As usual I was a bit early with my post The LOng blusTer of the bLOcKed tALe? The subsequent bankruptcy of Borders last week would have been a for more opportune time to write about the economics of the publishing.
“Borders Group does not have the capital resources it needs to be a viable competitor and which are essential for it to move forward with its business strategy to reposition itself successfully for the long-term,… We are confident that, with the protection afforded under Chapter 11 and with the support of employees, publishers, suppliers and creditors, and the reading public, a successful reorganisation can be achieved enabling Borders to emerge from the process as a stronger and more vibrant book seller” - Borders president Mike Edwards
Moving forward Borders has indicated it will be closing about one-third of its Book stores and 600 jobs. Borders owes Pearson Plc’s Penguin $41.2 million, Hachette Book Group USA $36.9 million, and CBS Inc’s Simon & Schuster $33.8 million, according to court documents.
Obviously a lot has been written over the past week describing how eBooks and the Internet has fundamentally changed the industry and therefore the demise of the big box book store was inevitable. There was even the proposition in the WSJ that people simply don’t read any more.
Take another look at the Association of American Publishers Stats and you’ll see that the growth in eBooks parallels the decline in book club sales. So yes, eBooks are part of the book buying equation, but probably not core to the demise of Borders.
How about Amazon?
As we discovered in The LOng blusTer of the bLOcKed tALe?, the sales margins for the book retailers may be a healthy 40%, but the profit margins are very thin (Think an industry average of around 1%). Plus the sales have essentially flat-lined over the past decade. So this equation always made book retailing highly susceptible to being disrupted by the Internet enabled, direct mail catalogue industry.
Put simply Amazon, and the other online book retailers, always had the potential to offer customers significantly More for Less. So it was always going to be a question of when, rather than if, online book retailing would revolutionise the book distribution industry.
Take a look at the financial statements of both Amazon and Borders and you’ll see just how much more effective the global online distribution strategy has been over the past decade. Back in 2001 the revenues of the two companies were practical identical. Last year Amazon out performed Borders by a factor of 12:1 and Barnes and Noble by a factor of 6:1.
So why didn’t Borders see the online revolution coming? The simple answer is they did but, like many retailers in the 1990′s, when their early adopter expectations for online retailing were not met they quickly went back to doing what they did best. Amazon took over Borders.com back in 2001 and by 2009 it was selling more than twice as many books, CD and videos than Borders in the USA.
The real story behind Borders bankruptcy then isn’t that it was successfully disrupted by the Internet or Amazon but it failed to disrupt itself over a decade ago. It went short on a long wave strategy and in the end paid the price.
Further Reading
- Crush or Get Crushed: Why B&N Needs to Be a Publisher – GigaOM
- Do you love books – Times online
- Coming soon to Amazon’s premium customers: A free Kindle? – The Technium
Posted on February 21, 2011
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