The Forgotten Story of What Happened to Amazon on May 12, 1997
Twenty years ago this week, an upstart bookseller named Amazon issued stock at an offer price of $18. Amid skepticism from the media and industry analysts, Jeff Bezos pushed for an even higher IPO price, gathered much needed cash to help fund expansion, and then moved the company forward into very uncertain territory (except to Bezos). What is often forgotten is what happened just three days prior, on May 12, 1997: the young company was slapped with a lawsuit from behemoth retailer Barnes & Noble challenging Amazon’s marketing claim as “World’s Largest Bookstore.”
The timing was strategic: the very day the suit was filed, Barnes and Noble launched its own ecommerce website. The message was clear: this is war.
A few months later, Steven Riggio, COO of Barnes & Noble, said the following: “There was a mystique about how difficult it was to get started on the Web, but it’s quickly fading.”
Riggio’s bravado, as laughable as it may seem today, simply reflected the unbridled confidence of the top company in its field. Getting started on the Web was indeed easy. Gaining ground on Amazon’s 23 month head start was much more difficult. What actually faded, of course, was Barnes & Noble’s reputation as the leading bookseller in the U.S. After suits and countersuits (piled on top of a terrible reputation for decimating beloved local bookshops) Barnes & Noble came across as a bully, ill-prepared, behind-the-times, and chasing a smaller competitor. They never lost that image. Amazon was viewed as the forward-thinking, savvy if unprofitable innovator with an ebullient CEO who wanted to change the way customers received books and other merchandise. They never lost that image.
The rather inane lawsuit between the two was settled a few months later, but Amazon’s race to outpace Barnes and Noble wasn’t won quickly. Not until 2002 did Amazon move past its bookselling competitor in sales revenue. Along the way, Amazon expanded into additional categories — first with music and then with myriad other products as skeptics continued to shake their heads. Bezos was chided in 2000 by Motley Fool analyst Paul Commins: “he’ll never make a profit selling weed wacker replacement spools over the Internet.” I suppose this is the point where I confess that I regularly purchase weed wacker replacement spools via Amazon? Clearly I’m not alone.
Despite so many missteps, bad investments, and poor leadership by Barnes & Noble let me be clear: they still have intrinsic customer value. And the myriad independent bookstores across the U.S. like The Wild Detectives (Dallas), Powell’s (Portland), and City Lights (San Francisco) are making great decisions as community partners and adding even better value for customers. Don’t take my word for it. Jeff Bezos said as much in an insightful Wired magazine interview published in the weeks following Amazon’s 1997 IPO:
“I think the large majority of book sales will always continue to be in physical bookstores. And it’s just…. An analogy: TV and the VCR did not put the movies out of business. In fact, Hollywood and the movies is a bigger industry than it ever was before TV and the VCR. And there are often a lot of secondary and tertiary effects that cause the old distribution method to actually improve when a new distribution method comes along.”
Despite Bezos’ best attempt to soft-sell Amazon’s potential to dominate bookselling, by 2013 book publishers started making more revenue from online sales than from brick-and-mortar stores. But his larger point remains true: ecommerce is not the death of physical stores but rather an important part of a re-calibration of consumer shopping habits that could lead to an improvement of “old distribution methods” — brick and mortar. [I made a similar analogy in a recent post.]
Armed with massive customer data, Amazon recently began opening physical bookstores, an interesting turn of events that echoes its founder’s comments two decades ago regarding an improved “old” method. Amazon’s store design and merchandising is intriguing, especially the integration of electronics and “locally” popular books but it also seems rather rigidly programmed and overly processed compared with the unique and proudly personal point of view offered by many successful independent book shops. That being said, Amazon’s ability to tinker and test its way to success is well proven, even if it takes several years.
Twenty years after Amazon’s IPO, even Warren Buffet confessed that he “underestimated the brilliance and the execution” of Bezos, who might well end up the most influential figure in all of modern retail.