Last updated: August 2002

Amazon.com Case Update

Amazon.com Inc. (stock: AMZN) is undoubtedly the poster child for Internet retail businesses. It is the No. 1 Internet retailer of books, music, DVDs and videos, and has 26 million active customers in more than 220 countries as of first quarter 2002. In 2001, Interbrand's annual World's Most Valuable Brands survey ranked Amazon.com as the 76th most valuable brand in the world, ahead of Burger King and Shell, among others. According to MMXI Europe Audience Ratings Report, the Amazon.co.uk, Amazon.de and parent Amazon.com site are the top three online retail sites in Europe, based on reach. Amazon's founder and chairman, Jeff Bezos, was Time magazine's "Man of the Year" in 1999.

Amazon.com has evolved from an online bookseller to a general merchant, and today is the largest online retailer. It claims that it has “the Earth’s biggest selection” of products in categories such as books, music, DVDs, videos, toys, electronics, software, video games, lawn and patio, kitchen and home improvement. The company has also created Web-based marketplaces, including Amazon Marketplace, Amazon.com Auctions and zShops, where businesses or individuals can sell virtually anything.

The Amazon.com family of websites also includes Internet Movie Database (www.imdb.com), a comprehensive source of information on more than 300,000 movies and entertainment programs and 1 million cast and crew members dating from 1892 to the present.

Amazon Anywhere (www.amazon.com/anywhere) marks the company's entrance into mobile e-commerce. It provides access to all of Amazon's sites from wireless phones, PDAs (personal digital assistants) and other handheld devices.

Finally, the company has invested in and developed strategic relationships with several e- commerce companies to expand its customer offering.

Industry Barnes & Noble stores and Barnes & Noble.com (also called BN.com) are Amazon.com's primary competition in the books, music and video arenas. BN.com's online bookstore — with more than a million in-print titles, supplemented by 20 million listings — exceeds that of Amazon.com. With more than 6 million unique visitors a month, BN.com has the largest audience reach of any bricks-and-mortar company with an Internet presence. Forbes.com rated BN.com as the best bookselling website and the best music website.

Borders Group Inc. has so far been a minor player in the online space; in fact, the company has been struggling with its online bookselling business since its launch in 1998. Borders.com is the third-largest online bookseller behind Amazon.com and BN.com (the fourth-largest is Books-A-Million). In April 2001, Amazon.com took over Borders' online operations as part of a new partnership between the two companies. A new co-branded Borders.com website was launched in August, with Amazon.com providing inventory, fulfillment, content and customer service. In April 2002, Borders and Amazon extended their alliance to provide Amazon.com customers with the option of picking up books, CDs and DVDs at Borders’ 365 stores nationwide. A second agreement between the companies will

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create a new co-branded Waldenbooks.com website, similar to the current Borders.com. Both of these new features will be available by the 2002 holiday season.

As a general merchant, Amazon.com faces competition from Walmart.com and iQVC, department stores such as Macy's and JCPenny, category specialists such as Best Buy, CDnow and eBay, not to mention the e-commerce stores of leading Web portals Yahoo, Microsoft and AOL Time Warner.

Amazon.com Performance In January 2001, Amazon.com began disclosing its financial information in four business segments: (1) US books, music and DVD/video, (2) US electronics, tools and kitchen, (3) services (i.e., managing the Web presence for Borders and Target) and (4) international segment.

After losing $2.8 billion since it was founded in 1995, Amazon.com reached a milestone in January when it reported a $5 million net profit for the fourth quarter of 2001, well ahead of analysts’ expectations. The company posted full year 2001 net sales of $3.12 billion, up 13 percent from $2.76 billion in 2000. Amazon.com served 25 million customer accounts in 2001, compared to 20 million in 2000 and 14 million in 1999.

