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Books Without Borders: Collapse of a Business Model

I can't help but feel partially responsible for Borders going out of business. I do not own an e-reader. I still purchase books — paperbacks, hardcovers, you name it — using my Borders Rewards points and daily (recently, almost hourly) discount coupons. I haven't paid full price for a book since… I don't even recall. (It might have been when Stephen R. Donaldson's A Man Rides Through came out, and don't ask me how I even remember that.) I also refused to upgrade to Borders Rewards Plus for a lousy $10 because I was in too much of hurry that day to get out of the store and on to actually reading the book I'd bought.

Analysts say the main reason Borders will liquidate as early as Friday is its inability to keep pace with the digital media age. Its Kobe e-reader failed to gain any kind of traction against the Kindle or the Nook, and consumers prefer to get their music and videos online. Borders failed to see its customer base was changing, and, as a result, it looks as if it is going to join the ranks of many retail anchor stores that are now defunct. In short, its business model is now passé.

A similar situation was taking place in the electronics industry about 10 years ago when component buying was moving to the Internet. Between the years of 1995 and 1999, hundreds of Internet companies sprang up with a business model that was going to make the wholesale distribution model obsolete. Every component available at the time could be purchased on the Internet and they could be purchased through authorized channels, brokers, auction sites, buyers' clubs, or any combination thereof. OEMs, component makers, EMS companies, distributors, and software companies all got into the online business.

The companies most likely to become extinct at the time were electronics distributors. These companies had this archaic idea that someone in the supply chain actually had to buy and maintain physical inventory. Online buying was going to render that business model obsolete in a mere three to five years, conventional wisdom said. By that measure, EETimes's and EDN's Top 25 Distributors lists would have disappeared completely by 2005.

As it turns out, some distributors did disappear. For the most part, they were acquired by the world's two largest distributors, {complink 577|Avnet Inc.} and {complink 453|Arrow Electronics Inc.}. And a funny thing happened on the way to 2011: Arrow and Avnet are now bigger than most of their component suppliers, and they've outlived every online buying site I can think of. Those that are still around are now vastly different than they were at their inception. (Believe it or not, {complink 7427|IHS iSuppli} was one such site.)

So why is Borders a casualty in the digital age and Arrow and Avnet are not? I think it boils down to the difference between hardware and software (or in the case of books, music, and video, hardware versus content). Content can easily be turned into bits and bytes and be downloaded and stored and then accessed by any user willing to license or purchase content for a small fee. But these users must have the hardware to do this, whether it's some version of an MP3 player, an e-reader, a tablet, or a smartphone. As long as the electronics industry requires components to build the stuff it makes, wholesale distribution should be OK. As soon as everything you need can be downloaded as software, it's not just the distribution industry that will be toast. But that's still a ways away.

The Borders lesson for business is this: Make sure you are keeping track of the demands of your customers, and stay one step ahead of the competition. Oddly, the lesson for consumers such as myself is pretty much the same. At some point, if I don't buy an e-reader, tablet, or smartphone, the books I love so much will be beyond my reach. Time to start shopping.

23 comments on “Books Without Borders: Collapse of a Business Model

  1. eemom
    July 20, 2011

    It is sad to see Borders go out of business.  The migration from hard copy to digital as well as on-line resale of used books, downloading of media etc, has been taking place for a while.  Borders' downfall is that they underestimated its growth and eventual eclipse of the old business model.  I think Blockbuster video is suffering from the same problem.  Between Netflix model as well as Redbox $1/day rental, they have rendered Blockbuster's model obsolete.

    There is something to be said for companies that can see the writing on the wall and proceed to change their business model to keep up with the ever changing times.

     

  2. AnalyzeThis
    July 20, 2011

    I thought Kobe was either a beef or a basketball player…  I wasn't aware it was also the name of a Borders e-reader. I honestly didn't know they even attempted to jump in the e-reader market, but I guess it wasn't a very high jump.

    And I agree with your conclusion — businesses need to keep track of the demands of their customers — but even in the best possible case scenario, I don't really see how Borders was going to survive very long. The way that people consume media just changed too fundementally.
    Of course bookstores did see this coming to some extent years ago and tried making their stores more like “destinations” by adding in-store Starbucks and things like that, but there was no way to avoid the fact that people generally no longer buy music on physical media and we're fast approaching the day where the same is true for books (although not to the same extent of course; the music CD is already essentially dead, but I don't foresee hardcover/paperback books completely disappearing in our lifetimes).

