Geez Make Up Your Mind

April 2001

Borders Turns to Amazon for Outsourcing

Renting online infrastructures is Plan B for struggling dot-coms

After three years in the red, the second largest U.S. bookseller is calling it quits online, choosing instead to outsource its operations to Amazon.com Inc.

In turn, Seattle-based Amazon is adopting a well-established model for drumming up additional revenue used by other dot-com companies with infrastructure to spare.

For an undisclosed fee, Amazon.com will take over the Web operations of Borders Online Inc. and relaunch it as a co-branded site. It will be powered by Amazon's e-commerce platform and technology infrastructure. The online retailer will also handle inventory, customer service and shipping services for book, music and video sales. Ann Arbor, Mich.-based Borders Group Inc. will receive a commission on sales, officials at both firms said.

"It's only gravy for Amazon," said Carrie Johnson, an analyst at Forrester Research Inc. in Cambridge, Mass. "They're already in the book business, they've eliminated a competitor and they will possibly get new customers and some incremental revenue."

Amazon officials said the online merchant would also seek out additional opportunities to outsource its application infrastructure to other Web-based retailers, though no additional deals are in the works.

March 2007

Borders shelving Amazon alliance

Book company to compete directly with Net retailer

When Borders needed a high-powered and efficient Web-based delivery service six years ago, the book giant courted Seattle's Amazon.com.

But now the marriage has ended, and it could put a crimp on Amazon's revenue and earnings, one analyst says.

The Ann Arbor, Mich.-based Borders Group Inc. said Thursday that it was severing ties with Amazon and will compete directly early next year against the Internet retail company, which has gone from selling only books to a wide range of products, from DVDs to clothing to food.

"We expect to drive sales and profits with it," Borders spokeswoman Anne Roman said of the company's planned Web site.

"We can mesh the in-store sales with online, which is something we have been missing."

Roman said the Web site would allow Borders to connect with 17 million customers who are part of the company's rewards loyalty program. Roman declined to disclose if its contract with Amazon had ended.

Patty Smith, an Amazon spokeswoman, said the company had no comment.

Before 2001, Borders had its own Internet business, but it wasn't profitable, Roman said. That led to the arrangement with Amazon, which operated Borders' Web site, took orders and delivered books.

Amazon obtained all the sales and gave an undisclosed cut to Borders, Roman said. Amazon also runs the Web sites for Target and Bebe and fills the orders.

The loss of Borders could cost Amazon $80 million to $160 million in annual revenue, according to an estimate by Scott Devitt, an analyst with St. Louis-based Stifel, Nicolaus & Co. Amazon and Borders wouldn't confirm or deny those figures.

Devitt said the loss isn't material to Amazon, which had revenue of $10.7 billion last year and $190 million in profits.

Devitt said the loss of Borders could result in a 2 percent decline in profits for Amazon.