In the first quarter of 2002, revenues increased by 21 percent to $847 million, and net losses totaled $23 million – down from $234 million the year before. The book and services units were profitable, while the electronics and international units lost money. CEO Jeff Bezos said the company’s series of price cuts were the principal driver of its sales growth. “Last July we lowered book prices to 30 percent off books over $20, then six months later we introduced free Super Saver Shipping on orders over $99. Today, we’re thrilled to extend our 30 percent discount to include books over $15,” said Jeff Bezos.1

In its most mature business — US books, music and videos — the division showed an increase in sales of 8 percent to $443 million, representing half of Amazon’s revenues. Q1 revenues for its next largest category and its hope for the future – US electronics, tools and kitchen segment – were $126 million, an 8 percent increase from the first quarter of 2001. Net sales from the international segment rose 71 percent to $226 million, and now accounts for 27 percent of total sales, up from 19 percent in the first quarter of 2001. Amazon continues to increase its international business, which it expects to account for 50 percent of sales by 2005. Revenues for the service segment increased by 25 percent to $52.7 million in the most recent quarter. Sales in this segment include revenues from strategic relationships with Toysrus.com and Target, and amounts earned through Amazon Auctions and zShops. Analysts expect this number to grow as Amazon strikes more alliances, such as deals with Toysrus.com and Borders.com.

1 Amazon Q1, 2002 Financial Results, Press Release, 23 April 2002.

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Amazon.com Prep Questions and Answers

1. Analysts say that Barnes & Noble is the model for merging bricks and clicks in the bookselling market. How can Amazon.com combat BN.com's move toward service integration?

BN.com's service integration allows customers to use a Barnes & Noble store to return or pick up books and CDs ordered through BN.com. This convenience will appeal to at least one segment of customers: customers who have a purchase urgency need are likely to find service integration particularly valuable because they can order a product online and pick it up the same day, if available at a Barnes & Noble store.

The opportunity to return merchandise at stores will likely be promoted by BN.com as a distinguishing feature. Many customers prefer to return merchandise at a physical store rather than repackage and mail it. However, it is not yet known what percentage of customers return products such as books and CDs. These products can be sampled on the Web and, thus, one expects that customers return only a small percentage. Therefore, it remains uncertain whether this service will be an important distinguishing feature.

Amazon.com, which has no bricks-and-mortar operations, found it challenging to match BN.com's actions. However, Amazon's partnership with Borders, the No. 2 US book chain, will provide an opportunity for Amazon’s customers to reserve a book online and pick it up at local Borders store. In April 2001, Amazon.com took over Borders' struggling online bookselling operations, and re-launched a new co-branded Borders.com website in August, handling its inventory, fulfillment and customer service. In April 2002, both companies extended their alliance to provide customers of Amazon.com with the option of picking up books, CDs and DVDs at Borders’ 365 stores nationwide. A second agreement between the companies will create a new co-branded Waldenbooks.com website, similar to the current Borders.com. Both of these new features will be available by the 2002 holiday season.

Indeed, it may be possible for Amazon.com to use its partners to offer the same type of convenience not only for books, but additional products. For example, it has partnered with Toysrus.com to create a co-branded toy and video games store. Amazon.com could potentially arrange with Toys "R" Us to pick up toys purchased at this site and accept returns at physical stores.

In fact, because Amazon.com is aggressively expanding into new categories, it may be even more important for Amazon.com to offer return convenience than it is for BN.com. Several of these new categories (electronics, for example) have high return rates, and bricks-and-mortar competitors with online stores in these categories are likely to offer such convenience.

Gartner analyst Adam Sarner said that with Internet-only companies and old-line businesses recognizing the new economy's demand for online and offline service, pairings such as Amazon and Borders.com, or Amazon and Toysrus.com, will become

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increasingly common. Amazon is looking to expand its partnership strategy with other bricks-and-mortar retailers, which can potentially deliver larger profit margins than sales from books and kitchenware: During the past few months, the company has been talking with a number of prospective partners. These partnerships also benefit bricks-and- mortar companies. "Over the last year, it's become increasingly clear that our platform has become valuable to other companies," Amazon CEO Jeff Bezos said.