    And trying to take Amazon head-on when it comes to electronic book distribution? Come on, that's not a fair fight. Even if Borders had attempted to get a head-start and released e-readers before Amazon did… it's really questionable how much that would have helped the company as a whole, because no matter what they'd end up shutting down stores.

    Anyhow, R.I.P. Borders… Barbara, hope you used up your Rewards points!

  3. prabhakar_deosthali
    July 21, 2011

    It is the sad fact that the “e” word  is becoming the e-world slowing pushing many of those physical things into oblivion. The printed books are disappearing, the seminar have given way to webinars. The real life experiences outdoors  have given way to 3D videos in your drawing rooms.

    With nanotechnology making a lot of progress i fear that we may not even have those physical desk tops , laptops notebooks or even smart phones – All this could be in the form of some embedded nanodevice on our body communicating with some invisible cloud to get you what you want.

     

  4. Jay_Bond
    July 21, 2011

    It seems like Borders was doomed for the last decade, just nobody knew when the implosion would happen. Amazon had already cornered the market for purchasing books online and had become a superpower. Barnes and Noble had really taken over the lead from Borders and didn't want to relinquish it at any time. Borders failed to look ahead and look at their consumer base. It seemed like by the time they caught on to what was happening it was too late.

  5. Eldredge
    July 21, 2011

    Interesting comparison – the comparison of Borders to Blockbuster is a good one. There can be a variety of reasons unscoring consumer trends however. For instance, my wife and I switched to netflix because BB often didn't carry teh variety that included what we wanted to watch, or was out of stock at the time. Redbox certainly lacks variety since they can only provide limited selection in a vendor unit, so they will only serve a niche market, unless they also expand to a mail service. (Actually, they may do well if they provie a mail service combined with a card or pin code for people to access their kiosks at no additional charge, for those that need immediate gratification. )

  6. hwong
    July 21, 2011

    It is indeed sad news to hear about Borders liquidation. We have been patrons to the bookstore for the last 15 years or so. However, we saw that coming with many people just going in there to read books and not buy.  Because of the physical location and inventory costs, borders can no longer afford and compete with the e-books. That's just sad news for the consumers who would really enjoy previewing the books before buying. What I see happening is that people will go to Barnes and Noble instead to preview books. Then they will go online either to Amazon, Kindle or the Barnes and Noble device to download it.  The physical bookstore will just be a medium to the book purchasers

  7. Tim Votapka
    July 21, 2011

    Borders has been slipping for quite some time, and while I'm not privy to their inner decision making processes, it seems they failed to do just Barbara and others indicated. They didn't stay in touch with their target audience.

  8. Ariella
    July 21, 2011

    With the changes in publishing and book buying habits, it has been difficult for bookstores to stay in business. I've seen the demise of many smaller bookstores in local neighborhoods and in cities over the past 10 years. A small, independent book store opened in my area just a year ago, and more recently a discount bookstore opened up a few blocks away. So now we boast two, but I have serious doubts about their being able to remain viable in the long term. 

  9. hwong
    July 21, 2011

    If the new local bookstores carry inventory that is targeted toward the niche market, then I would think that is has its potentials. For example, I have seen a local bookstore that carrys only psychic/horoscope / type of books and they seem to be doing pretty well for a long time.

  10. Ariella
    July 21, 2011

     The selling point of one is just the discount off list price. The other is more boutique style — no discount except for some rare specials — but extra services like shipping your books to your vacation spot are available. (That makes me wonder why not just order from Amazo and have them shipped directly there for a lower price, but there are shoppers around who like that type of individual service and are willing to pay for it). This store also taps into the local reading club and also carries books high school students tend to buy — like the Regents review ones. And as kids tend to be last minute about things, they may not have time to wait for a shipment from an online seller for what they need for school. But, aside from that, they don't specialize, really, and carry a range of standard, contemporary books for adults and children.

  11. alawson
    July 21, 2011

     

    Great post, Barb.  I have to say, I truly loved Borders.  Yeah, they were more expensive. most of the time didn't have what I need, and were further away than the computer by my chair…but I did love them. 

