Caso Alibris En 2004

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REV: AUGUST 2 0 , 2 0 0 7

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Professor Andrew McAfee prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as

endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2004, 2006, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-

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photocopying, recording, or otherwise—without the permission of Harvard Business School.

ANDREW MCAFE E

Alibris in 2004

Date: October 1, 2004

From: Marty Manley

Subject: Warning to Alibris Booksellers

Dear Alibris Bookseller:

A successful bookseller and friend of ours recently stopped by for a visit. He was not

happy. “Two years ago you warned me that my books were overpriced,” he said, “but frankly,

I didn’t believe you. My sales began to slow down, so I reviewed my prices using the Alibris

Pricing Service. The results were frightening. Your data are correct: few of my books are

distinctive, and many were priced 10 times too high. Altogether, my 300,000 books are worth

much less than half what I thought. I am rethinking my entire business.”

Because Alibris sells books to consumers, retail stores, libraries, and business customers, we

feel the profound changes in the online book market—and we see danger ahead for

professional booksellers. This letter describes these threats and urges you to take specific

actions to preserve the financial health of your business.

During the past four years, online bookselling has exploded. Tens of thousands of people

now sell online, and tens of millions buy. Selling prices have dropped sharply as used-book

sales have grown faster than sales of rare or out-of-print books.

Big transformations bring opportunities as well as challenges. Our opportunity is huge:

annual online sales of used books now approach a billion dollars worldwide. Many experts

believe that this is the fastest-growing, most profitable segment of the global book business.

The challenge for professional sellers is that anyone with a computer and some books can now

sell online very effectively. The Internet is making the distinctive knowledge of professional

booksellers less relevant—just as a few years ago it made irrelevant the skills of independent

book searchers.

We all see the signs of this change. To start with, book prices are now visible to everyone. If

more people want to sell a particular book than want to buy it, the price of the book drops, and

anyone with Internet access can quickly see it. Every business works this way—but ours has

never worked this way this quickly. There have always been thousands of books that nobody

wants to buy but a lot of people want to sell. Today, the price of these books quickly falls to

zero, and everyone knows it. Alibris has more than 10,000 titles with more than 100 copies for

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605-035 Alibris in 2004

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sale. There is no market for most of these books—and the Internet makes this transparent to all

who choose to look.

The explosion of casual bookselling has accelerated these changes. Amazon.com has

reportedly attracted more than 100,000 booksellers to its Marketplace program; few are

committed professionals. EBay has likewise made tens of thousands of people into booksellers.

Casual sellers have few fixed costs and usually price books to sell quickly. They almost always

undercut the price of books uploaded months or years earlier by experienced, professional

booksellers. Catalog-driven retail sites such as Alibris, half.com, and Amazon.com offer casual

sellers the benefit of rapid cataloging, pinpoint pricing, and first-rate merchandising including

reviews and cover art. Many professional sellers are either unaware of the sudden arrival of

tens of thousands of casual booksellers or regard them as a plague of amateur locusts that will

quickly pass. Like it or not, casual sellers are here to stay, and they are rapidly transforming our

selling environment.

These changes threaten the online sales of most professional booksellers.

Alibris CEO Marty Manley looked over the text of the letter for what felt like the hundredth time;

he had to make sure that its content and tone were exactly right. He did not want to alienate the

professional booksellers who were Alibris’s historical suppliers of rare, used, and out-of-print books,

but he did want to jolt them.

By late 2004, Alibris offered more than 40 million books for sale, processed over 1 million updates

and transactions daily, and probably sold more used, rare, and out-of-print books than anyone else.

As a result, the company had unparalleled visibility into industry trends, and Manley saw clearly

that while demand was growing, the supply of some titles was coming online even more quickly.

This was having a predictable effect on prices.

Manley’s letter was an initial attempt to confront professional booksellers with this reality and to

offer Alibris’s help in adjusting to it. His company had developed powerful tools to let sellers set the

“right” prices for their books, but these tools were not yet widely used. But was a letter like this the

right way to spur different behavior? Would it motivate booksellers or antagonize them? Manley had

sent only a couple of such letters previously and always at a time of great change for Alibris or its

industry. Was this another one of those times?

Alibris History

In 1993, Dick Weatherford, a former UCLA English professor and antiquarian bookseller with 30

years’ experience, launched an online service for buyers and sellers of rare, used, and out-of-print

books. The company, called Interloc, was intended to address poor information flows in the industry;

it was an inventory-listing service whereby dealers could post descriptions and prices of the books

they had available, as well as their own contact information.

Interloc operated as a bulletin-board service and maintained a bank of modems for dealers to

“dial into” to query the database of all listed books or update their own listings.1 The company

provided no e-commerce capabilities and could not be used to reserve or purchase a book; it was

simply a listing of the inventory that a far-flung group of dealers had taken the time to enter into a

1 Interloc maintained a modem bank for sellers to dial into because Internet service providers were not yet widely available

and the Web not in widespread commercial use.

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Alibris in 2004 605-035

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database. Interloc’s primary source of income was record-storage charges. The company charged

dealers a third of a cent per month per book to list their books on the service.

Manley, an avid reader, was told about Interloc in the fall of 1997. He looked at the site with an

entrepreneur’s eyes: “I could see the company that Interloc could be. I thought, ‘Wow, it’s a near

miss, but it’s not off by much.’”

Coincidentally, at the same time that Manley was first using Interloc, he was approached by a

Venture capital group that was trying to convince Weatherford that Interloc should become an

e-commerce company—that it should, in other words, allow customers to purchase books in addition

to finding them. These investors felt Manley might be a good CEO for the company. They brought

Manley and Weatherford together, and the two immediately bonded. As Manley said, “We were

finishing each other’s sentences.” Manley became CEO of the company in January 1998. Interloc

changed its name to Alibris in April of that year.2

From Interloc to Alibris

Manley immediately began to research the used-book industry, spending six weeks over a threemonth

period traveling across the country with Weatherford to meet with booksellers and customers.

His other initial task was to transform Alibris into an e-commerce company. There were two major

elements to this change: modifying how dealers were charged and revenue was generated, and

becoming an active participant in the order-fulfillment process by handling every book sold.

New Revenue Model

When the Alibris Web site “went live” with its e-commerce capabilities in November of 1998, it

scrapped its listing fees, allowing dealers to enter and maintain as many books as they liked at no

...