In fact, Amazon has announced new strategic partnerships with Circuit City and Target, providing its e-commerce technology and vast customer base to large retailers. In the deal with Circuit City, Amazon.com will further expand its electronics products selection. Under terms of the agreement, Circuit City electronics will be available through Amazon.com, with purchases ready for immediate pickup at hundreds of Circuit City stores. Amazon will receive a percentage of the revenue for all Circuit City electronics merchandise sold through its website and will be responsible for processing the transaction; Circuit City will be responsible for product fulfillment and customer service.

In the agreement with Target, Amazon.com opened a Target store on its website, expanding product offerings available at Amazon.com to include thousands of apparel, home, electronics and jewelry products. Amazon also provided e-commerce technology, order fulfillment and customer service for Target’s current online properties, including target.com, Mervyns.com, MarshallFields.com and GiftCatalog.com, beginning in summer 2001. Under the five-year strategic alliance, Amazon.com will receive per unit fees and annual fixed fees.

2. After losing $2.8 billion since it was founded in 1995, Amazon.com posted a surprise $5 million net profit in the fourth quarter of 2001. While impressed with Amazon’s improvements, many Wall Street analysts are still skeptical about the long-term viability of Amazon’s business model. Can Amazon keep the profits flowing? Will the company succeed with its low-price strategy?

YES Amazon.com reached profitability through a combination of reducing operational expenses and passing those savings on to customers to drive demand. In July 2001, Amazon began offering a 30 percent discount on books over $20; in January it added free shipping on orders of more than $99, in April 2002 the company added a third price break, offering the 30 percent discount on books over $15 and in June 2002, Amazon offered free shipping for orders of more than $49. Amazon continued to cut prices on books and other items as its efficiency increased, taking advantage of a business model that has high fixed costs – for technology and warehouse space – but relatively lower incremental costs as volume increases. “Lowering prices is working for us,” said Bezos. “Driving unit volume in our business really does reduce costs. That in turn creates a “productivity loop” that allows the company to cut prices further,” he said.2

2 Saul Hansell, “Amazon Defies the Naysayers as Losses Drop and Sales Grow,” The New York Times, 24 April 2002.

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The online retailer has become more efficient, significantly reducing its fulfillment, marketing, technology and content expenses. “The services we offer on our website cost the same whether we have one million customers or 25 million,” said Amazon spokesman Bill Curry.3 For companies like Amazon, which operates no physical stores, inventory efficiency is paramount. “Amazon is a real star in the supply chain and product management area, said Scott Elliff, president of consulting firm Capital Consulting & Management. “Over the past two years, they’ve doubled sales and cut their inventory by 25 percent over the same time…That is unprecedented.”4

With its discounting strategy, Amazon is following in Wal-Mart’s footsteps and wants to sell huge volumes of merchandise at the lowest possible prices. Price cuts may help Amazon persuade customers to spend more money throughout its website, just as steep discounts allowed Wal-Mart to pull ahead of rivals in the 1990s. “There are two kinds of companies,” Bezos said, “those that work to raise prices and those that work to lower them.” Amazon, he insists, is in the latter category.5

NO Many Wall Street analysts doubt the company’s great ambitions to sell everything from books to patio furniture. Amazon consists of more than 20 stores with approximately $3.12 billion in annual sales — but only its core books, music and video businesses generate operating profits. The others, such as consumer electronics, toys, kitchen goods, as well as international operations, continue to loose money. “Look, they’ve shown us that the book business can be a very nice, profitable business online,” said Mark J. Rowen, an analyst at Prudential Securities. “The only problem is the book, video, music market is limited, and ultimately if Amazon is going to justify its market capitalization, it is going to have to show that other categories are viable on the Internet. So far, they have not shown that sales of other merchandise can grow rapidly and be profitable.”6

Indeed, Amazon’s low-price strategy, which has worked well for the book business, may be difficult to repeat in other areas, especially in the electronics business. Electronics have much lower margins and more price competition, so there is less room for discounting. Moreover, manufactures are much more protective of their selling prices than with books, and Amazon’s discounting strategy has made the market leader Sony, and others refuse to make Amazon an authorized dealer.

