BARNESANDNOBLE.COM

Before the onset of online bookselling and the rise of Amazon.com, Barnes & Noble Inc. was the un-disputed leader in bookselling. The giant chain had the most brick-and-mortar stores and the largest market share. Its U.S. bookselling subsidiaries included the flagship Barnes & Noble Booksellers, as well as B. Dalton Booksellers, Doubleday Book Shops, and Scribner's Bookstores. The company also owned an interest in Canadian bookseller Chapters, and Calendar Club, which operated internationally.

Barnes & Noble entered the world of online bookselling in March 1997 as the exclusive bookseller on America Online (AOL). Two months later the company set up its own Web site for online purchases, barnesandnoble.com Sales at barnesandnoble.com doubled in each of 1997's first three quarters, and reached $11.9 million that year. In addition to being the exclusive bookseller on AOL, the online bookseller also reached an agreement with Microsoft to be the exclusive bookseller on three of its Web sites: MSNBC, Microsoft Investor, and Expedia. All of the Microsoft Web sites attracted millions of visitors daily. By the end of 1998 barnesandnoble.com was the exclusive English language bookseller on Micro-soft's MSN.com and its global network of Web portals.

REORGANIZED WITH NEW INVESTOR, 1998

Barnesandnoble.com was reorganized in 1998 when German media conglomerate Bertelsmann AG agreed to invest $200 million in the online bookseller for a fifty percent interest. Barnesandnoble.com became a limited liability company (LLC) in order to operate online retail bookselling operations. As a result of Bertelsmann's investment, the bookseller postponed its planned initial public offering (IPO) until 1999. For 1998 barnesandnoble.com reported sales of $61.8 million and a net loss of $83.1 million.

Toward the end of 1998 barnesandnoble.com upgraded and redesigned its Web site, offering a wider range of products and services. It added electronic greeting cards through an agreement with Blue Mountain Arts. Rare and out-of-print books were offered through the Advanced Book Exchange, which had a network of some 3,600 book dealers. Also added to the Web site were enhanced search capabilities that allowed users to find related magazine and newspaper articles after searching for a book. Through an agreement with Northern Lights Technology, the articles could then be purchased electronically.

WENT PUBLIC IN 1999

In March of 1999, together with Bertelsmann, Barnes & Noble announced it would spin off barnes-andnoble.com as a public company, selling 15 to 20 percent of the company's stock to the public. In May 1999 barnesandnoble.com went public with an initial stock price of $18 per share. The IPO was popular with investors and raised $421 million, more than double what the company expected. Some 25 million shares were sold, closing at $22.94 at the end of the first day, an increase of 27 percent. Following the IPO, Barnes & Noble and Bertelsmann each owned about 41 percent of barnesandnoble.com, with the public holding the remaining 18 percent. Around this time the online bookseller also shortened its Web site address, or URL, from www.barnesandnoble.com to www.bn.com

For 1999 barnesandnoble.com 's overall revenue was $202.5 million (though later restated to $193.7 million), an increase of 211 percent over 1998. International sales doubled to more than $12 million. In 1999 book sales accounted for 93 percent of the online bookseller's revenue, compared to 98 percent in 1998. During the year the company rolled out its music store, which sold CDs and DVDs. It also formed an electronic greeting card service and launched a prints and poster gallery. In November 1999 barnesandnoble.com acquired the rights to the domain name www.books.com from Cendant Corp. It already owned the www.book.com URL and said that users going to books.com or book.com would simply be redirected to the www.bn.com site

Other marketing initiatives for 1999 included increasing the discount of New York Times bestsellers from 40 percent to 50 percent. The company also opened two new distribution centers. Pursuing a strategy to increase sales and its customer base, barnes andnoble.com reported a loss of $102.4 million in 1999 (later restated to $48.2 million), due in large part to the company's marketing expenses and costs associated with the new distribution centers.

Barnesandnoble.com also had to deal with a patent infringement suit raised by rival online bookseller Amazon.com. Amazon.com had received a patent on its technology for streamlining the purchase process, which it called 1-Click. Its suit claimed that barnes andnoble.com 's Express Checkout system violated its patent. When a federal judge issued an injunction against barnesandnoble.com to stop using the technology until the suit was settled, the company had to introduce a new online ordering technology to its Web site. While the suit had yet to be settled by mid-2001, the injunction was lifted in February 2001.

NEW INITIATIVES, 2000-2001

In the first quarter of 2000 barnesandnoble.com acquired a 32-percent interest in eNews.com for $26.4 million in cash and $12.8 million in stock. As a result of the investment, eNews.com became the exclusive seller of magazines at www.bn.com with an offering of some 1,000 different magazine subscriptions. Barnesandnoble.com and parent company Barnes & Noblesubsequently acquired a majority interest in eNews in April 2001.

In February 2000 the company launched an Internet radio service called bnRadio, which allowed customers to listen to more than 25,000 full-length songs as well as three-to-five-minute selections from audio-books. In mid-2000 barnesandnoble.com launched an Internet television service, Barnes & NobleTV. Its first programs were three-minute films called book-Videos. In fall 2000 a daily author interview series debuted on the Internet service. Another initiative included the debut of Barnes & Noble University, a free online education resource that offered courses in a wide range of subjects through www.bn.com Around this time the online bookseller added a video store that offered tens of thousands of video titles in both DVD and VHS formats from the All-Movie Guide database. Titles were listed in 16 major genres and 800 subcategories, and the database included more than 65,000 cast and crew filmographies, reviews, as well as ratings and recommendations. The Video Interview Gallery allowed customers to view clips of major film stars.

In September 2000 barnesandnoble.com replaced Amazon.com as the featured bookseller on the popular Internet portal Yahoo!. Two months later, barnesandnoble.com completed its acquisition of Fatbrain.com, a transaction that Publishers Weekly called "the largest example so far of consolidation among online book retailers." Fatbrain was the third-largest online bookseller and specialized in professional and technical titles for the corporate market. In addition to online bookselling, Fatbrain was involved in digital publishing ventures through its subsidiary MightyWords, and in providing Web-based information management services, including document delivery, to large corporations. Following the acquisition, which was valued at $64 million, Fatbrain's operations were integrated into barnesandnoble.com In April 2001 barnesandnoble.com and MightyWords began selling articles that could be purchased, downloaded, and printed instantly through a new barnes andnoble.com Articles for Download store.

Other initiatives planned for 2001 included the launch of Barnes & Noble Digital, an electronic publishing imprint that would publish a variety of titles in e-book editions and sell them through bn.com Barnesandnoble.com and parent company Barnes & Noble also planned more joint programs to leverage the parent company's more than 550 brick-and-mortar bookstores. The joint initiatives included installing Internet service counters at Barnes & Noble super-stores and the creation of a Barnes & Noble loyalty program. In addition, customers who made purchases through barnesandnoble.com would be able to return items to Barnes & Noble stores for credit.

For the year 2000, barnesandnoble.com reported sales of $320.1 million, an increase of 65 percent over 1999, and a net loss of $65.4 million. The company's strategy for 2001 was to reach profitability in 2002 and to focus on cost cutting. In February 2001 the online bookseller laid off 350 workers, or 16 percent of its workforce. On the positive side, the company had a strong balance sheet and no outstanding debt, and sales for 2001 were projected to increase another 40 percent.