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Borders Breaks Off 7-Year Amazon Partnership

Book retailer Borders Group (NYSE: BGP) today launched an independent e-commerce site, ending a seven-year deal with Amazon to power its online division.

Previously, clicking a link on Borders.com would redirect a customer to Amazon's (NASDAQ: AMZN) site, with Borders receiving a portion of the revenue for the referrals.

"Essentially, it was our logo on their site," said Kevin Ertell, vice president of e-business for Borders, the nation's second-largest bookseller.

Now, however, the retailer has opted to build out its own e-commerce infrastructure.

"The world has changed since 2001," Ertell told InternetNews.com. "The technology has gotten more affordable, more flexible and more suitable to bringing the experience to our customers."

The new site comes as the bookseller has said it is contemplating putting itself up for sale in the face of increasing competition from discount retailers such as Wal-Mart (NYSE: WMT). Barnes and Noble (NYSE: BKS), the larger rival of Borders, has put together a group to study the feasibility of an acquisition, it told InternetNews.com.

Even with the company's future up in the air, Borders still sees the imperative in moving ahead with its online development, said Michael Norris, a senior analyst at market research firm Simba Information.

"Borders recognizes that they can't just sit on their hands and let the customer experience wither," Norris told InternetNews.com. "They've got to keep moving along with their long-term strategy."

Attempting to go it alone online also puts Borders squarely in competition with its former partner Amazon, which dominates the book-selling market on the Web.

Just the same, even though the book business is facing a harsh trend of declining readership, Norris points out that most books are still bought in stores, so Borders finds its greatest competition from the offline world. Borders maintains that it is exploring its strategic options, but Norris doesn't see the synergy in a merger with Barnes and Noble.

"Even entertaining that notion is a stupid idea," he said, noting that the alliance would entail widespread store closings and likely lead to top executive talent defecting. "You cannot crash two Hondas together and make an Acura."

The best survival strategy for traditional booksellers, Norris argues, will be to establish themselves as destinations by playing to the strengths of the in-store shopping experience. As it turns out, the new Borders.com site, which has been under development for 18 months, aims to simulate that experience on the Web.

Most prominent among the new features is the Magic Shelf, an interactive display of books, DVDs and CDs that users can customize to match preferences created in a profile. Like an interactive map, the Magic Shelf display scrolls to the left or right, up or down with a mouse click, mimicking the way people browse and discover titles in a brick-and-mortar store.

In addition to automatically generated recommendations, the Magic Shelf also has sections for staff recommendations, upcoming releases and topical collections such as summer reading.

In 2006, Borders rolled out its Rewards loyalty program, which now includes 26 million members. But until today, customers couldn't redeem their Borders points or coupons online, since through Borders.com they could only shop Amazon's inventory, which Ertell said had been a common complaint about the program.

Borders will also offer exclusive video content on its Web site, such as author readings, musical performances and original, TV-style series with recurring characters. The Borders Kitchen section will feature original cooking segments with celebrity chefs.

The site also sells e-books compatible with Sony's e-reader device, which Borders carries in its offline stores. Ertell said the company is considering branching into other new-media revenue lines, such as selling music downloads.

Further connecting the in-store and online experiences, Borders will begin incorporating its new e-commerce capabilities into kiosks in its stores within coming weeks. Instead of just being able to check in-store availability, shoppers will be able to make purchases on the kiosks and have the items shipped to the store or their home.

The new site does not provide sample chapters of a book or provide a view of a table of contents like Amazon does, but Ertell said that feature will be coming shortly.

Next week, Borders plans to launch an affiliate marketing program through Commission Junction, where site owners will place links to Borders on their own sites and receive a commission for the referrals.

Borders, which releases its earnings after the market closes today, was down 7 percent to $6.25 by press time.