Amazon’s strategy is even more problematic with its established partners, which have set pricing strategies and have no interest in undercutting their existing stores with cheaper online sales. For example, neither Toys “R” Us nor Target agreed to participate in Amazon’s discounting initiative – offering free shipping for orders over $49. “It’s hard to be the low-cost retailer,” said Lauren Levitan, an analyst at Robertson Stephens. “You

3 Andrea Orr, “Net Trends – Amazon Brings Back Old Rules in New Economy,” Reuters, 1 May 2002. 4 Greg Sandoval, “How Lean Can Amazon Get?” CNET News.com, 19 April 2002. 5 Saul Hansell, “ Amazon Looks for an Encore,” The New York Times, 26 January 2002. 6 Leslie Kaufman, “Amazon II: Will This Smile Last?” The New York Times, 19 May 2002.

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have to execute flawlessly on a very consistent basis. Most people who try a low-price strategy lose.”2

3. In 2000, Amazon experimented with dynamic pricing, charging customers different prices for the same products. In light of Amazon.com's pricing experiment, should Internet retailers adopt dynamic or variable pricing?

Setting prices based on a shopper's income, buying level or buying habits is known in the retail industry as "dynamic pricing." For example, department stores often price an item higher in well-off neighborhoods than in poorer areas, on the rationale that it costs more to operate stores in those neighborhoods. In 2000, Amazon.com experimented with dynamic pricing, charging some customers as much as $10 more for a DVD, for example, than others shopping at the same time. Savvy shoppers who experimented with prices found that they were able to get random discounts of between 20 percent and 40 percent.

There is nothing wrong with differential pricing. In fact, consumers expect that companies will reward loyal customers or lower prices for volume purchases. However, Amazon's differential pricing appears to defy logic. Price varied depending upon the type of browser used, whether it was a repeat customer, and even the customer's ISP. Regular customers found they were charged more for DVDs if they identified themselves rather than masquerading as a newcomer. Further, Amazon.com has only one store, another reason for the outcry. Several news reports suggest Amazon was altering prices based on demographics.

Amazon.com claims the price variations were random experiments on price sensitivity and denies that they were based on customer data obtained via software interactions with shoppers as they visited the site. However, it has since changed its pricing policy and refunded an average of $3.10 to 6,896 affected customers.

Internet retailers would do well to follow the advice of Wendy Grossman, a writer for London's Daily Telegraph who notes that, on the Internet, sooner or later everyone finds out everything. A smart e-commerce business does not want to face a mob of angry users, who, because of the intensity and speed of the Internet, tend to be more than ordinarily abusive if they do not like something. For Amazon customers, the big issue was not money. It was a sense that Amazon.com was being sneaky. Had the company publicly announced that it was giving first-timers a few dollars off as an incentive to become customers, few would have cared.

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4. Can Amazon.com become a global player?

Absolutely. One of Amazon.com's current goals is to have half its revenues come from abroad by 2005. (In the year 2001, international sales were $661 million; total sales were $3.12 billion.) This goal may be reachable in a few years, considering Amazon's impressive performance on its four international sites, in the United Kingdom, Germany, France and Japan. “We have had great success internationally,” said Bezos. “I think one of the things that has driven that business again is low prices. So that’s a consistent strategy around the world and we’ve seen great growth in Japan, great growth in Germany, in the UK, France.”7 Sales in the first quarter of 2002 increased 71 percent year over year to $225.5 million and international revenue now accounts for 27 percent of total sales, up from 19 percent in the first quarter of 2001. Amazon.com continues to introduce new categories internationally and active international customers now total 7.6 million, up from 4.9 million in the first quarter of 2001.

Amazon’s British and German sites are tremendously successful from a reach and revenue standpoint. In fact, the two sites had a combined pro forma operating profit for the first time in the fourth quarter of 2001. Amazon.co.uk launched in October 1998, and today offers millions of books, CDs, videos, DVDs, video games, electronics and toys. The site also hosts online auctions and includes items from zShops sellers and Amazon Marketplace. In March 2002, Amazon.co.uk reached 5 million customers and according to Jupiter Media Metrix data for February 2002, the site was responsible for 16.6 percent of all UK e-commerce. Interestingly, Amazon.co.uk's nearest competitor in the United Kingdom is the US Amazon.com site, which also sells to customers overseas.

