By the end of 1999, the e-commerce landscape was looking distinctly unfriendly to Barnes & Noble. Barnesandnoble.com ended the year with 4 million customers, compared with Amazon.com’s 16.9 million. Revenues in 1999 were $193.7 million versus Amazon.com’s $1.6 billion. Shopping at Barnesandnoble.com was completely inconsistent with the in-store experience, Forrester’s Johnson says. "The competition became a price game, and Barnesandnoble .com started losing it to Amazon," she says.

Two years later, spinoff has become a bad word. Disney conceded earlier this year that setting up a separate "tracking" stock in November 1999 for its Go.com portal was a bad idea. Ticketmaster, which carved out a separate online unit?Ticketmaster Online-Citysearch?in 1998, decided in March to reunite the two entities. And Staples, the Framingham, Mass.-based office supply company, folded its Internet arm back into the parent company after flirting with the spinoff idea. In the end, companies are finding that customers who buy from both online and store channels are more loyal and spend more money than those who shop through one channel.

In retrospect, however, Stephen Riggio says he doesn’t regret the Barnesandnoble .com spinoff: It raised $486 million, money that was necessary to build the website and the fulfillment operations. The decision to create a separate online company was based on the fact that the capital markets were looking favorably on Internet companies and because a separate company with stock options could attract the best talent. "Of course, that was then, and this is now," he says.

Zen and the Art of Website Maintenance

Barnesandnoble.com’s headquarters in Manhattan’s Chelsea district sports colorfully painted walls and exposed pipes that hearken back to the dotcom days. In the middle of a massive, open floor of cubicles and exposed beams, dozens of servers hum and blink in a dark cavernous room. The cavelike space, known as the NOC (or network operations center), serves as the website’s nerve center. Technology investment has been at the front of Barnesandnoble.com’s strategy as it has struggled to figure out what its customers want and to differentiate itself from the customer service and personalization specialists at Amazon.com. Instead of giving up, as Borders did in April when it turned over its Web operations to Amazon.com, Barnesandnoble.com has set out to improve its site and build a distribution and logistics system for its North American operations.

Gary King, who was hired as CIO in December 1998 and is now executive vice president of operations and chief technology officer, stresses that 1999 was pivotal for Barnesandnoble.com. "In addition to adding new product lines and new capabilities to the website, we also sat down and said, ’What does our infrastructure need to be to provide the kind of service that our customers are going to want?’" he says.