The Problem: Fell behind upstart competitor.\n \n\nBarnes & Noble was slow to react to Amazon.com\u2019s launch in July 1995. When it did launch an e-commerce site in 1997, its online spinoff, Barnesandnoble.com, was barraged with criticism for being slow and hard to use. What\u2019s more, there was little connection between the site and the well-known stores. It reached millions fewer online shoppers compared with Amazon.com, and like other e-tailers it struggled with order fulfillment. By the end of 1999, Barnesandnoble.com had 4 million customers, compared with Amazon.com\u2019s 16.9 million. All told, Barnes & Noble\u2019s predicament gave rise to a new term for what happens when an online competitor knocks an established business on its heels: getting Amazoned.\n\n \n\n\n\n\nThe Solution: Play catch up.\n \n\nStarting in 2000, Barnesandnoble.com began to refocus its venture to take advantage of its more than 600 stores across the country by allowing customers to return online purchases in the stores. The parent company, Barnes & Noble, also started to open customer service counters in stores, where shoppers could check inventory or order books online. In addition, CIO Gary King oversaw the relaunch of the website, overhauling the e-commerce site on both the front and back ends. The new front-end look included more reviews and fewer clicks between a customer\u2019s order and a purchase. The company also spent $75 million on a distribution system that would include two new centers in Memphis, Tenn., and Reno, Nev. And the online bookseller issued a universal gift card that can be used for purchases online or in the stores.\n\n \n\n\n\n\nThe Situation Now: \n \n\nBarnesandnoble.com has customer service centers in all of its stores, allowing customers to check inventory on the Web while shopping in the brick-and-mortar stores. But integration efforts have stopped short of the click-and-brick approach that allows customers to place an order on the Web and pick it up at a store. "That doesn\u2019t seem to be high on the list of customers\u2019 desires," says Marie Toulantis, who took over as CEO of the online bookseller in February.\nToulantis stresses that Barnesandnoble.com continues to gain market share in sales of new books, music and videos. However, the company is still posting a loss, compared with Amazon.com, which reported an operating profit of $59 million in the fourth quarter of 2001. Toulantis predicts that the e-commerce company will be profitable toward the end of 2003. Barnesandnoble.com\u2019s gross margins, which measure the net sales minus the cost of doing business, were 23.5 percent for the second quarter of 2002, compared with an overall 27 percent for Amazon.com. Barnesandnoble.com\u2019s shares have also taken a beating. In August, the online bookseller received word that its stock, which hovered under $1 a share for most of the summer, faced delisting from the Nasdaq Stock Market.\nToulantis is sanguine about the online bookseller\u2019s future, however. "We will definitely survive," she says, noting that shareholders Bertelsmann, the German publishing giant, and Barnes & Noble (both of which own 36 percent of the company) are "interested in our survival." \n\n \n\n\n\n\nLeadership: \n \n\nStephen Riggio, former vice chairman and acting CEO of Barnesandnoble.com, was appointed CEO of the brick-and-mortar counterpart Barnes & Noble in February. Toulantis, who had been president and COO of Barnesandnoble.com since May 2001, took over as CEO. One year later, CIO King moved over to become CIO at Barnes & Noble. Replacing King is David Willen, the former CIO for financial news service Thestreet.com.\n\n \n\n\n\n\nChallenges Ahead: \n \n\nPrice remains a major challenge. On a spot check of several titles, Barnesandnoble.com\u2019s prices are higher than those at Buy.com and Amazon.com, and fierce competition is unlikely to let up. (Analysts note Amazon\u2019s bulk gives it the ability to lower prices.) Staying competitive also means continually upgrading the site and adding new features. In addition, the online retailer needs to continue its efforts to integrate with stores to drive traffic both online and offline.\n"The big mistake we all made was believing the projections that this would be a $2 billion business in five years," says Toulantis. "Instead, we are a $400 million company. The challenge has been to grow the business as if it\u2019s a normal company. It\u2019s not astronomical growth, but it\u2019s another channel, and it will be here to stay."\n\n \n\n\n\n\nWhat the Experts Say: \n \n\n"I don\u2019t think Barnesandnoble.com will ever out-Amazon Amazon because they can\u2019t outprice them," says Michael S. Katz, senior vice president in the information technology group at Booz, Allen & Hamilton in New York City. "Their key to success is if they can truly leverage their stores. That has yet to be proven."