Showing posts with label Amazon. Show all posts
Showing posts with label Amazon. Show all posts

Thursday, June 19, 2014

Amazon Aims to Strike It Big in India

The past year has been action-packed for Amazon in India. The country’s online retail market is around $3 billion at present, but it is expected to cross $50 billion by 2020 — and the global online retail giant is gearing up to play a dominant role in the sector.
While Amazon has been compelled to adopt different a business model in India to comply with foreign direct investment (FDI) regulations — India does not permit FDI for online companies that have their own inventory — the ramp-up of its operations in the country has been the fastest globally for the Seattle-based $75 billion firm. When the company launched Amazon.in, its online marketplace in India, in June 2013, it had just 100 sellers across two categories — books and movies, and television shows. Amazon now has a base of 5,000 sellers and a selection of more than 15 million products across 25 categories including music, video games, toys, home goods, luggage, jewelry and beauty products. According to media reports, industry estimates put Amazon’s India sales at around $200 million.
Amazon has been active on other fronts, too. For instance, it took the lead among online retailers in India to introduce same-day and next-day deliveries. To reach its customers faster, Amazon is now running a pilot for last-mile delivery by partnering with neighborhood mom-and-pop stores. Amazon also has two fulfillment centers in the country — one on the outskirts of Mumbai, and the other in Bangalore, each about 150,000 square feet. These two centers stock products across several categories from sellers using “fulfillment by Amazon” – a service in which Amazon takes complete care of packing, shipping and delivery of the sellers’ products.
“India is a very important market for Amazon globally. We are committed to India and are here for the long term,” says Amit Agarwal, vice president and country manager of Amazon India. “We take it as an article of faith that customers will shop on Amazon.in only until the very moment they find a better customer experience elsewhere. It’s truly ‘Day 1’ for us, and we are committed to aggressively investing over the long term and relentlessly focusing on raising the bar for the online shopping experience in India.”
Pragya Singh, associate vice president of retail at research and consultancy firm Technopak Advisors, notes that Amazon has been present in India since 2012, when it launched Junglee.com, a comparison site the company bought more than a decade ago. That purchase, she says, helped Amazon build an initial understanding of the market. “Amazon has spent the past year strengthening its backend, has added categories one by one, expanded its vendor base in India and worked on the fulfillment aspect, which is a very critical piece in Indian e-tailing,” she adds. “Amazon is changing gears now, and if FDI in [inventory-led] e-commerce opens up anytime soon, it won’t be surprising to see [the company] going full steam to grab the top slot.” According to recent media reports, the new government in India, which took over in May, is considering easing restrictions in this sector.
Domestic Players on the Move
But even as Amazon is getting its act together, the major domestic players in the space are making waves as well. In March, India’s largest online retailer, Flipkart, announced that it had crossed the $1 billion mark — the first online retailer in India to do so — a year ahead of its target. Founded in 2007 by ex-Amazon employees Sachin Bansal and Binny Bansal, it currently offers 15 million products across more than 70 categories.
In May, in the largest-ever transaction in the Indian e-commerce space, Flipkart acquired Myntra, the leader in the online fashion and lifestyle sector in the country. The two firms will leverage their synergies but will continue as independent entities. While both Flipkart and Myntra have refused to divulge the size of the deal, industry analysts peg it at around $350 million.
Calling the acquisition a “game changer,” Sachin Bansal says: “This is an acquisition for scale and not for cost. We believe that with this acquisition, we both can grow five to 10 times [faster] in the fashion category than what we would have done independently.” Myntra co-founder Mukesh Bansal adds: “This is probably one of the few sales in the e-commerce segment in India that is not out of distress. There was no compulsion for us to sell, only a very strong business case to accelerate our roadmap and create a strongly differentiated organization.”
The Flipkart-Myntra deal is important because fashion and lifestyle is not only one of the largest categories in online retail in India — it accounts for more than 25% of the market and is expected to increase to as much as 40% — it also has among the best margins. While margins in branded apparel can go up to 35%, for in-house brands it can be as high as 60%. The companies are looking to increase their combined market share in this category from 50% at present to around 70%. Flipkart has already committed to investing upwards of $100 million in the combined fashion business over the next 12 to 18 months.
