Amazon.com Inc. Allies with Borders.com

Early this morning, Amazon.com Inc. confirmed its plans
to refashion bookseller Borders Group Inc.’s struggling
online entity, Borders.com. As a result of the deal, 70 Borders.com
employees are expected to lose their jobs.

The alliance comes at a time when Borders.com continues to falter in its
online endeavor to sell books via the Net. For its part, Amazon.com has
scrambled to negotiate deals with retail partners, including Toys “R” Us
Inc., under which Amazon took over online operations for the toy retailer.
The new Borders.com site will continue to offer content unique to
Borders.com, including store location information and in-store event
calendars.

Since its online entry in May 1998 — a full year after competitor Barnes &
Noble.com Inc. took to the Web — Borders has been in dire need of
assistance. On January 28, 2001 the company posted losses of $18.4 million,
a 7 per cent wider loss than that of a year earlier. Besides facing a
financial reckoning with shareholders, the company also failed to find a
buyer when it hung out a for sale and retracted it several months later.

So, when number one online retailer Amazon.com came calling the company
readily conceded founder and CEO Jeff Bezos’ wishes for a co-marketing and
revenue sharing plan.

And why not, Amazon.com claims almost 20 million users shopped its goods
last year. Also, Borders was undoubtedly impressed by the sizable chunk of
change, $125 million, that Toys “R” Us Inc. deposited after doing business
over Amazon’s platform last Christmas.

By August, Bezos said Amazon.com would take over the inventory management
and provide customer service support to Borders.com customers. The new site,
he said, should look much the same with Borders’ events featured on each
site and played up in marketing driven emails designed to co-brand the
well-known companies even more.

With 350 stores around the world, Bezos said Border’s commitment to honoring
specific customer needs at different regions of the country would still be
meet by Amazon.com.

Each Border’s offline store boosts 150,000 titles that target populations
according to location, a feat that has distinguished it from competitor
Barnes and Noble Inc. For example, large Jewish communities, such as one
located in Rockville, MD, receive many more books on Judaism than other
nationwide Border’s bookstores.

Whether the deal would affect offline store ‘personalities’ was left
unanswered. But according to both companies, the Borders.com Web site will
continue to operate with a distinct personality unfettered by Amazon.com’s
stewardship.

As a part of the deal, Bezos said Borders.com’s inventory would tie in to
Amazon.com’s system. However, it was unclear whether a book would be tagged
on Borders.com’s site or Amazon, if it were located on both sites. Neither
company would comment on the revenue sharing split that would transpire with
the sale of each book.

“We haven’t compared full customer data bases. We expect overlap in each
world,” Bezos said.

According to both firms, customers would be able to reserve a title online
for later purchase and pick up at their neighborhood Borders store. They
also said the alliance would expand internationally.

Borders Group president and CEO Greg Josefowicz said the deal would help
Borders grow by 20 percent, admitting that “The internet needs to be
transferred to help in-store economics.”

By August Josefowicz said the two companies would pilot in-store pickups.
The success of the program would be a “needle mover” that would indicate
future inventory adjustments.

Bezos said that of the 70 people who would be lose their jobs many would be
reabsorbed into Amazon.com’s system while others would receive severance
packages.

Both companies said the agreement would not impact the previously issued
financial guidance of either company.

In early morning going shares in Amazon were trading at $13.05, having
climbed $1.04 from yesterday’s close at $12.01. Borders also registered a
slight rise in share price, trading at $17.25, up 27 cents from yesterday’s
close at $16.98.