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In a taste of a price war resembling that of airlines' fare wars, Amazon.com's two biggest competitors wasted no time matching the top online retailer's 50 percent discount on New York Times bestsellers.
Within hours of Amazon's volley Monday, barnesandnoble.com and Borders.com followed suit. All three retailers had routinely offered discounts of 20 to 40 percent on bestsellers, and all three noted the blockbuster books account for only a small fraction of revenues and thus would have little impact on the bottom line.
Still, the moves sent shivers through Wall Street, cooling the frenzy over the big-name online retailers' stock and raising doubts about long-term prospects. Not only for Amazon and its competitors but for ever-expanding Net retailers.
Shares of Amazon (Nasdaq: AMZN) fell 6 percent, or $6.56, to close Monday at $125.81. New York-based Barnes & Noble, Inc. (BKS), half-owner of barnesandnoble.com, saw its shares fall $1.12, to $33.19, while shares of Ann Arbor, Michigan-based Borders Group, Borders.com's parent, declined 50 cents, to $15.875.
Investors and analysts worry the price wars could signal "cut-throat" competition that ultimately would cut into expected margins and jeopardize long-term prospects for the online booksellers.
Big questions remain unanswered: How much is too much cost-cutting, and how low is too low a price? With Net retailers expanding at breakneck speed, but demand finite, will the competition fuel price wars that will ultimately eat away at projected margins and revenues of even the biggest players?
Until this week, the booksellers' competition had focused mainly on building brand recognition through marketing and advertising; improving site design for easier use; tailoring content to individual tastes; offering e-mail updates on book categories specified by readers; and delivering better reviews.
Now, the one-upsmanship seems to be turning on price. "We were the first online bookseller to offer deep discounts," boasted Jonathan Bulkeley, barnesandnoble.com CEO.
While following Amazon's lead, Borders.com played down the significance of its competitor's move. "We won't allow incremental price differences to serve as a distraction to our customers and our mission," said Rick Vanzura, Borders.com president.
Amazon, for its part, took to its Web site immediately, gushing about the "very latest in deep-dish discounts." With $1.4 billion in cash reserves, Amazon is best able to afford deep discounts that could be loss leaders. Amazon sales have skyrocketed, to $610 million for the 1998 fiscal year, a 313 percent increase, and the company is on a pace to easily eclipse $1 billion in annual sales. Amazon continues losing money, however. In Q1 1999, it reported a $61.7 million loss, and its stock, which catapulted to $221 a share last month, has dropped $95 since.
With never-ending price battles now more likely, another online retailer jumped in. Books.com, the first online bookstore, on Tuesday began offering Net shoppers instant comparisons between its prices and those of Amazon and barnesandnoble.com. Books.com said it will automatically lower its prices to beat the competition. Which begs the question: Who tops that and how? Expect a quick answer.
