Business Model analysis of Amazon and Barnes and Noble

The United States books market has grown by 1.6% in 2009 to reach a value of $26.1 billion (Data Monitor.com). In this large market sector the focus is more than ever on finding the best prices and firms like Amazon that are known for their high value at low prices strategy are well positioned to benefit from such market need. The Online Bookstore industry have become a fierce business which involves discounts, varied selections and fast delivery in which all companies are challenging each other. The major competitors are Amazon and Barnes and Noble.

Competitive Forces :

New Entrants

Amazon was the first one to get into the whole idea of online retail, and thus being the first mover they had the luxury to set the standards which became the norms for the industry. The only feature lacking for amazon was its presence in the form of real brick and mortar stores. This network of “actual” retail spaces which apparently made it easier for the consumer to return or exchange the products they were not satisfied with. This handicap of Amazon was the basis for the emergence of book retail giants Barnes and Noble to enter into the online shopping industry.

Buyers

The buyer demographic for the online retail industry is people who have with special interests, highly educated, professionals, students and an access to the Internet and computers. The segment of online shoppers has increased dramatically in recent years due to the convenience of shopping in the comforts of the home and the accessibility of the Internet. These developments have made it easier for consumers to log on and buy on the Internet. Consumers also tend to compare prices among the retail leaders such that buyers are able to buy products with very big discounts compared to ones bought in “actual” retail outlets. The bargaining power of the consumer is based on the competitive strategies of each active firm in the industry. Thus, consumers can challenge one firm for charging more than the other one such that the firm will beat the price of the competing firm.

Suppliers

Amazon’s suppliers range from the publishing and media houses to electronics’ manufacturers. Amazon buys all their books, videos and audio CDs from the multimedia houses and publishing giants such as Time Warner, Doubleday etc. Amazon also has alliances with other bookstores to cover orders that they cannot serve.

Substitutes

The substitutes for Amazon and other online bookstores are the “actual” book retailer and music store, such as Barnes and Nobles itself. The impact from the substitutes is less and less by the day and as buyer preferences are changing constantly, but one impact would be some consumers who would like to hold or listen to their purchases prior to buying and those who are into the retail store “shopping experience”.

Overview of Barnes & Nobel

Barnes&Noble.com, Inc. a wholly-owned subsidiary of Barnes and Noble, Inc., is an online retailer of books, magazines, software, DVDs, videos, music, ebooks and more. The online store’s database of more than 1 million titles offers bestsellers, books from small presses and university publishers and access to approximately 30 million listings for out-of-print, used and rare books. The web site contains book descriptions, reviews and excerpts, as well as a section that features recommendations from other readers, based on recent bestsellers. The web site offers a feature which allows customers to sell used textbooks to BarnesAndNoble.com. The online music store sells classical, jazz, rock and world music and different other genres of music, and offers exclusive interviews, free downloads moreover it also has 1 million sample audio clips, close to 100,000 music reviews and a roster of 40,000 artist biographies. The company’s PC games and video store carries thousands of new and used titles, consoles, accessories and strategy guides. The web site also sells toys, games and office supplies. Barnes & Noble, Jr. is an online section devoted to children’s books, videos and music. B&N Screening Room is a web page where customers can view and order more than 10,000 full length previews. Barnes and Noble owns and operates two distribution and customer service facilities in New Jersey and mainly operates through the Chain of book stores and through its e-commerce website. Thus Barnes & Nobel is a company with a strong brand name and has a formidable presence in the book retail business enabling it to gain incremental market share by penetrating into new categories.

Overview of Amazon

Amazon.com, Inc. is an Internet consumer-shopping site which offers millions of new, used, refurbished and collectible items in categories such as books, movies, music and games, electronics and computers, home and garden, toys, children’s goods, grocery, apparel and jewelry, health and beauty, sports, outdoors, digital downloads, tools and auto and industrial. The company began operations in the early 90’s as an online book retailer. The products offered by the company include merchandise purchased for resale and products offered by third party sellers. Amazon caters to its seller customers by offering programs that enable this category of customers to sell their products on the seller’s websites and also on Amazon’s website. The seller customer can manage both the websites (own website and Amazon’s website) with a single account. Amazon fulfills the seller customer orders through its global fulfillment center network. Amazon earns fixed fees, revenue share fees or per-unit activity fees on such transactions. in certain countries. The Amazon Marketplace and Merchants programs allow third parties to integrate their products on Amazon web sites, as well as provide related fulfillment and advertising services to third-party merchants; allow customers to shop for products owned by third parties using Amazon’s features and technologies; and allow customers to complete transactions that include multiple sellers in a single checkout process.

HEAD -TO – HEAD Analysis

Business Model Comparison

Amazon

Barnes&Nobel

Audience Targeting

Amazon targets a wider audience base and carries books for variety of different users

Barnes&Nobel’s strategy is to sell books to a more focused audience targeting and it lists books base on user demographics

Attractiveness

Convenience, price advantage, User analytics to generate recommendations and

Suggestions

Shipping to international locations

The advantage of a physical store, strong brand value, well focused segmentation and selection of books based on user segmentation

Effectiveness

Comparison of book prices, option of buying new as well as old books from the affiliate program and mainly the cost saving for the consumer is a major feature

The feel of traditional brick and mortar store are maintained and the online model adds to the added convenience and is seen as the extension of the actual store

In the table below we take a comparative look and try to rate the two online platforms each on scale of 1-5 on basic parameters which would be experienced by day to day users.