Amazon's Japanese site is also expected to do well. It is the fastest growing site for Amazon and currently has 800,000 active customers. The site (Amazon.co.jp) launched in late October 2000 and offers more than 1.7 million Japanese and English book titles and extensive editorial content. In less than a year, CDs, DVDs, videos, computer software and TV games had been added to the product list and as of February 2002, the site was Japan’s No. 1 online retailer in these categories based on hits and market reach. “The Japan market is a very important one for Amazon,” said Jasper Cheung, acting country manager and finance director for the US-based online retailer’s Japan operation.8 “We expect [Amazon.co.jp] to be the largest international site within a short period of time.” The country’s population and the fact that it has the second-largest gross domestic product in the world have a lot to do with it, according to Cheung.

Amazon will have to learn very quickly what it means to compete internationally. In France, for example, Amazon faces the daunting challenge of trying to win over customers in an environment where retailers and media companies are not allowed to advertise on television. Moreover, book prices are regulated in France, with a maximum discount of 5 percent.

7 Susan Lisovicz, “Amazon Earnings Report, CNN Money Morning,” CNNFN, January 22 2002. 8 Juliet Rowan, “Amazon Japan – A Baby Growing Fast,” The Daily Yomiuri, 6 May 2002.

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5. In 1999 and 2000, Amazon.com invested in and developed strategic relationships with several e-commerce companies. What happened to Amazon’s dot-com investments and partnerships? How does the company’s current strategy differ from the multimillion-dollar investments Amazon made during the glory days of Internet?

During a 14-month period from early 1999 into 2000, Amazon.com transformed itself into one of the most active venture capitalist – investing more than a quarter-billion dollars into about a dozen dot-coms. Jeff Bezos explained the strategy to investors at the 1999 shareholder meeting by saying “there is so much Internet opportunity that now is the time to invest.”

Some of Amazon’s investments and partners include:

• Drugstore.com, an online retail and information source for health, beauty, wellness, personal care and pharmacy items • Gear.com, an online sporting-goods company (in October 2000 Gear.com was acquired by Overstock.com, which ended its deal with Amazon in 2001) • Ashford.com, an online retailer of luxury products, including watches, fragrances, leather accessories, sunglasses and writing instruments • eZiba.com, an online retailer of handcrafted products from around the world • Greenlight.com, an online automobile retailer (in January 2001 Greenlight.com was acquired by CarsDirect.com) • Audible.com, which delivers audio material to AudibleReady portable digital devices • WeddingChannel.com, which offers advice and personalized gift suggestions for couples • Nextcard, an issuer of consumer credit cards on the Internet • Expedia and Hotwire, online travel sites

Amazon.com has also made investments in or formed partnerships with several companies that have since closed. The most prominent of these is Living.com, which shut down after losses of more than $100 million. Pets.com, another partner, was on the brink of bankruptcy when rival Petsmart acquired it. Sothebys.Amazon.com, the 16- month joint venture between Amazon.com and Sotheby's to sell art and collectibles online, shut down in October 2000. Online delivery service Kozmo.com shut down its operations, laying off all of its 1,100 employees in April 2001. In May 2001, the newly combined wine.com and WineShopper.com filed for Chapter 7, Amazon.com had a 40 percent equity stake in WineShopper.com and was a major shareholder in the merged company. In July 2001, Amazon’s investment in Webvan, the Internet’s largest and best- funded grocer, was reduced to zero as Webvan ceased its operations and filed for bankruptcy.