According to Kartik Hosanagar, a Wharton professor of operations and information management, the acquisition makes “tremendous sense” for Flipkart, given both the higher margins associated with apparel and the threat from Amazon. But he is surprised that Myntra agreed. “Myntra is well positioned in a high-margin business, and I believe they will fare better than their main competitor, Jabong. I have to believe that their common investors … had a big role to play in pushing the deal through.
Soon after its acquisition of Myntra, Flipkart also raised $210 million in a fresh round of funding led by DST Global. Since its inception in 2007, Flipkart has raised more than $550 million and, with money from the previous rounds not yet fully utilized, it is flush with funds for more growth-related investments. “Acquisition is an important strategy for us,” says Binny Bansal.
Meanwhile, another major domestic player, Snapdeal, which is expected to reach $1 billion in sales this year, recently raised $100 million from a consortium of investors, including Wipro chairman Azim Premji, Singapore-based Temasek Holdings and Hong Kong-based Myriad Asset Management. With the deal, Temasak and Myriad, which have also invested in Chinese e-commerce giant Alibaba, are making their first investments in Indian e-commerce.
In February, Snapdeal, which has over five million products from more than 30,000 sellers, raised $133 million in funding. This was led by eBay, which, following an initial investment in 2013, increased its stake in Snapdeal to around 20%, according to industry estimates. In a press statement in February, eBay senior vice president and APAC managing director Jay Lee said: “Accelerating growth in India and other emerging markets continues to be a core strategy for driving eBay’s global e-commerce leadership. We continue to invest in Snapdeal due to its complementary business model, good management team and strong brand.” EBay has been present in India since 2004 with the acquisition of Baazee.com and is estimated to have around 1.1 million products across nearly 2,000 categories.
According to Venture Intelligence, a research services firm focused on private equity and M&A deals, from January 2014 to now, there have been 13 venture capital/private equity investments in the Indian e-commerce space totaling $309 million. Last year, there were 30 investments totaling $540 million, while in 2012 there were 48 investments totaling $316million.
Domestic online retailers have also been active on other fronts. For instance, soon after Amazon launched its one-day delivery service, Flipkart, Myntra and Snapdeal followed suit. Flipkart is now pushing the envelope when it comes to customer service by piloting a “try and buy’ concept for apparel in Bangalore. Customers can try out the garments before deciding whether or not to purchase them. The firms are also making concerted efforts to hire top-notch professionals and aggressively woo consumers with high-decibel advertising and steep discounts.
Does Amazon Need to Rethink?
What does all this increased activity mean for Amazon? Does it need to rework its strategy if it wants to gain the top slot in the Indian online retail market? Sudhir Sethi, founder and chairman of IDG Ventures India, which is an investor in Myntra, says that with the Myntra acquisition, Flipkart “has taken a significant lead over Amazon in having the largest and most profitable vertical in their stable at a significant scale. Both Amazon and Snapdeal will be forced to scale faster in the fashion vertical now.” However, Sethi adds that “with its deep domain and sector knowledge, as well as access to a deep pool of capital, Amazon is clearly well placed to be a leading e-commerce player in the Indian market.” Both Flipkart and Snapdeal, he notes, will have to raise more capital to scale, invest in logistics and inventory handling automation, as well as raise the bar on consumer satisfaction.
–Mukesh Bansal
K. Ganesh, a serial entrepreneur and strategic investor in five e-commerce start-ups, suggests that Amazon needs to rethink its strategy to bridge the gap between itself and the combined Flipkart-Myntra entity. “Amazon is the pioneer in this space and has a huge war chest and patience to drive the outcomes in the Indian market,” he notes. “It has great domain knowledge, and the learnings it brings are unparalleled. But the size and leadership of the Flipkart-Myntra combination, the top investors and their ability for further funding will certainly affect Amazon’s plans in India. From Amazon’s point of view, it would have been better to have two competitors with relatively smaller cash, traction and resources, [rather] than their joining forces.”
Agarwal declined to comment directly on the competition. “We remain customer obsessed and not competition focused. We are going to relentlessly focus on expanding sellers and selection on the platform, innovate on various customer touch points, and provide fast and reliable delivery services.” He says that his team draws lessons from Amazon’s experience globally. “Amazon has built one of the most sophisticated logistics infrastructure that has ever been built to serve sellers and customers. We learn a lot from that and localize that to India,” he notes.
Global vs. Local
Given the peculiarities of the Indian market, can global platforms, processes and models, even if they are tweaked, work in India? No, according to Ganesh. “Many of the things that companies take for granted in terms of the ecosystem do not exist or are not developed in India,” Ganesh points out. “These need to be developed from scratch here. For instance, the entire concept of cash-on-delivery, the high returns and refunds, the lack of a credit score for nonpayment of debt, the inability to prosecute to recover any bad debt, the high price sensitivity and the obsession over getting best value for money are all things that require local solutions. Transplanting U.S. models here will not work.”