Usability – Amazon and Barnes and Nobel have good features such as customer review, catalogs, book comparisons, wish list features and many other features which make the browsing experience one of the best. Also both the websites contain a lot of information about the books that they carry and have an extensive database for the same enabling the user to generate the most specific appropriate search results.

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Speed – Effectively BarnesandNobel website which is a little less feature ridden and has a clear and well uncluttered layout is a tad faster than the amazon web site which is much more feature laden and contains rich media and AJAX, but the difference in speed is not a big difference except for the simplified layout of BarnesandNobel allows for a smoother browsing experience.

Design- The design of amazon and barnesandnobel where in the former is trending towards a more feature rich experience such as the recommendations feature, look inside feature, and many other user enhancement features which are helpful but are not sometimes necessary. Whereas in the case of barnesandnoble the website is very clearly designed to give a clutter free browsing experience and most of what the user demands is segmented into well differentiated categories and one of the best features is its search feature of barnesandnobel.

Customization- This feature is much more advanced in the amazon website where there is option to customize a lot of the user preferences and allows to even the change of history and other options in the user account.

Thus based on the above chart and our own parameters we can deduce that in overall experience amazon rates higher and the Web UI for amazon is well planned and makes for a better online shopping experience. Also with their strategy the focus is on the development efforts on and creating and enhancing the specialized, proprietary software that is unique to their business.

On the other hand the based on the BarnesandNobel approach the website is less cluttered and very simplified in its layout as compared to amazon.com’s feature laden website in turn giving it a smooth browsing experience and allowing for less user distraction.

BARNESandNOBEL.com Monthly Unique Visitor Levels ( Latest month = 7,718,299 visitors )

AMAZON.com Monthly Unique Visitor Levels ( Latest month = 73,279,379 visitors )

From the above two graphs we can deduce that the user traffic generated by amazon is much higher and thus has some bearing on the buyer preferences.

KEY FEATURES

Amazon.com

Amazon.com optimizes content to improve customer experience by the use of business analytic and business intelligence software

It relies on crunching massive data volumes: and provides customized recommendations on buyer’s previous purchases thus using web analytics to its advantage

Comparison of prices to suggested retail and information about new book price and used book price

Customizable history and recommendations feature allows the user to make changes and in case there are results different from the users choice one can change it

Best practice Check out and Shopping Cart features

Search Inside feature for books which allows the user to look into the index and first one or two chapters of the book to get a better idea

BarnesandNobel.com

Membership model allows for added discounts and also brings back repeat buyers

The search feature of barnesandnobel.com is one of their strong points the user has option to search by title of book, authors last name, keywords, price, and other different options

It suggests books based on trends and similar buyer preferences

Option to purchase books either by registering or by using the express check out

Buyers can add books which are out of stock to their wish list and later be notified when the book is in stock

A list of the best-selling books Is displayed to help users who are browsing to contemplate buying a book

New Web 2.0 feature added is the “Tag Cloud” where trend of user search words is highlighted and the more the term has been searched for, the bolder and bigger it appears in the cloud

Conclusion

Thus on examination of the market leaders in the online book retail segment it is clear that the market is highly competitive and there is increased competition being faced by the existing players which has also resulted in price wars and there is constant need to provide better customer experience and more user functions and on evaluation of the factors such as innovation, better customer experience and the revenue and business models of the market leaders we can assume that even though both are online retailers of books but still there is a vast difference in both their business models. Amazon which is a pure online marketer and BarnesandNobel which is an online as well as a brick and mortar business have different customer appeal. By incorporating the best features among both the websites and by carving out a niche segment in the online book retailing segment we might be able to deliver a website which is rich in content and also provides exceptional buyer experience.

The idea of coming up with a focused and niche based website targeting the Arabic speaking world is that there is dearth of such a service and there is no service provider who full fills the current market need, and so in order to fill this market gap and towards this goal the concept of Merhaba.com has been proposed which would achieve the status of being the premier online book seller targeted towards the Middle-Eastern and Islamic world and give us the differentiation and enable to carve out a niche to survive in this highly competitive market.

Thus based on a Web Catalog/Affiliate model the website would also have space for advertising on the affiliate pages and in turn providing for generation of revenue from three different stream, mainly from the sale of books direct from the web portal as well as to provide a platform for individual sellers to host their accounts and list their own merchandise and to generate commission and also derive revenue from advertising on affiliate pages. The idea is to try an implement a website which offers the user a simplicity of use and also robust enough to achieve smooth transactions and have repeat buyer.

Some of the main stay features of this website would be the following:

Arabic and English content and language support

Effective website and catalog search

Enlarged product views

Recommendation feature for users using BI

Affiliate program for partners to sell their own merchandise and generate revenue from commission

Customer review and feedback section

Customer wish list and email, wherein an out of stock item when in stock the customer would receive an email informing him of the same.

Frequent buyer programs

Search trends in the form of a “Tag Cloud”

With the above mentioned features in mind the idea is to create a website which provides enhanced user experience and enough features so as to go from the different stage of a user

Arrival- The user Arrives on the website

Navigation- Browses the merchandise

Decision- Makes the decision

Purchase- and confirms the sale and makes the payement

Thus with the above goal in mind the intent of creating Merhaba.com is to offer to consumers of books a different option other than the existing and traditional online booksellers which are targeted towards only the English speaking user. The target segment for the online retail market for our website would be in the Saudi Arabia and other parts of the middle-eastern region.