    We are seeing more of this lately. Print pubs folding, brick and mortar crumbling–it's been coming for awhile. However, it didn't have to happen. It's  due diligence to be scanning forward and anticipating the potential dangers to your business–to be listening to what your customers want and investing time, energy and funds in building tomorrow's business.

    Even those at the top must work as hard (sometimes harder) to stay relevant in light of the expectations of their customers.

     

  12. hwong
    July 21, 2011

    As long as they don't have alot of costs to maintain the bookstore (rent, labor, inventory) and they are able to make a profit margin, then it will survive. I really miss those days where we can just go to a bookstore and really enjoy the atmosphere of being in the “intellectual” environment.

  13. Ariella
    July 21, 2011

    Absolutely, browsing in a bookstore is one of life's pleasures. 

  14. itguyphil
    July 21, 2011

    YES. Escpecially when they have AC and a coffee bar in 98+ degree NY HEAT!

  15. Mr. Roques
    July 22, 2011

    You could had gone two ways: 1) go with the customers and create an eBook Reader and get amazon and apple as competitors (ouch) or 2) create a new experience for users (readers) similar to what Starbucks did. 

    They somehow went that way and didn't work but they were huge stores with a few couches but maybe they could had created a more comfy experience.

    But who am I to say!?

  16. alawson
    July 22, 2011

    In my eyes, they served a niche crowd. And maybe they did react, but just did it too late or too lightly to stop the bleeding. I didn't even know about their ebook reader, and I'd say I was tehre more often than the average Joe. As for making it more comfy, is tehre a business model there? Maybe charge memberships for the lounging areas? B&N may have bucked the trend by inviting folks to sit and read, but when was the last time you actually found one of those comfy chairs open? I'll miss browsing borders.  There is always something sad about a bookstore closing.

  17. Kunmi
    July 22, 2011

    It is very sad that Borders will be going out of business. I think they are reacting too quickly and they could have given it a trial and hope that things will change for the best. It is unfortunate that consumers prefer the e-books, e- musics and online video. I think they could have at least competed with the digital media age and create new experience for their consumers.

  18. t.alex
    July 24, 2011

    I used to frequent Border a lot. And did buy lots of books too. This is really sad case.

  19. Barbara Jorgensen
    July 25, 2011

    Hi Andy–Even with  Amazon, I always felt there was room for both B&N and Borders. But that's probably because Borders had more, local sites and B&N had a few mega-stores that were centrally located. Not the most cost-effective model for Borders. B&N is great when you know what you are looking for (kinda like going to a broadline distributor for a part you know you need). If you just want to browse, then Borders (or a specialty distributor) is the place to go. I tried new authors as a result of browsing at Borders–at B&N I bought books I know I wanted.

    I actually never availed myself of the coffee bar at Borders. (New England is strictly a Dunkin Donuts region.) Bu the problem with the coffee/bookstore  model–if you wanted to buy a book and read it with a cuppa, you had to pay for the book and coffee separately (at least in my local Borders.) Again, not an efficinct business model. Most times, I skipped the coffee.

  20. Houngbo_Hospice
    July 25, 2011

    “Analysts say the main reason Borders will liquidate as early as Friday is its inability to keep pace with the digital media age.”

    I do feel sorry for the 10,700 employees who will lose their jobs. But It is no secret that the rapidely changing book industry will likely force most paper book companies to go bankrupt. Border's chance of survival was to embrace the electronic revolution. But unfortunatly, it seems to be too late now!

  21. hwong
    July 27, 2011

    @Barbara  There you just said the very thing why Borders fail. Many people go to Borders to enjoy the experience and browse books. HOwever, when it comes to buying, people go online to Amazon or even to B&N to purchase it. It's rather sad that people are not willing to buy books in Borders as much as they like to enjoy the atmosphere. Thats why Borders failed. If there is a business model that can somehow charge people for that experience, then there maybe hopes to revive Borders. Otherwise, I think it just won't sustain

  22. Ms. Daisy
    July 31, 2011

    B&N got it right. Few comfy chairs and overstocked with books you are looking for. Sad to see Borders close though.

  23. Mr. Roques
    August 30, 2011

    Well, maybe a membership model, where you got VIP access to new books, etc might work but they also had a huge building with high costs… 

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