Flipkart’s Sachin Bansal says that across the world, e-commerce is a space where being local is a key benefit. “Be it online retail, jobs, classified ads — local aspects play an important role.” Bansal cites an example: “If Flipkart had started in the U.S., we would have built our logistics system very differently. Our supply chain structures would be very different because the cost of labor in the U.S. is very different from what it is in India. What we automate and what we don’t automate makes a big difference. There are also cultural differences.” Myntra’s Mukesh Bansal adds: “A lot of global players were built in the desktop era. The whole Indian ecosystem will be built on mobile from scratch. Global players come with a lot of legacy that is not relevant in the Indian market.”
But Agarwal counters this argument, noting that India is the fastest-growing mobile commerce site for Amazon globally. “We launched the Amazon mobile shopping app for Android and iOS phones within a couple of months of our India launch and, today, we get more than 30% traffic through mobile.” He also points to some of the features and programs developed by Amazon specifically for India: Pin code-based delivery to deal with challenges around logistics, payments functionality that allows customers to start where they left off in case of an incomplete transaction, the “fulfilled-by-Amazon” service and a small business accelerator program.
“We strongly believe in three things that have helped us succeed globally: customer obsession, innovation and long-term focus,” Agarwal notes. “The Indian e-commerce space is still in a very nascent stage with significant potential for innovation to improve customer experience. The growth [here] is at an inflection point and there is tremendous opportunity. We believe there is room for multiple formats and players, and most importantly for innovation.”
Hosanagar agrees with Sachin Bansal’s view that e-commerce is a local play. He points out that India’s e-commerce market looks more like that of China than the U.S. “If you look at China, Amazon hasn’t fared that well,” he notes. “So we shouldn’t assume that Amazon will bulldoze the local players.” However, Hosanagar adds that his “overall prognosis” is that Amazon will do well in India. “They have learned their lessons from China and will not look to replicate their U.S. model in India. Further, they have had a chance to observe the Indian market for the past couple of years. While I think they will do well, I don’t think Flipkart is in trouble, either. I think Amazon poses a larger threat to Snapdeal, which has a similar marketplace model.”
The Winning Formula
S. Ramesh Kumar, a professor of marketing at the Indian Institute of Management in Bangalore, suggests that the major challenge for any e-commerce portal is to create a sustainable differentiation. “Both Amazon and Flipkart need to be worried about each other, as both are capable of scaling up. Unlike established categories, I am unsure if local brands would have an advantage.” Singh of Technopak adds: “Where global players have an edge is experience in terms of technology and processes that are important in scaling up. Most of them also have deep pockets.”
Ganesh, however, says that many of the advantages that global players have work better in the product space than in services. “The best option for [multinationals], in my opinion, is to get the best of both the worlds by going in for big, bold acquisitions — the way Naspers did with redBus, Pearson with TutorVista and Disney with UTV — rather than start from scratch.”
According to IDG’s Sethi, the Indian online retail market has peculiarities that give local players an edge, but only for a short time. “In the medium to long term, international players have the advantage of having the experience of building scale, which the local entrepreneur may not have,” he says. His list of success factors: convincing consumers to buy online, enabling mobile commerce, efficient logistics, managing cash-on-delivery across the country, high consumer satisfaction, hiring the right team and availability of capital for rapid and sustained growth.
Rishikesha T. Krishnan, director and professor of strategic management at the Indian Institute of Management in Indore, notes that Amazon has made its name in global e-commerce for “its brilliant and dependable execution.” Managing logistics effectively in India is not easy. If Amazon manages to crack that, it will be “a formidable threat to Flipkart.” But Krishnan notes that Amazon has a more serious challenge than dealing with India’s logistics. “Amazon is under pressure in the U.S. to improve its financial performance. India will be a long-term bet, and Amazon will succeed [here] only if it is committed for the long term.”
Drawing an analogy from mobile services, Krishnan adds: “We need to see whether Amazon is more like a Vodafone — [i.e., a company that is willing to] take a big bet on India, dig in and fight in spite of investor pressures in Europe — or like a DoCoMo, [i.e., one that] gives up too early.”
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Monday, June 16, 2014