In the company’s annual report.2001, Amazon.com recognized losses of $44 million on these investments and the company expects “additional equity method losses in the future” because some of the e-commerce companies it invested in may not succeed. Indeed, Amazon had to renegotiate its deals with Internet partners it was promoting on its site, which were not able to meet their original commitments. In late 2000, Amazon

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lowered the payments it required from a number of partners, including Drugstore.com and Greenlight.com now owned by CarsDirect.com.

Even though many of the dot-com investments still haunt the online retailer, Amazon is still pursuing more investment opportunities. Company spokesman Bill Curry said Amazon would continue to buy other bankrupt or struggling Internet companies where it makes sense and the price is right. “There have been websites that even though they have not succeed as businesses, they have built up reputations and brands and loyal customer followings,” Curry said. “This presents an opportunity for us to…introduce more people to the Amazon.com shopping experience.”9 But this time, the deals are low profiles and cheap, in many cases real bargains. For example, in November 2001, Amazon purchased Egghead’s URL and other assets for only $6.1 million in bankruptcy court, compared to $60 million it invested into Kozmo.com in March 2000.

9 John Cook, “Amazon Dot-Com Investments Continue to Haunt,” Seattle Post-Intelligencer, 22 February 2002.

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6. Would you invest in Amazon.com as it stands today?

YES NO

• Total worldwide online retail sales are • With many Internet retailers in bankruptcy, expected to grow in the future. many analysts have become more cautious Amazon.com, with 26.2 million active about the industry in general and about customers as of Q1 2002 and one of the Amazon's prospects in particular. The strongest e-commerce brands, should be combination of Wall Street skepticism, well positioned to benefit from this growth. massive losses (Amazon accumulated a loss of $2.8 billion since it was founded in 1995), • Amazon.com has cut costs over the last concerns about the online retailer's business year while maintaining sales growth. It has model, allegations of financial instability and closed two distribution centers, eliminated Amazon's $2.2 billion in long-term debt with 15 percent of its workforce, improved heavy interest payments ($139 million in inventory management, cut marketing 2001) have rocked the powerful Internet costs and lowered prices, resulting in a $5 bellwether. million net profit in Q4 2001. • Amazon consists of more than 20 stores with • Amazon.com has created a leading e- approximately $3.12 billion in annual sales — commerce platform. It performs a range of but only its core book, music and video e-commerce chores for other retailers, business generates operating profits. The such as building online stores, sharing others, such as consumer electronics, toys, technology or overseeing fulfillment kitchen goods, as well as international operations. Amazon has partnerships with operations, continue to loose money. 30 different companies, including Borders, Toys “R” Us, Target and Circuit City. AOL • Despite Amazon’s efficiency improvements, will also use the Amazon e-commerce its distribution centers are still operating at platform to power its shopping channel less than 40 percent of capacity. So unless (planned to rollout in Q4 2002). Amazon further reduces that capacity by closing more warehouses, it must boost sales • Amazon.com continues to improve its to maximize the use of its facilities. superior shopping experience, which has earned it a large and loyal customer base. • Amazon.com faces tough competition from Amazon has maintained its strong position other bookstores, including Barnes & Noble by putting the customer first. and Borders, leading Web-based retailers, physical-world retailers and Web portals that • Amazon’s relatively new business of selling are involved in e-commerce. Some of its used merchandise is growing explosively. major competitors include eBay, CDnow, Amazon Marketplace orders made up 15 Best Buy, Wal-Mart and iQVC, not to mention percent of US orders in the fourth quarter the e-commerce stores of Yahoo, Microsoft of 2001, far surpassing the company’s and AOL Time Warner. expectations when it launched Marketplace in November 2000.

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Amazon.com Timeline

April 1999: Amazon.com Inc. purchases LiveBid.com, the Internet's only provider of live auctions.

June 1999: Amazon makes a strategic investment in Pets.com.

October 1999: Amazon.com launches "Amazon.com Anywhere," providing shopping from wireless devices such as the Palm VII organizer.

Also: Amazon.com files patent-infringement suit against BN.com, saying that BN.com is illegally copying its one-click technology, which allows customers to skip several steps in the checkout process by presetting personal data.

November 1999: Amazon.com launches four new stores: Home Improvement, Software, Video Games and Gift Ideas.

