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TMF Interview With barnesandnoble.com CEO Jonathan Bulkeley
January 20, 1999

With Yi-Hsin Chang (TMF Puck)

Carrying more than 650,000 titles in stock, virtual bookstore barnesandnoble.com is aiming to dethrone leading online bookseller Amazon.com (Nasdaq: AMZN). barnesandnoble.com is jointly owned by the nation's biggest bookstore Barnes & Noble (NYSE: BKS) and German media conglomerate Bertelsmann AG, whose properties include Random House, the largest publisher in the U.S. barnesandnoble.com CEO Jonathan Bulkeley was previously vice president of business development at America Online (NYSE: AOL) and served as managing director of the AOL-Bertelsmann joint venture in the U.K.

TMF: Last October, Bertelsmann paid Barnes & Noble $200 million for a 50% stake in barnesandnoble.com, and the two partners also agreed to contribute $100 million each to the joint venture. How has the Bertelsmann investment changed the structure and operations of barnesandnoble.com?

Bulkeley: The quick answer is the structure change because instead of being a wholly owned business it became a 50-50 joint venture and as specified when the deal closed still had the intent of going public and still has the intent of going public. So structurally it went from 100% ownership to a 50-50 joint venture and then to a portion of the public owning it.

TMF: Speaking of the IPO, when do you foresee doing that?

Bulkeley: I can't really tell you yet. Most of the press that I've read says the first quarter of '99.

TMF: And do you think that's reasonable?

Bulkeley: I can't really tell you yet.

TMF: Is it safe to say this year?

Bulkeley: It should be safe to say this year and hopefully soon.

TMF: Is the website essentially still run by Barnes & Noble with Bertelsmann as an investment partner?

Bulkeley: Yeah, I would say that the day-to-day management of the business or operations would be more Barnes & Noble focused than it is Bertelsmann, and my boss day to day is Len Riggio from Barnes & Noble Inc. But obviously I am the CEO of barnesandnoble.com, and I have two shareholders, Bertelsmann and Barnes & Noble. But it's safe to say that Barnes and Noble is the managing partner.

TMF: So how have you benefited from your relationship with those two partners?

Bulkeley: They're both great partners. I know Bertelsmann very well from the time I spent running AOL in England, and they were 50-50 with AOL there, so I am very comfortable with them and their management style and their knowledge. They're very bright people, very focused, and have been in the book business for the last 170 years -- not actually any of them personally, but the company.

"We're doing 88 million page views a month now, which makes us the third-largest shopping site in the world, according to Media Metrics."
My experience with Barnes & Noble so far since I met Len first in November has been fantastic. They know the book business incredibly well. Len started with one store and built it into a huge empire. And they [Barnes & Noble and Bertelsmann] seem to be great partners with themselves, too. They seem to get along very well, so it's been a great experience so far.

TMF: Well, with Bertelsmann as the owner of Random House, the biggest U.S. publisher, how does that benefit you as a bookseller?

Bulkeley: It doesn't. That portion of Bertelsmann's empire doesn't really help us all that much because Random House doesn't treat us any differently than they would any other bookseller. They have to think of us as one of their booksellers, but not a preferred bookseller.

TMF: What are your numbers in terms of registered users, book buyers, page views, etc.?

Bulkeley: The last published numbers that we gave on accounts was 1.3 million.

TMF: So those were buyers?

Bulkeley: Yeah, and we added 300,000 during the holiday shopping season. I think Amazon said they added a million, so we added one-third of the total. In terms of page views, we're doing 88 million page views a month now, which makes us the third largest shopping site in the world, according to Media Metrics. I believe as of December, Amazon was one, eBay (Nasdaq: EBAY) was two, and barnesandnoble.com was number three. It's a huge business. We're the third largest e-commerce business in terms of traffic in the world.

TMF: What are your targets going forward?

Bulkeley: Make it bigger!

TMF: Huuuge!

Bulkeley: That's right, huuuge!

TMF: The biggest?

Bulkeley: That's an interesting question. I would prefer, and I think it's more manageable in the short term to be the best.

"With our introduction of online out-of-print and used-titles database, we differentiated ourselves from Amazon."
TMF: Do you think you're already the best?

Bulkeley: I think we're getting close to being the best.

TMF: How so? I mean what do you think sets you apart from Amazon?

Bulkeley: I think right now we seem to be very focused on books and the book market. With our introduction of online out-of-print and used-titles database, we differentiated ourselves from Amazon clearly in our focus on books and related book products. It seems to me that Amazon has a little different focus right now, and it's conceivable in the next 18 to 24 months that we're competitors, but we're not direct competitors -- that they take more of a total shopping experience, Wal-Mart-ish tact, and we focus on a few different things.

TMF: So you still are planning to diversify a bit into music, for instance?

Bulkeley: Yes, we're launching music.

TMF: Soon?

Bulkeley: Pretty soon. The key for that again is, as I say to our guys, "How's it going to be better than what's out there?" If the answer is, "It's not," then why are we doing it? If we're not adding value to the experience, if we're not making it easier to navigate or simpler to shop, then why should we do it? Why should we just be an also-ran?

"I was in a restaurant last week standing at the bar, and a single woman came in with a book. I gave her my seat, and I said, 'I bet you shop at Amazon. I'll hang your coat up if next time you shop you promise to shop at barnesandnoble.com.' She agreed. I'm on a personal mission."
TMF: What do you think is your current market share, compared to Amazon?

Bulkeley: In books? Its tough because I don't know what everyone else is doing, but I would say that we would be around 15%

TMF: And what do you think Amazon is at?

Bulkeley: I would guess that they would be around 80% or 75%.