Amazon Smartphone - close the gap "i want it" and "i have it"

Hold the phone: Amazon wants to burrow even deeper into your life.

The retailer is expected to introduce a smartphone on Wednesday at an event in Seattle, a long-rumored project that aims to close any remaining gap between the impulse to buy and the completed act.

Amazon has spent the last several years furiously investing billions of dollars on multiple fronts: constructing warehouses all over the country to deliver goods as fast as possible, building devices as varied as tablets and set-top boxes, and creating and licensing entertainment to stock those devices.
It all adds up to a wildly ambitious venture without precedent in modern merchandising. Wall Street has generally cheered as competitors — an ever growing group that now includes businesses like Walmart, eBay, Apple and Google — regard these activities with increasing unease. Customers, meanwhile, are propelling Amazon toward the rarefied ranks of companies with revenue of $100 billion.
The phone is the last and most crucial link in this colossal enterprise. It is a singular gamble for a company that, for all its technology components, is still primarily a merchant. Because even the smartest tech companies have trouble with phones.

A Google smartphone, the Nexus One, failed to catch on. Google next bought Motorola and then dumped it. BlackBerry, once the dominant smartphone maker, is struggling to survive. Microsoft’s Windows Phone has less than 3 percent of the global market. A Facebook phone stumbled last year.
When it comes to smartphone profits, Apple and Samsung divide them up, leaving crumbs for every other manufacturer. At least in the United States, phones are a mature market, with 120 million sold last year.

Now Amazon is giving this brutal business a shot. On the one hand, analysts say, it has no choice. On the other, the rewards could be tremendous.

“Mobile is asserting not just its utility but its supremacy,” said James McQuivey, an analyst with Forrester Research. “If you’re Amazon, you’re worried you’re going to be cut out of the next big interface. So you jump in and make yourself relevant, whether your customer is in the bathroom, the kitchen or the car. You go for broke.”

For Amazon, the risk of doing nothing is that it could be completely marginalized by one of its competitors. Mr. McQuivey offered the example of coconut flour.

Search for the flour on Google, and Amazon comes up in two of the top responses, one of them an ad it paid for. In the future as designed by Google, however, the search engine will remember what you’re looking for when you’re out in the world and sell ads against that. So the next time you pass Trader Joe’s, your Android phone sends a note: There is coconut flour just 50 feet away.
If that sort of transaction starts happening too often, the coconut flour is going to go stale in Amazon’s warehouses.

