Barnes & Noble announced last Friday its agreement to buy the Ingram Book Group, the country's largest book distributor and Amazon.com's biggest supplier, for $US600 million in cash and stock.
Amazon.com officials immediately voiced their concern about the combination, which creates an intricate web of connections between Amazon.com's suppliers and competitors. Barnes & Noble's online unit, Barnesandnoble.com, is Amazon.com's primary Web competitor. And in a deal announced last month, international publishing group Bertelsmann agreed to buy half of Barnesandnoble.com.
In a written statement to reporters sent out shortly after Barnes & Noble's announcement, Amazon.com said, "The combination of the country's biggest book retailer with its biggest distributor, and, given the recently announced Bertelsmann transaction, its biggest publisher group, undoubtedly will raise industry-wide concerns. Like other independent booksellers, we hope that Ingram resolves those concerns with a strong commitment to treating all bookstores fairly."
The combination is ironic in light of the fact that Amazon.com founder Jeff Bezos located his company in Washington state partly to be close to Ingram warehouses. Amazon.com's business model is premised partly on an ability to carry relatively few books in inventory and fill orders quickly through book distributors. Last year, according to financial statements, 57 per cent of Amazon.com's book purchases came through Ingram.
Amazon.com has made no secret of its desire to reduce its reliance on the distributor. "Our long-term strategy has been to diversify our supplier base and to increase our direct purchasing from publishers," the company said in Friday's statement.
While Amazon.com's stock fell when the Barnes & Noble-Ingram deal was announced, the long-term effect on Amazon.com's business might turn out to be less than meets the eye. Barnes & Noble had planned a public offering for Barnesandnoble.com, which was put off when Bertelsmann agreed to buy half the online unit. If Barnesandnoble.com eventually goes public, it will become an independent company responsible to its own shareholders. In that case, despite the similarity in names, Barnesandnoble.com will have to maintain an arm's-length relationship with the offline company, and the two will not be able to negotiate special deals.
Meanwhile, Amazon.com's sales are vastly ahead of the fledgling Barnesandnoble.com. In the first six months of 1998, Amazon.com's total sales were about $203 million. Barnesandnoble.com reported just under $22 million in sales in six months of 1998 (that figure covers a period running from February through August 1, so it is nearly but not precisely comparable to Amazon.com's numbers).
Despite its tremendous lead in the online world, Amazon.com has long striven to portray itself as an underdog doing battle with giant offline companies. On this issue, the company stuck to its accustomed tone. Said CEO Jeff Bezos: "Goliath is always in range of a good slingshot."