Case Study: Alibris

As an online bookseller, Alibris competes in a market dominated by e-commerce mega-sites like Amazon and Barnes & Noble. But next to these giants, Alibris is tiny.

Compared with Amazon’s 36.9 million unique visits in July 2003, Alibris got 535,000 unique visits, according to comScore Media Metrix. In contrast to Barnes & Noble’s market capitalization of $1.6 billion, Alibris is privately held, financed by its own sales and private investors.

“I will be honored the day that Amazon thinks I’m a problem,” says Alibris CEO Marty Manley. “I just don’t think the Alibris Web site is, frankly, the remotest concern to them, we’re just not big enough.”

Yet Alibris, based in Emeryville, Calif., has survived the ups and downs of Net retailing since 1998. The site has 45 employees (down from a high of 136), and completes up to 10,000 sales transactions a day through its various sales channels, according to Manley. While he concedes Alibris is “not a wildly profitable business,” he points out that, “We will be solidly and attractively profitable this year.”

If You Can’t Beat ‘Em …
Rather than compete head to head with the mega-sites, Alibris focuses on a niche that is a sub-market for the giants: used and hard-to-find books. “Books are more profitable the second time you sell them and that was a founding understanding of this business,” Manley says. Used books have a low price point but good potential margin.

Alibris grew out of an earlier business, Interloc, an Internet bulletin board that listed rare and collectible books as a service to booksellers. Manley started working with Interloc’s founder, Dick Weatherford, and convinced him to morph the site’s business model. Changing the name to Alibris, the new site began selling directly to book buyers. It expanded its inventory to include a broader range of used books.

Manley made another key shift in the business model. Since Interloc had relationships with so many book dealers, Manley turned Alibris into a supplier for the bookselling giants. Alibris is now the biggest supplier of hard-to-find books for Barnes & Noble. “I’ve never been told we’re the biggest single supplier on Amazon marketplace, but I suspect we are,” Manley says.

“There are lots and lots of ways you can buy our books where you don’t necessarily realize it’s coming from us,” he says. Alibris’s other sales channels include Borders, Canada’s Chapters and Japan’s Kinokuniya bookstores. The site sells Albris-branded books through and eBay and is a leading supplier of libraries.

“It’s an odd business model in that we’re not a pure distributor, though we do a lot of distribution,” Manley says. Instead of being just a competitor to the e-commerce mega-stes — which it is — Alibris also partners with them.

Connecting Sellers to Markets
Alibris’s technology platform is built with Linux, and also uses the database search application Texis. This platform links a vast number of independent booksellers into a unified offering. The site has about 1 million used books in its own inventory, and offers for sale an additional 30 million books from independent used booksellers.

The booksellers are a varied bunch, from a small bookstore in Seattle to “someone who lives down a dirt road in Ireland,” Manley says. Albris charges sellers a 20 percent commission. In return, the site offers sellers’ book in its many sales channels. If a book sells, the site’s software is programmed to remove it from all 20 or so of Albris’s sales channels.

A bookseller could sell through Amazon directly and pay a 15 percent commission, notes Manley. “But if you want to be on Amazon and Borders and BN and Alibris and all the other channels we put you on, you need a technology partner — that would be us — who takes you off all those sites the minute the book sells.” Sellers don’t have to worry about selling the same book twice, resulting in negative feedback.

However, Alibris is an additional middleman, says Forrester analyst Carrie Johnson, adding that there is software to help sellers reach multiple venues.

“That being said, for a large volume of books, Alibris is a viable solution for some companies who don’t want to manage it themselves,” she says. “The fatter the margin, the more likely a company is likely to use a middleman like Alibris. Because by the time Amazon takes a cut and Alibris takes a cut, that $9 dollar book you bought for $3 is down to pennies.”

A Library Full of Sales Data
Alibris’s software platform, tied into so many sales channels, generates volumes of sales data. The site monitors tens of thousands of transactions on its partner sites, and updates two million records daily as sellers upload data and sell books.

“If anyone has the data to know how a book is doing in the marketplace, we do,” Manley says. “As a result we’re very smart pricers of books.” Using this knowledge, the site re-prices its books constantly — on the Alibris site as well as its many sales channels.

But while Alibris’s own inventory is priced with great market insight, that’s not always true of the 30 million books owned by independent sellers. “I think our prices are terrible,” Manley says. “Go to our Web site and you will find used copies that sell for more than the new one. It just doesn’t make any sense.”

The price disparity, he explains, is because sellers march to their own drummer. “Nobody tells them what to do,” Manley says. “The problem is, even if only 10 percent of our sellers do that, those are the books that never sell so they sit there forever and accumulate.”

Albris’s job, he says, is to provide sellers with the market knowledge necessary to align their prices with market standards. “Sellers who believe they have $1 million worth of inventory are going to learn they have $100,000 worth of inventory,” Manley says.

On the other hand, “sellers who believe their inventory sells at 30 percent a year are suddenly going to discover that it sells at 100 percent a year,” Manley says. “So they’re going to sell more books at lower prices because that’s the future of the world. Sellers who do this are going to be successful and sellers who don’t are going to get less and less successful.”

Harry Potter and Shakespeare
Alibris also sells new books, largely as a customer service. “We sell them as a convenience,” Manley says. “That’s not a particularly attractive business, it’s okay. But frankly, when our customers are looking for Harry Potter 5, I don’t want them going away empty handed.

“Ingram does all the fulfillment. We don’t touch those books, they come directly from a distributor to you.”

Of course books, new and used, have always been well suited for e-commerce, with their low prices and easy shipping. And this trend appears to be growing. Estimates of the size of the online used book market vary widely, from $500 million to $1 billion annually. Forrester research says the online used book market will double in size by 2007.

“More and more people, as they read books, are selling them back. Exchanging them, so to speak. The Internet is a powerful habit for making that grow,” Manley says.

Manley hopes this Internet-based recycling extends into Alibris’s growth area: music and movies. “We’re in beta on those businesses,” Manley says, noting that DVDs, CDs, and VHS tapes are attractive secondary markets for the site.

But these markets have the same fragmented supply as the book market, he notes. “We need to bring the same kind of data infrastructure to those product areas that we have to books,” Manley says. “We haven’t done that quite yet.”

Adapted from E-Commerce

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