December 1999: Federal District judge protects Amazon.com's patented 1-Click technology and bars online competitors from infringing on it.

January 2000: Amazon.com enters into strategic partnerships with Drugstore.com and online car-buying service Greenlight.com.

March 2000: Kozmo.com and Amazon enter into partnership.

April 2000: The company launches two new stores: Health and Beauty, and Lawn and Patio.

July 2000: Amazon.com announces that Joe Galli, president and chief operating officer, is leaving the company for personal reasons. Amazon.com founder and CEO Jeff Bezos will continue as CEO and resume the duties of president. Also this month: Amazon celebrates its fifth anniversary.

August 2000: Amazon.com and Toysrus.com enter into strategic alliance. The company also launches Amazon.co.fr, its third European site, to serve the French-speaking market.

Also: Amazon changes its privacy policy. It now views customer information as a salable asset. It notifies all customers via e-mail.

September 2000: Amazon.co.uk becomes first European e-commerce site with 2 million customers.

Also: Amazon apologizes for dynamic pricing, but maintains that it was based on random experiments and was not on demographics, etc.

November 2000: Amazon.co.jp debuts in Japan.

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Also: An e-books store is launched on the Amazon.com site.

December 2000: Amazon.com wraps up holiday season with more than 99 percent of shipments in time for the holidays. More than 31 million units are ordered during the holiday season.

January 2001: Amazon.com announces it will lay off 1,300 people, or 15 percent of its work force. In addition, the company will close its Georgia distribution center and a customer service center in Seattle, and convert its Seattle distribution to a seasonal facility.

February 2001: Amazon launches a new store, Software Downloads. Meanwhile, Amazon closes down its customer service center in Netherlands, in an effort to consolidate European customer service operations.

April 2001: Amazon.com and Borders Group Inc. announce an agreement to relaunch Borders.com as a co-branded website, with Amazon handling customer service, site content, fulfillment and inventory.

Also: Amazon.com and Adobe Systems announce a global alliance to offer the Adobe Acrobat eBook Reader software in Amazon.com's e-book store.

May 2001: Amazon.com and Babiesrus.com launch a co-branded baby store at Amazon.com.

July 2001: Amazon.com stops free shipping for multiple orders of books, CDs and videos after a two-week promotion. The action was taken after Barnes & Noble.com began offering a similar discount and after some customers said that Amazon raised some of its prices by factoring the cost of shipping into its listings.

Also: America Online invests $100 in Amazon.com. Under the five-year agreement, Amazon will enhance its Shop@AOL channel, providing technology such as search and product- comparison capabilities to AOL users.

August 2001: Amazon.com and Borders Group relaunch the Borders.com website.

Also: Amazon.com announces that Circuit City stores will offer several thousand consumer electronics items for sale at Amazon.com. Customers will have a choice between traditional Amazon’s shipping options and immediate pickup from more than 600 Circuit City stores.

October 2001: Amazon.com and Target Corp. open a Target store at Amazon’s website featuring apparel, electronics, jewelry and home products. Target also chooses Amazon.com’s e-commerce technology services for its current online properties, including target.com and GiftCatalog.com.

Also: Amazon.com launches a travel store (featuring booking services from the leading online travel service provider Expedia) offering discount travel through Hotwire and cruise vacations through National Leisure Group’s Cruise. Amazon also launches a magazine subscriptions store.

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December 2001: Amazon.com announces the launch of its new Egghead.com website, powered by Amazon.com's e-commerce platform. In November 2001, Amazon purchased Egghead’s URL and other assets for $6.1 million in bankruptcy court.

January 2002: After losing $2.8 billion since it was founded in 1995, Amazon.com reaches a milestone when it reports a $5 million net profit in the fourth quarter of 2001. The company also introduces a free shipping policy on orders of $99 or more.

March 2002: Amazon.com announced that Warren Jenson, the company's chief financial officer, intends to resign later this year.

Also: Amazon.com settles its long-running patent-infringement suit against BN.com over its one-click technology. The details of the settlement were not disclosed.