In building a phone, Amazon has advantages other phone makers do not. It can sell to its 250 million customers without a middleman. It can bundle features with the Amazon Prime membership club, as it just did last week with a new streaming music service.

Most of all, Amazon has the blessing of Wall Street to lose money as long as it is gaining market share — although recently the enthusiasm has dimmed a bit. The stock is about 20 percent off its peak.

An early demonstration of what Amazon wants to do with shopping can be seen in the Dash, a wand that the company quietly introduced this year. Customers who belong to Amazon’s grocery service can use the Dash, which scans bar codes and takes voice commands, to restock their refrigerator and cabinets.

Imagine the Dash set free on the world and you have Amazon’s long-term hopes for a phone. Sam Hall, an Amazon mobile executive, succinctly set forth the agenda in an interview a few years ago: “We’re trying to remove the barrier between ‘I want that’ and ‘I have it.’ ”
An Amazon spokesman declined to comment on Wednesday’s event. There is always the possibility, of course, that all the rumors about a phone could be an elaborate head fake, and that the event will be something else entirely — perhaps a kiss-and-make-up ceremony between Amazon and its suppliers, with several of which it has drawn swords.

No matter what, the event has more hoopla than any Amazon release in memory, indicating something big. First came a video showing a lot of people oohing and aahing over something out of camera range. This was taken by some as confirmation that the phone will have some sort of 3-D capacity. That might pull in gamers, another group Amazon is cultivating.
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Monday, January 30, 2012

The Bookstore’s Last Stand - Barnes & Noble


IN March 2009, an eternity ago in Silicon Valley, a small team of engineers here was in a big hurry to rethink the future of books. Not the paper-and-ink books that have been around since the days of Gutenberg, the ones that the doomsayers proclaim — with glee or dread — will go the way of vinyl records.
No, the engineers were instead fixated on the forces that are upending the way books are published, sold, bought and read: e-books and e-readers. Working in secret, behind an unmarked door in a former bread bakery, they rushed to build a device that might capture the imagination of readers and maybe even save the book industry.
They had six months to do it.
Running this sprint was, of all companies, Barnes & Noble, the giant that helped put so many independent booksellers out of business and that now finds itself locked in the fight of its life. What its engineers dreamed up was the Nook, a relative e-reader latecomer that has nonetheless become the great e-hope of Barnes & Noble and, in fact, of many in the book business.
Several iterations later, the Nook and, by extension, Barnes & Noble, at times seem the only things standing between traditional book publishers and oblivion.
Inside the great publishing houses — grand names like Macmillan, Penguin and Random House — there is a sense of unease about the long-term fate of Barnes & Noble, the last major bookstore chain standing. First, the megastores squeezed out the small players. (Think of Tom Hanks’s Fox & Sons Books to Meg Ryan’s Shop Around the Corner in the 1998 comedy, “You’ve Got Mail”.) Then the chains themselves were gobbled up or driven under, as consumers turned to the Web. B. Dalton Bookseller and Crown Books are long gone. Borders collapsed last year.
