Amazon vs. Borders Books: Strategy, Failure & Success

Introduction: Two Booksellers, Two Visions

This analysis evaluates the history and core business of Amazon.com and Borders Books, comparing and contrasting their respective management approaches to Internet marketing and fulfillment — two areas in which each company operated very differently. Three factors that contributed to Amazon's success are examined alongside three factors that led Borders to bankruptcy despite having once operated a flourishing and profitable retail business. In analyzing each company, the ability of each management team to anticipate and react successfully to changing market conditions is also assessed. Finally, three recommendations are offered for how each company could have built greater flexibility into its decision-making process to remain more agile and better able to adapt to shifting market conditions.

Both Amazon and Borders began with the goal of becoming a global leader in book selling and content distribution, yet each defined its value chain in a completely different way. Amazon began with the goal of being the world's largest online bookstore, and after years of work on its distributed order management and fulfillment systems, launched its first website in 1995. During this period, the company also became the exclusive book retailer for America Online, Netscape, and other websites that were just beginning to engage in e-commerce. Amazon's focus on supply chain management, logistics, distributed order management, and later investments in recommendation engines — which automatically suggested books a customer might find interesting — became a strong differentiator throughout the latter 1990s and into the 21st century. Amazon also nurtured strong skills in forming alliances and partnerships, in addition to developing innovative technologies built on its rapidly expanding technology platform. Amazon learned early how to harness the commitment and support of its customers to gain greater insights, and a kind of volunteerism around the brand emerged as a result (Cook, 2008). The Amazon Web Services (AWS) business unit originated from the core set of technologies used to manage the massive online bookstore and multi-country language localization requirements (DataMonitor, 2010). Amazon was listed on the NASDAQ stock exchange in 1997 and is today one of the most profitable e-commerce stocks available to investors. The Amazon value chain is fueled by high-margin opportunities best capitalized upon through innovative technologies and supply chain systems that minimize costs and maximize inventory turns.

In contrast stands Borders Books. Borders began in 1971, founded by Louis and Tom Borders in Ann Arbor, Michigan. The company was initially formed to sell used books and over time began to carry new titles as well. Through the first two decades of its existence, the company continued focusing on the service and distribution aspects of its business, strengthening its channel partnerships and alliances with large bookstores. As the market for independent bookstores appeared increasingly saturated with suppliers, Borders management chose to open a second store in Birmingham, Michigan. Borders successfully made the transition into retail chain operations and continued to build to a peak of 516 stores, along with 385 Waldenbooks specialty locations nationwide. February 2011 proved a very difficult time for Borders, as the company was forced to file a petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. As part of the petition, Borders partnered with liquidators who closed the 200 lowest-performing stores. That same month, the company was delisted from the New York Stock Exchange, and from that point through October 2011, the company fully liquidated, selling off its assets to smaller local and regional chains.

The value chain Borders maintained was entirely focused on the classical model of brick-and-mortar retailing and often failed to respond quickly enough to price and demand shifts in the market. The greatest challenge Borders faced was staying relevant as Amazon could offer a larger selection and a far greater level of responsiveness for hard-to-find books. Borders' supply chain could take 72 hours or longer for a hard-to-find book merely to reach the store. Amazon could locate it and have the book in the customer's hands within 48 hours or less. The specialty strength that Borders had built was quickly eroded as Amazon's logistics and supply chain capabilities gained momentum.

Amazon's management team recognized early that the value chain was the most critical aspect of their business model, and that a smoothly functioning logistics and supply chain management system would be essential. The investments in these back-office systems allowed Amazon's marketing team to make reliable commitments to customers about shipments and consistently meet or exceed them — a brilliant strategy for earning customer satisfaction and loyalty. Amazon also invested heavily in reputation and referral systems that interpreted a customer's purchasing history and generated recommendations for additional products (Wang, Doong, & Foxall, 2010). In this way, Amazon pioneered the use of data mining for upsell and cross-sell support (Saranow, 2003). In short, Amazon was able to transform its business through technology while keeping customer satisfaction and expectation management at the center of its strategy.

Comparing and Contrasting Approaches to Internet Marketing and Sales

Borders, by contrast, continued with its traditional retail operations model, pursuing cost and time efficiencies rooted in decades-old practices. There were few meaningful innovations in how Borders approached its business model and back-office systems, and consequently there was little innovation on the marketing side either. The business operated much like other bookstores, yet lacked the back-office efficiencies and innovations that gave Amazon a clear advantage in differentiating the customer experience (Crosby & Masland, 2009). Borders also lacked the capacity to manage the increasing complexity of e-commerce, even after the company entered Internet-based selling. The absence of back-office data and information synchronization left Borders competing online using its website as little more than a proxy for a physical store. Critics described the site as a static storefront, offering no meaningfully differentiated value from the online experience. As a result of failing to deliver a compelling online presence, Borders ultimately ceded that channel to Amazon entirely, and its marketing never recovered from that retreat. The company continued to spiral downward from that point.

Three factors stand out as central to Amazon's rise. First, Amazon's founders and senior management had the foresight to invest heavily in back-office systems that would ensure scalability and reliability as the business grew. Second, Amazon concentrated on delivering a unified multichannel experience for customers. Regardless of where a customer entered or exited the site, movement across channels was consistent and easy to navigate. Amazon is deeply committed to a seamless customer experience throughout its platform (Hausman & Siekpe, 2009). Third, Amazon quickly recognized that its logistics, supply chain management, and distributed order management systems made it possible to deliver even the most hard-to-find book in days rather than the weeks required by competitors (Feigenbaum, Parkes, & Pennock, 2009).

Analyzing Amazon's Critical Success Factors

All three of these factors combined to redefine Amazon's unique value proposition. They also laid the groundwork for a more effective globalized strategy as regional and national sites were launched over time. Amazon invested heavily in these areas, which produced net losses in the company's early years. However, those investments have continuously compounded in value, transforming Amazon into a multi-billion dollar enterprise.

One of the most significant accomplishments Borders achieved was the development of a scalable, profitable franchise model. This gave the company the ability to quickly open new stores and bring existing locations into new initiatives and programs (Hall & Gupta, 2010). A second factor was the ability to rapidly create multichannel programs, which allowed Borders to move into new products and services while stabilizing existing revenue streams. The third major success factor was the ability to launch subsidiary stores in a fraction of the time it took competitors — Borders had reduced the logistics of opening new stores to a science, keeping the franchise model running efficiently.