Trying to Build a Brand on the Web

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Bertelsmann CEO Thomas Middelhoff has had little to cheer about in the new millennium. In early January AOL, Bertelsmann's primary online partner in Europe, agreed to merge with Time Warner, owner of this magazine and one of the privately held German firm's main competitors in the entertainment and media business. As a result, Middelhoff is rumored to be discussing the potential sale of part of Bertelsmann's 50% stake in AOL Europe to raise funds for future expansion and acquisition plans. Other news from the U.S. hasn't been all that good either. Bertelsmann's online bookselling partnership there,, finished the fourth quarter of 1999 with losses of more than $38 million--even though sales more than tripled to $82 million as a result of increased trade during the Christmas season.

But Middelhoff remains a strong believer in the ability of BOL (Bertelsmann Online) to dominate the online market for books and music in Europe and beyond--with or without the help of AOL. BOL's brief is to wipe out the lead of Internet retail pioneer to become the dominant global e-commerce brand. And Middelhoff is ready to take his faith to the market. Earlier this month, Middelhoff unveiled plans to float BOL on the German stock exchange in May.

To succeed, BOL will stay focused on what it believes it does best. "Amazon is certainly a very important competitor and has had a huge impact on e-commerce," says Heinz Wermelinger, BOL's CEO. "But it's no longer a bookstore, it's now a grocery store," he notes, referring to Amazon's recent move into U.S. sales of everything from food and beverages to home electronics. By moving away from its original specialties of books and music in an effort to be all things to all people, Wermelinger thinks Amazon is spreading itself too thin--and dangerously diluting its strong brand name in the process.

BOL intends to succeed globally by selling locally--and sticking to its core business of books, CDs, music, games and related products. The company kicked off its local-language Web stores in France and Germany last February, and has rolled out online shops in the U.K., the Netherlands, Spain and Switzerland, with an Italian launch set for this spring.

The privately held BOL declines to disclose revenue or even the number of books it sells, but data from MMXI Europe, an Internet audience research group, indicates that the service in December reached 6% of Internet users in Germany, Europe's biggest online market, up from 3.9% in October. But there's still a long way to go. During the Christmas period, Amazon was easily the top e-commerce site in its respective European countries, with 12.9% of the German online population visiting the local site. In the fourth quarter of last year, Amazon's book business even made its first-ever profit.

Will BOL ever match the likes of Amazon in brand name recognition? Richard Hyman, chairman of Verdict, a London-based retail research group, thinks that anything is possible. "One of the great things about e-commerce is that ... everything is up for grabs," he says. "Amazon is the dominant player. But there are very few businesses where there's only one way of doing something."

Trouble is, Amazon is not BOL's only competitor for brand recognition. In France, the Net store owned by FNAC, the books and music retail giant, commands the No. 1 spot. FNAC's U.K. counterpart WH Smith is also aggressively targeting Web buyers. And France's Alapage, Belgium's Proxis, Germany's and Boxman, the European online music store, all have designs on this burgeoning market. In response, BOL will soon branch out into selling videos and dvds. And Middelhoff wants BOL and to go global. To do that BOL will use its Spanish site to reach Spanish-speaking Latin American online shoppers, while the U.K. operation in March will roll out sites designed for English speakers in Asian markets such as Hong Kong, Malaysia and Singapore.

Meanwhile, BOL has launched a series of ads--one features a man on a roller-coaster so engrossed in his book that he barely notices the wild ride he's on--aimed at raising its lackluster brand recognition. For its first birthday, BOL U.K.'s celebrations are expected to feature a competition to win a personalized "reading or music room" designed and installed with the winner's choice of furniture and accessories.

But the real prize for Bertelsmann ceo Middelhoff would be a steep upward curve in BOL's sales figures. To this end, he is in the throes of upgrading the company's plodding, bureaucratic business practices to Internet speed. He has reportedly already won the battle to relax corporate diktats, which were based on restrictive return-on-investment schemes, and has more freedom to make acquisitions, form joint ventures and expand existing enterprises. At this rate, he could soon unveil news as unexpected--and transformative--as the AOL-Time Warner merger. And that could very well determine BOL's status in the e-commerce sweepstakes.