No one expects Barnes & Noble to disappear overnight. The worry is that it might slowly wither as more readers embrace e-books. What if all those store shelves vanished, and Barnes & Noble became little more than a cafe and a digital connection point? Such fears came to the fore in early January, when the company projected that it would lose even more money this year than Wall Street had expected. Its share price promptly tumbled 17 percent that day.
Lurking behind all of this is Amazon.com, the dominant force in books online and the company that sets teeth on edge in publishing. From their perches in Midtown Manhattan, many publishing executives, editors and publicists view Amazon as the enemy — an adversary that, if unchecked, could threaten their industry and their livelihoods.
Like many struggling businesses, book publishers are cutting costs and trimming work forces. Yes, electronic books are booming, sometimes profitably, but not many publishers want e-books to dominate print books. Amazon’s chief executive, Jeffrey P. Bezos, wants to cut out the middleman — that is, traditional publishers — by publishing e-books directly.
Which is why Barnes & Noble, once viewed as the brutal capitalist of the book trade, now seems so crucial to that industry’s future. Sure, you can buy bestsellers at Walmart and potboilers at the supermarket. But in many locales, Barnes & Noble is the only retailer offering a wide selection of books. If something were to happen to Barnes & Noble, if it were merely to scale back its ambitions, Amazon could become even more powerful and — well, the very thought makes publishers queasy.
“It would be like ‘The Road,’ ” one publishing executive in New York said, half-jokingly, referring to the Cormac McCarthy novel. “The post-apocalyptic world of publishing, with publishers pushing shopping carts down Broadway.”
Shouldering the responsibilities of Barnes & Noble is one thing. Holding the fate of American book publishing in your hands is quite another. But William J. Lynch Jr., the C.E.O. of the company, says he is up for the battle. With all of three years of experience in bookselling, Mr. Lynch must pull off a balancing act that would be tricky even in good times. He must carve out a digital future for Barnes & Noble without forsaking its hard-copy past, all while his company’s profit and share price are under pressure, his customers are fleeing to the Web and Amazon is circling.
It might come as a surprise, but Mr. Lynch says Barnes & Noble is, in fact, a technology company. Never mind that it has 703 bookstores and operates in all 50 states. To the delight of publishers, he has pushed hard into e-books and, with the help of the well-reviewed Nook, even grabbed a lot of market share from Amazon. But he is playing David to Mr. Bezos’s Goliath. Barnes & Noble’s stock closed on Friday at $11.95, putting the value of the company at $719 million. Amazon’s shares closed at $195.37, valuing Mr. Bezos’s company at $88 billion.
“We could sit here and bang our head against the wall and get sick about it like we do every week,” Mr. Lynch, 41, said of his company’s stock price. But he contends that pushing into e-books with the Nook is the right way, and perhaps the only way, forward.
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Jeffrey P. Bezos of Amazon with a Kindle Fire last fall. Early to the e-reader market, Amazon now wants to cut out the middleman — traditional publishers — by publishing e-books directly.

