Gets a Big Head

Two more e-tailers are joining forces, hoping together to survive the
dot-com carnage besieging the online retail sector. Following’s Wednesday’s
market close, announced plans
to purchase for $64 million, or
$4.25 per share. While the number two Net bookseller will likely never gain
enough market share to displace numero uno , looks content to scoop up rival Fatbrain
in an effort to expand its newly launched digital publishing and
print-on-demand capabilities.

Just a month after launching its eBookStore, is boldly going where
Amazon hasn’t yet ventured. Hoping to get a leg up on the 800-pound gorilla
that dominates the space, barnesandnoble is aggressively pushing its way
into the digital publishing sphere and Fatbrain is a key part of that goal.

While Amazon has been busy venturing beyond books to furniture, toys, and
new cars, both barnesandnoble and Fatbrain have been quietly tackling the
nascent e-books market. Fatbrain’s bread and butter is creating hosted
online exchanges that enable Fortune 500 firms to distribute published
materials to employees via intranet or the Web. The e-tailer also has an
established presence in the digital publishing marketplace with its debut
of eMatter in October. EMatter was the first-ever secure digital publishing
solution launched, creating a new global distribution channel for authors
around the globe.

Fatbrain spun off eMatter in March, retaining a 23% stake in the provider
of original digital content and distributor of downloadable books. The
upstart was subsequently renamed MightyWords after the adage, “The pen
is mightier than the sword.” Barnesandnoble quickly stepped in this past
June, plunking down $20 million for a 30% stake in MightyWords. With the
Fatbrain acquisition, barnesandnoble will now own roughly 50% of the
digital content provider in its push toward gaining a head-start on
Amazon’s yet-to-be launched e-book section. itself only recently entered into the brand spanking new
digital publishing sector, launching the first ever digital bookstore
utilizing Microsoft’s Reader software just last month. Amazon has since
also penned a deal with Softie to sell digital books, but still has yet to
set a definite date for its e-book store launch.

It’s not surprising Amazon didn’t foresee this new development in
bookselling online. Online retailers were slow to take the e-book potential
seriously until Stephen King recently shocked the publishing world with his
grassroots effort to sell his next novel in digital installments over the
Web. Besides, Amazon has had its hands full delving into every retail
sector imaginable, truly fulfilling the prophesy of becoming the Wal-Mart
of the Web.

In March, just as Fatbrain was spinning off, Stephen King
was taking the first literary baby steps in online self-publishing, lending
tremendous credence and massive press toward the whole concept of an
author’s “eMatter,” or Web publishing rights. Not foreseeing profitability
until 2002, Fatbrain has been in the doghouse lately with investors. In
fact, its spin-off of MightyWords into a separate entity was
single-mindedly done in order to become profitable quicker than
anticipated. But the move came a bit too late, as wary investors sent the
stock careening 90% off its 52-week high, leaving Fatbrain scrambling for a
deep-pocketed sugar daddy.

Shares of Fatbrain sold off in after-hours following the post-market close
announcement, as investors appeared to balk over the scant 11.5% premium
paid under the terms of the deal. But investors will likely come to their
senses, recognizing the company’s slim prospects o

f finding a more
lucrative buyout. Fatbrain’s unique business-to-business model and’s digital publishing should make a snug fit with There’s plenty of synergies without excessive overlap
for a pair of out-of-favor online booksellers who can’t go anywhere but up
from here.

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free to forward them to [email protected].

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