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Tuesday, May 10, 2011

Amazon.com, Starbucks, McDonalds and Borders: Various Positions on the Technological Wave

From the ten-year chart of Amazon.com's stock, a clear upward trajectory can be discerned from the days of financial panic in the last quarter of 2008 even in spite of the plateau in mid-2010. On May 10, 2011, AMZN was trading at around $204 a share. At the time, Amazon's new "cloud music" service was said to be behind the surge. In general, the general uplift since late 2008 can be ascribed to the company being on the right side of the computer technology changes that were transforming not only industries, but modern society itself. As yet another example, as Amazon.com was benefitting from its move into music, Microsoft was buying Skype for $8.4 billion in order to get into communications. The hefty price tag can itself be taken as a confidence vote in the continuance of the technological shift.

                         10 year Amazon.com stock chart from Investorguide.com

In contrast to Amazon.com and Microsoft, Borders found itself holding paper books, music CDs and movie DVDs even as e-readers such as Kindle, on-line music in Cloud--both at Amazon.com, and on-line delivery of movies at Netflix were growing by leaps and bounds. To be on the heels of momentous technological change is very different indeed from riding the crest of its wave.

Rather than fighting gravity itself, Borders execs would be smart to pivot off reliance on the antiquated forms to expand on the one area that is not doomed to replacement--namely, Borders' cafe. Borders strategists would be wise to think beyond a narrow conception of a particular industry sector. Rather than looking over at Amazon.com and Netflix, Borders executives might study why McDonalds was enaged in a $1 billion face lift designed to move the restaurants closer to Starbucks--a place where customers can buy a beverage, connect to wifi, and hang out. In other words, with Starbucks expanding its food products (even going into consumer packaged foods in grocery stores) and McDonands moving closer to the coffee house model, a hybrid restaurant-coffee shop model was emerging just as Borders was facing an uphill battle in paper books, CDs and DVDs. 

Were Borders execs to speak to customers, the suits would learn that people like Borders for being able to get a latte and some food, find a comfortable seat, and spend an hour or so looking at magazines and books. This customer experience ought to be the basis of Borders' business strategy. That is to say, the chain should drop the CDs and DVDs and reduce its paper books to those that customers would enjoy perusing while using the expanded cafe.  More tables and comfortable chairs (with pivot "desks" for a drink and snack) throughout the store--integrated with the book and magazine areas--would play on strength that is not so much at odds with technology. In fact, flat screen tvs could be mounted in an area of the store, while other areas remain quiet.  Expanding on drink and food products--even going into premium products--would enable Borders to capitalize on this shift. 

Of course, no strategy is problem-free. Increasing food and drink around books could mean that more customers will render books unsaleable by spills or smears on the pages. Also, it could be that the customers would not so much buy books than simply read them in-store. Retaining books could therefore be difficult financially even if they contribute to the in-store experience that singles Borders out. The strategy could mean that Borders would eventually compete directly with McDonalds and Starbucks rather than Amazon.com and Netflix, in which case the books-element would not be part of Borders' strategic competitive advantage. However, if Borders could make the magazines and books work as secondary to the cafe products (the latter perhaps subsizing the former), the company could modify the evolving restaurant-coffee shop model.

In short, a company does well to listen to what consumers really like about it.  Often times, the favorite experience could correspond to something that executives view as supportive or secondary.  Furthermore, companies behind the curve on a technological change would do well to think beyond the industry they have been in to consider more broadly how they could swim cross-wise in the rip-tide and eventually even catch a wave. Amazon.com is clearly a beneficiary of the technological change and companies such as McDonalds and Starbucks are also positioning themselves to play off the change. In contrast, Borders has been on the losing side of the curve, but this need not continue if strategic leadership can recognize a way out. Simply arranging loans of $50 million to pre-pay publishers does not evince such leadership.

Click to add a question or comment on technology impacting Amazon.com, the restaurant-coffee shops, and Borders.


Amazon  on Investor Guide

Bruce Horovitz, "McChanges," USA Today, May 8, 2011, p. A1.

See also:

Kit Eaton, "Amazon Sells More E-Books than Paper Ones," Fast Company, May 19, 2011.