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Mike Spencer/The New York Times
Amazon's moves pose a huge threat to Barnes & Noble, which now highlights its Nook e-readers in its stores.
“Had we not launched devices and spent the money we invested in the Nook, investors and analysts would have said, ‘Barnes & Noble is crazy, and they’re going to go away,’ ” Mr. Lynch said.
BEFORE Mr. Lynch joined Barnes & Noble in 2009, he had never sold a book in his life. (The last book he read — on the Nook, he said last week — was “The Spy Who Came In From the Cold,” by John le Carré.) Mr. Lynch came to the job from IAC/InterActiveCorp, where he worked for HSN.com, the online outlet of theHome Shopping Network, and Gifts.com.
And yet, in three years, he has won a remarkable number of fans in the upper echelons of the book world. Most publishers in New York can’t say enough good things about him: smart, creative, tech-savvy — the list goes on. It helps that he has forged the friendliest relations between publishers and Barnes & Noble in recent memory. They are, after all, in this together.
Mr. Lynch grew up in Dallas and still speaks with a hint of Texas twang. But he has the foot-tapping intensity of a tech type running on four Mountain Dews. It seems fitting, then, that he usually works out of an office in the Chelsea neighborhood of Manhattan, where Barnes & Noble’s Web and digital operations are based, rather than at the company’s stately headquarters on Fifth Avenue, not far away. When he talks, you get the sense that he could be selling just about anything. As it happens, he is selling books.
Mr. Lynch says Barnes & Noble stores will endure. The idea that devices like the Nook, Kindle and Apple iPad will make bookstores obsolete is nonsense, he says.
“Our stores are not going anywhere,” he said in an interview this month in his office. He pointed to a surprisingly robust holiday season. In the nine weeks leading up to Christmas, sales were up 4 percent from the previous year. Titles for children and young adults are doing well, partly a result of the popularity of fiction with paranormal or dystopian themes, like “The Hunger Games.” And in the second half of 2011, Barnes & Noble picked up a big chunk of business from its vanquished rival, Borders.
Yet no sooner had the holidays passed than Barnes & Noble came out with some downbeat news for the year ahead. On Jan. 5, it projected it would lose as much as $1.40 a share in fiscal 2012. On top of that, Mr. Lynch said shareholders seemed to be underestimating the Nook’s potential so much that perhaps the company would be better off if it just spun off its digital business. Wall Street howled, and Barnes & Noble’s stock still hasn’t fully recovered. A bit of good news for the company is that, thanks to the Nook, it’s been grabbing e-book business from Amazon. Mr. Lynch said Barnes & Noble now held about 27 percent of the market, a number that publishers confirm gleefully. Amazon has at least 60 percent.
Responding to questions about the battle over e-books, Amazon issued a statement on Friday pointing to its own recent growth. In the nine-week holiday period ended Dec. 31, it said, “Kindle unit sales, including both the Kindle Fire and e-reader devices, increased 177 percent over the same period last year.”
Granted, Mr. Lynch inherited a company at a pivotal moment in its long, winding history. Barnes & Noble dates back to 1873, when Charles Barnes went into the used-book business in Wheaton, Ill. His company later moved to New York, bought an interest in an established textbook wholesaler, Noble & Noble, and opened a large bookshop on Fifth Avenue.
So it went until an enterprising young bookseller, Leonard Riggio, came along. After gaining a foothold in college bookstores, he bought that Barnes & Noble bookshop in 1971. Before long, he was offering deep discounts — and expanding wildly across the nation.
Early in his tenure, Mr. Lynch pressed Mr. Riggio’s brother, Stephen, his predecessor as C.E.O., to explain the business he’d gotten himself into.
“I had this ‘La Femme Nikita’ immersion with him,” Mr. Lynch recalled. “We went to lunch and I just told him, ‘Tell me everything you know about the book business.’ ”
But at that time, Amazon had already made the first successful move in e-readers: the first-generation Kindle hit the market in November 2007. Mr. Lynch had arrived in the C-suite, but was perilously late to the party.
ON Homer Avenue in downtown Palo Alto is a tiny, two-story building that once housed the maker of Palo Alto Bread. It was here, in March 2009, that Barnes & Noble brought a few new hires to create the Nook. Outsiders weren’t quite sure what the company was up to. The landlord figured that Mr. Lynch wanted to open a store.
What began as an almost quixotic effort to catch up with the Amazon Kindle has now grown into a 300-person operation in the heart of Silicon Valley. Mr. Lynch has hired engineers, software developers and designers, who are today spread among five low-slung buildings.
In one room, a virtual wallpaper of Nook color devices hangs in rows neat as a checkerboard. A common area holds a foosball table and a cooler of VitaminWater. Some of the walls are made of silver-colored mesh. Some of the cubicles are lime green.

