To understand why digital processing of books is completely dominating the book publishing, marketing and selling world, you have to understand what happened in the demise of giants like Blockbuster and Barnes and Noble and the rise of companies such as Netflix and Amazon.
Why Bricks and Clicks Don’t Always Mix
NOT so long ago, in 2005, Blockbuster seemed invincible. However you preferred to rent movies — in stores or online — the company was ready to accommodate you.
At the time, Netflix could offer only one way of obtaining a movie (the mail) and one way of returning it (the mail). It was clicks, with no bricks.
Of course, we now know that Netflix has done just fine. In January 2005, its shares traded in the $11 range. On Friday, they closed at $140.46, giving the company a market capitalization of $7.35 billion.
As for Blockbuster, which was spun off from Viacom in 2004, it’s now a penny stock, and its woes are as visible as the “Closing” banner in the window of a store in your neighborhood. The company recently warned that it might file for Chapter 11 bankruptcy protection. Last week, its chief financial officer resigned. (A spokeswoman for Blockbuster declined a request for an interview with a company representative.)
Blockbuster’s experience shows that executing a bricks-and-clicks strategy entails a high degree of difficulty, managing not just two very different kinds of businesses, with dissimilar domains of expertise, but also a third challenge: integrating two separate systems. An online-only service can remain a best-in-class operation because its executives focus, focus, focus on just the online business.
In the handicapping of likely winners and losers in 2005, Netflix seemed unlikely to survive, let alone thrive. Netflix is “not a sustainable business,” Michael Pachter, an analyst at Wedbush Morgan Securities, told SmartMoney that year. In his view, successful Internet businesses tended to “have a bricks-and-mortar component.” That is, retail stores.
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