Barnes

1
Barnes Noble vs.Amazon.com

• Jonathan Leonard

2
Positioning analysis

• Examines relative costs and relative willingness
  to pay between competitors
• a.k.a. relative competitive position (RCP)
  analysis
• A good starting point for assessing the strengths
  and weaknesses of a given strategy, threat of
  retaliation from direct rivals, and potential
  impact of substitute technologies

Know the enemy and know your yourself, and you
can fight a hundred battles with no danger of
defeat Sun Tzu
3
BN vs. Amazon
Amazon
BN
WTP
Price
Cost
4
Link Positioning analysis, added value, and
competitive advantage
5
Four threats to sustainability of competitive
advantage
Imitation
Substitution
Slack
Holdup
6
Threat and Response

• How great is the threat?
• Will the current business model disappear?
• How can the existing firm modify its current way
  of doing business to respond to the threat?

7
Cost Comparison Online vs. Offline Business
Models, 1996
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Responses to Substitution Threats

• Place head in hole in ground.
• Harvest. Manage business for cash, anticipating
  exit / reduction in scale
• Fight. Investing to improve the value generated
  by the existing products / business model
• Straddle. to delay the penetration of rivals
  business model
• Recombine. Incorporate elements of rivals
  business model
• Switch. Complete conversion to rivals business
  model

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Generic Barriers to Effective Responses to
Substitution

• Substitutes tend to start out in small, less
  profitable niches, and are at their most
  dangerous when they initially underserve the
  needs of existing customers (but get better
  fast!)
• Substitutes tend to inspire mixed motives in
  incumbents, who may believe that their incentives
  to respond are dissipated by cannibalization
  threat
• There may be ambiguity about which business model
  will win out
• Responding to substitutes may require
  capabilities that incumbents lack and that are
  hard to acquire

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Barnesandnoble.com vs. Amazon.com
11
Barnes Noble Corporation vs. Amazon.com
12
Barnes Noble Financials
PERIOD ENDING
31-Jan-04
1-Feb-03
2-Feb-02
Total Revenue
5,951,015  
5,269,335  
4,870,390  
Cost of Revenue
4,323,767  
3,855,842  
3,560,038  
Gross Profit
1,627,248  
1,413,493  
1,310,352  
Operating Expenses
Research Development
-  
-  
-  
Selling General and Administrative
1,124,551  
965,135  
904,280  
Non Recurring
8,778  
35,555  
12,459  
Others
163,629  
148,691  
147,826  
Total Operating Expenses
-  
-  
-  
Operating Income or Loss
330,290  
264,112  
245,787 
13
Amazon.com Financials
PERIOD ENDING
31-Dec-04
31-Dec-03
31-Dec-02
Total Revenue
6,921,124  
5,263,699  
3,932,936  
Cost of Revenue
5,319,127  
4,006,531  
2,940,318  
Gross Profit
1,601,997  
1,257,168  
992,618  
Operating Expenses
Research Development
-  
-  
-  
Selling General and Administrative
1,169,536  
983,681  
881,443  
Non Recurring
(7,964)
140  
41,573  
Others
-  
2,752  
5,478  
Total Operating Expenses
-  
-  
-  
Operating Income or Loss
440,425  
270,595  
64,124  
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Responses to Threats to Sustainability

• Responses to Imitation
• Building Barriers
• Economies of scale and scope
• Learning/private information
• Contracts and relationships
• Network externalities
• Threats of retaliation
• Time lags
• Strategic complexity
• Upgrading

• Responses to Substitution
• Not responding
• Fighting
• Switching
• Recombining
• Straddling
• Harvesting

Added Value
Appropriated Value

• Responses to Holdup
• Contracting
• Integrating
• Building bargaining power
• Bargaining hard
• Reducing asset-specificity
• Building relationships
• Developing trust

• Responses to Slack
• Gathering information
• Monitoring behavior
• Offering performance incentives
• Shaping norms
• Bonding resources
• Changing governance
• Mobilizing for change

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The Great Leveler?

• Electronic commerce threat in
• Groceries (Webvan, Peapod v. Safeway)
• Clothing
• Airline Tickets
• Stock-Trading

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Substitution Threat Economics of Brokerage
Business Models, 1996
Source Rajiv Lal, E-Trade Securities, Inc.
Stanford University Graduate School of Business
Case No. M-286, 1996