Recent evidence shows that the company’s new approach is working: In the first quarter of 2001, Barnesandnoble.com reported a higher-than-expected jump in sales, leading analysts and company officials to declare that the number-two online bookseller is starting to take market share from Amazon.com. And although profits are not expected until next year, the dotcom has burnished its image by cutting marketing and cumbersome fulfillment costs.

"We had a very steep learning curve," says Stephen Riggio, Barnesandnoble.com’s vice chairman, whose older brother, Leonard, is chairman and CEO of the website’s brick-and-mortar counterpart. "But we’re getting a lot better at e-commerce. We’ll be the first multichannel retailer to offer pervasive service on a massive scale."

Long Day’s Journey to the Web

When Barnesandnoble.com got started in 1997, the e-commerce landscape for large brick-and-mortar retailers was mostly barren. K-Mart, Staples, Wal-Mart and countless others had taken only small, faltering steps onto the Web, and none of them faced such direct competition like Amazon.com.

To understand the significance of Amazon.com’s arrival, it’s important to remember how quickly the startup built an important brand out of nothing. When Amazon.com went live in 1995, no one paid much attention, but the Internet company quickly started ringing up sales and creating a community of book buyers by encouraging customers to post their own reviews. Amazon.com swiftly took control of the online book market and investors took notice, boosting the company’s value to close to $25 billion by late 1999, even as it branched out to sell a host of other products such as video games and toys. That December, Time named Amazon.com Founder Jeff Bezos its "Person of the Year."

Today those in charge at Barnesandnoble .com play down the rivalry with Amazon.com. They say Barnes & Noble faces a slew of competitors that also includes Walden Books and even Wal-Mart. But they do acknowledge that the early days weren’t easy and that Barnesandnoble.com took the challenge seriously. "The history of the company is to never underestimate the competition," Stephen Riggio says. (The company even sued Amazon.com over the use of the marketing phrase "Earth’s biggest bookstore." The parties eventually settled.)

With the rise of Amazon.com, Barnes & Noble and other brick-and-mortar retailers began to question age-old assumptions about success. "Amazon.com destroyed the complacency of American business," says Kathy Biro, vice chairman of Digitas, a professional services company based in Boston. "Here was a company that had no inventory, customers without the expenses of a brick-and-mortar, unlimited access to capital and not a worry about earnings. They were completely rewriting the rules of business."