle (amazon e-reader device) by one point. As far as overall health of the two companies is concerned I created a bar chart below to depict important factors off of their balance sheets. The information is current as of Sep. 2011. According to the two balance sheets it seems that Amazon is doing a lot better than Barnes and Noble. If I had to make a prediction I would put my money with Barnes and Noble. Also please note that Table one figures represents millions.

Q4: Based on the case and your own research, how do you characterize the competition in the bookselling industry in 2000 and 2011? Applying the Porter’s Five-Force model, which forces are impacting most on the profitability of firms?

The competition in the book selling industry is slowly increasing with new entrants and substitute products coming into the market. I would characterize the competition as increasing and becoming more dynamic as book retailers are using the economies of scope strategy to look for new streams of revenue. Applying Porter’s five-force model to the book retailing industry, there are two or three of them that are having the most impact on the book retailing industry. First, is threat of new entrants. Over the past few years there have been a couple of noticeable new entrants in the market, for instance Bilbo, half.com, and AbeBooks just to mention a few. These new entrants are fighting for a piece of the market share, thus likely taking market share from the major players such as Amazon and Barnes & Noble. There also an increasing market with e-books or electronic books. This would fall under threat of substitute products or services in Porter’s five-force model. People are increasingly adapting to using e-books. There are also specific devices such as the kindle and nook that facilitate their usage. Even DePaul University is adopting such technology with their e-book program (books 24x7 and others).
I don’t believe the buyers and suppliers parts of the model are having a huge impact because I would imagine that the company with the biggest market share would still have the most bargaining power when negotiating with the two; however, the entrance of e-books does add a dynamic aspect to the SCM part of the industry. I fi would venture to guess I would say that Barnes & Nobles will eventually go out of business unless business and that Amazon.com will survive as they pursue economies of scale by offering cloud services along with other potential revenue generators.