April 2002: Amazon.com and Borders extend their alliance, which now includes the option of picking up books, music CDs and DVDs at Borders’ 365 stores nationwide. A second agreement between the companies will create a new co-branded Waldenbooks.com website, similar to the current Borders.com. Both of these new features will be available by the 2002 holiday season.

June 2002: Amazon.com announced that it would offer free shipping on U.S. orders of $49 or more.

Barnes & Noble.com Timeline

April 1998: Barnes & Noble.com announces that its state-of-the-art distribution center now stocks 600,000 book titles, the world's largest standing online inventory.

October 1998: Bertelsmann AG and Barnes & Noble Inc. agree to establish a joint venture with BN.com. Under the agreement, Bertelsmann will pay $200 million for a 50 percent stake in the BN.com joint venture.

November 1998: Jonathan Bulkeley is appointed as CEO of BN.com.

May 1999: BN.com's initial public offering — the largest-ever e-commerce IPO — raises a total of $421.6 million after fees. Also: BN.com launches a music store.

January 2000: BN.com and Microsoft create an e-book superstore.

February 2000: BN.com launches an Internet radio service.

June 2000: Barnes & Noble.com invests approximately $20 million for a 25 percent equity stake in MightyWords.com, formerly a subsidiary of Fatbrain.com and a leading provider of digital content.

Also: Registration opens for Barnes & Noble University, a free online education resource offering courses through the BN.com website.

13 Copyright 2002 by Marketspace LLC, a Member of the Monitor Company Group LP. Limited classroom use of this publication for educational purposes is granted to registered members of www.marketspaceu.com. The express permission of Marketspace LLC is required for all extra-classroom use – including any and all publication or recording. Last updated: August 2002

August 2000: Barnes & Noble.com announces the opening of its eBookStore, featuring Microsoft Reader technology for desktop PCs and laptop computers. The Barnes & Noble.com eBookStore will be the first online retail bookstore to offer eBooks for the Microsoft Reader.

September 2000: Fatbrain.com Inc. (stock: FATB), the third largest online bookseller, specializing in professional and technical titles for the corporate marketplace, agrees to be acquired by BN.com.

Also: BN.com, Barnes & Noble and Yahoo enter into a marketing relationship that leverages the online and offline resources of the three companies. In addition, Barnes & Noble superstores and Yahoo team with Spinway Inc. to develop a free Internet service for Barnes & Noble customers.

October 2000: Barnes & Noble and BN.com announce three major initiatives for extensive integration of stores and the website: internet service counters in Barnes & Noble stores, membership loyalty program to promote cross-channel shopping, and acceptance of returns of online purchases at Barnes & Noble stores.

January 2001: BN.com creates Barnes & Noble Digital, an electronic publishing imprint that will create a direct link between authors and their readers, give authors a greater share of the income from their works, and lower retail prices in an effort to build the emerging market of e-books.

April 2001: BN.com sales for the first quarter of 2001 rise 23 percent, to $109 million from $88.6 million a year ago, despite a powerful slowdown in online book sales. In contrast, Amazon.com sales of its core books, music and video category showed a 2 percent gain in the quarter.

July 2001: BN.com announces a free shipping policy on orders of two or more books, magazines, CDs or videos and reduced shipping rates for single-item orders.

September 2001: BN.com, DirecTV and Wink Communications announce the launch of the Barnes & Noble.com channel, the first national e-commerce channel available to DirecTV consumers.

October 2001: BN.com launches an e-book publishing program from its electronic publishing division, Barnes & Noble Digital. The unit will publish approximately 15 electronic books a month.

February 2002: BN.com names Marie J. Toulantis its chief executive officer, two years after the previous CEO left the company.

14 Copyright 2002 by Marketspace LLC, a Member of the Monitor Company Group LP. Limited classroom use of this publication for educational purposes is granted to registered members of www.marketspaceu.com. The express permission of Marketspace LLC is required for all extra-classroom use – including any and all publication or recording.