TMF: Do you see that changing rapidly?

Bulkeley: I would like to have a larger market share, clearly. And I think if we are focused on being the best at what we do, we will earn a larger market share. They [Amazon] were first to market, and they grabbed market share first, but there are millions and millions and millions of people who've never bought a book online or a CD and who will be coming online to do it within the next 12 to 36 months.

TMF: I read an article quoting you as saying that when you were at AOL you -- I don't know if it was you personally -- actually approached Barnes & Noble?

Bulkeley: Yeah, it was me personally. They didn't call me back. That's when I was in charge of all of the commerce for AOL.

TMF: Pretty ironic.

Bulkeley: It is a little ironic, isn't it?

TMF: Do they know that?

Bulkeley: They do. We chuckle about it.

TMF: I'm glad you can laugh about it.

Bulkeley: Yeah, but when you think about it, Barnes & Noble is the most, I would say the most progressive [traditional] retailer in terms of their electronic presence. So even though they were a little late, they weren't that late. And they're probably the best example of a retailer who's taken [e-commerce] very, very seriously and executed. The fact that a major retailer has the number three shopping site in the world tells you something, and we just started the site 18 months ago.

TMF: You won this exclusive deal with MSN, which I suppose is a big milestone for you. What other inroads are you making to gain market share?

Bulkeley: I think the number now is that we have 55,000 affiliates, and we have nine of the top news and information websites as our partners.

TMF: Would that be an exclusive partnership?

Bulkeley: Typically it's not necessarily an exclusive partnership, but people are really only working with one player. MSN is an exclusive relationship. Some of the others aren't necessarily exclusive, but from our affiliate program we have a lot of the major websites that you know and love who are our partners and are selling books.

TMF: Was that exclusive relationship with MSN something you really pushed and something you are going to try to do with other popular portals and websites?

Bulkeley: We look for cost-efficient marketing vehicles for our brand, so we will make choices going forward where we should and shouldn't spend money, and who we should and shouldn't partner with.

TMF: I really like your recent TV commercials featuring Stephen King and Tom Clancy. Have those ads helped to boost your business and market share?

Bulkeley: I think so, and I have a pretty strong direct-marketing background. It's difficult to measure even though everybody tries to do it, the efficiency of television branding and/or print branding. But if we look at the creative message in sales in the fourth quarter we think that it significantly helped us in gaining market share against Amazon, which we believe we did in the fourth quarter this year.

TMF: What else are you doing to promote the site?

Bulkeley: Every cab driver that I get I talk to in New York I tell. I was in a restaurant last week standing at the bar, and a single woman came in with a book. I gave her my seat, and I said, "I bet you shop at Amazon." She said, "Yes, I do." I said, "I'll hang your coat up if next time you shop you promise to shop at barnesandnoble.com." She agreed. I'm on a personal mission.

TMF: I heard that over Christmas there were some problems with the site in terms of handling the traffic.

"Growth will be exponential this year as it has been over the last two years. I don't see growth slowing at all."
Bulkeley: There were a couple of days where I would say that the performance was spotty. It wasn't a wholesale site's down or a problem that affected everyone, but there were some technical issues. I think we're beyond those. Of course, when 40% of book buying happens in an eight-week period, you're going to have some scaling issues. I think a lot of the e-commerce sites had similar problems.

TMF: Well, given that spread what do you plan to do the rest of the year?

Bulkeley: I was thinking about going to Barbados -- just joking. My goal is pretty clear, and the industry's goal should be pretty clear. It's how do you sell people more books? Our problem right now is not infighting or market share, although we can talk about that, it's more there are 24 hours in a day. How do we get more people to buy books? How do we make books a more integral part of everybody's life? If we can do that, sell a lot more books, everybody gains market share, everyone's happy. It's good business.

TMF: Do you plan to grow through acquisitions?

Bulkeley: I certainly will always be looking at ways of expanding, and internal growth is one and acquisitions are certainly another one, and we will look closely at everything that's out there and see if there are good fits culturally, strategically and financially for us.

TMF: And where do you see yourself next Christmas?

Bulkeley: Next Christmas I will be next to the tree with my family in New York... I think growth will be exponential this year as it has been over the last two years. I don't see growth slowing at all.

TMF: So where do you see the company by the end of the year 2000?

Bulkeley: In terms of specific numbers, I can't really say at this point. It will be a much larger business with a much larger market share and expanding into other Internet e-commerce areas which fit with our strategic plan.

TMF: Since Amazon has quite high customer loyalty, how do you plan to lure those people away or do you just plan to attract new buyers who have not bought on the Internet?

Bulkeley: It's a little of both. We want existing customers to come and try us. Many of my friends over the last couple of weeks have said they have been to our site, and they like the out-of-print feature of our site because we do it online, not through a search mechanism. So that's an advantage right now, and we're getting some shoppers back. I think we will get some Amazon customers to come try us, and I think there's huge opportunity in getting new buyers as they come online. So I expect our market share to come from both places.

TMF: Do you plan to do any programs with the Barnes & Noble stores in which someone orders a book and they can pick it up at a bookstore or something like that?

Bulkeley: There are some creative ways to use the stores, and we're looking at that right now. As to the specifics, I can't and don't want to say right now, but we are marketing aggressively through the stores.

TMF: If you could sum up your message, what would you tell people in terms of convincing them to try barnesandnoble.com?

Bulkeley: We are aiming to be the best site for people who love books and music, but books first. We are first and foremost a bookseller, and we want to be the best at providing information and the ability to find books. So I would encourage anybody who's a book lover to come check us out today: www.bn.com.

TMF: Thank you for your time.

Bulkeley: You're welcome. Nice to meet you.

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