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But there are also reminders of the old Barnes & Noble. Over here is a basket of actual books, including “Travels With Charley” and “The Little Prince.” Over there on a wall are enormous vintage covers of books like “Of Mice and Men” and “The Great Gatsby.”
It was Nick Carraway who told Jay Gatsby, “You can’t repeat the past.” That warning seems to hang over these offices. A sign above one group of engineers says: “We are changing the future of bookselling.”
For all the bells and whistles and high-minded talk, Barnes & Noble doesn’t exactly have the cool factor (or money) of, say, a Google or a Facebook.
Ravi Gopalakrishnan, the first engineer whom Mr. Lynch hired and now the chief technology officer for digital products, said his techie friends were incredulous when he joined Barnes & Noble.
“They were all wondering what I was up to,” Mr. Gopalakrishnan, 46, said. “I’m a technology guy — why I was working for a retail company? They thought I was nuts. There were a lot of e-mails that said, ‘Barnes & Noble?!’ ”
Bill Saperstein, a mild-mannered surfer and a veteran of Apple, said he was persuaded to leave retirement to join Barnes & Noble as vice president for digital products hardware engineering.
“We don’t see a lot of the stock and the free sushi bar and everything else that you find at Google, but there’s a lot of responsibility,” said Mr. Saperstein, 62, who spent seven years working for Steve Jobs. “It was stuff that I strongly believed in, which was reading.”
Barnes & Noble is trying to strike at Amazon with another device. At its labs in Silicon Valley last week, engineers were putting final touches on their fifth e-reading device, a product that executives said would be released sometime this spring. (A Barnes & Noble spokeswoman declined to elaborate.)
Back in New York, Mr. Lynch has been working to revamp the look of Barnes & Noble stores. Last year, the company expanded sections for toys and games and added shiny new display space for its Nook devices. In another sign of the digital revolution, Mr. Lynch expects to eliminate the dedicated sections for music and DVD’s within two years — while still selling some of them elsewhere in the stores. He also plans to experiment with slightly smaller stores. And, before long, executives will take the Nook overseas — a big switch, given that Barnes & Noble has focused almost exclusively on the American market for decades. The first stop is expected to be Waterstones bookstores in Britain.
All of this would be a tall order for any C.E.O., and some analysts wonder if Mr. Lynch has bitten off more than he can chew. Then again, given this industry’s pace of change, Barnes & Noble may have to adapt to new realities, or die trying.
“I think they realize they can’t continue at the rate they’re going,” said Jack W. Perry, a publishing consultant. “They need more money to invest, to slug it out.”
THESE are trying times for almost everyone in the book business. Since 2002, the United States has lost roughly 500 independent bookstores — nearly one out of five. About 650 bookstores vanished when Borders went out of business last year.
No wonder that some New York publishers have gone so far as to sketch out what the industry might look like without Barnes & Noble. It’s not a happy thought for them: Certainly, there would be fewer places to sell books. Independents account for less than 10 percent of business, and Target, Walmart and the like carry far smaller selections than traditional bookstores.
Without Barnes & Noble, the publishers’ marketing proposition crumbles. The idea that publishers can spot, mold and publicize new talent, then get someone to buy books at prices that actually makes economic sense, suddenly seems a reach. Marketing books via Twitter, and relying on reviews, advertising and perhaps an appearance on the “Today” show doesn’t sound like a winning plan.
What publishers count on from bookstores is the browsing effect. Surveys indicate that only a third of the people who step into a bookstore and walk out with a book actually arrived with the specific desire to buy one.
“That display space they have in the store is really one of the most valuable places that exists in this country for communicating to the consumer that a book is a big deal,” said Madeline McIntosh, president of sales, operations and digital for Random House.
What’s more, sales of older books — the so-called backlist, which has traditionally accounted for anywhere from 30 to 50 percent of the average big publisher’s sales — would suffer terribly.
“For all publishers, it’s really important that brick-and-mortar retailers survive,” said David Shanks, the chief executive of the Penguin Group USA. “Not only are they key to keeping our physical book business thriving, there is also the carry-on effect of the display of a book that contributes to selling e-books and audio books. The more visibility a book has, the more inclined a reader is to make a purchase.”
Carolyn Reidy, president and chief executive of Simon & Schuster, says the biggest challenge is to give people a reason to step into Barnes & Noble stores in the first place. “They have figured out how to use the store to sell e-books," she said of the company. "Now, hopefully, we can figure out how to make that go full circle and see how the e-books can sell the print books.”
Mr. Bezos, for one, isn’t waiting. Amazon has set the book industry on edge by starting a publishing unit that has snagged authors like Timothy Ferriss and James Franco. And, each day, the stock market provides a sobering reminder that Mr. Bezos, not Mr. Lynch, has the deeper pockets.
While publishers’ fates are closely tied to Barnes & Noble, said John Sargent, the C.E.O. of Macmillan, it’s not all about them.
“Anybody who is an author, a publisher, or makes their living from distributing intellectual property in book form is badly hurt,” he said, “if Barnes & Noble does not prosper.”

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