Amazon and Bibliofind: A History August 19, 2008 – Tags: , ,

Amazon’s acquisition of ABE continues to be a big topic of conversation among online booksellers. Dealers are still attempting to read the tea leaves and divine Amazon’s ultimate intentions for ABE and its subsidiaries (Library Thing, Bookfinder, etc.). On the Bibliophile List, discussion of late has turned to the fates of previous Amazon acquisitions, specifically Bibliofind (an early competitor to ABE), and what these might tell us about Amazon’s plans. During this recent back-and-forth, Marion Meyer of Marion Meyer Rare Book in East Hampton NY offered the following history of Amazon’s buyout of Bibliofind – both in order to correct some misinformation in the discussion (pointing out, among other things, that Amazon did not acquire Bibliofind directly, but rather as part of their buyout of, who themselves had acquired Bibliofind) as well as to offer a new perspective. Her comprehensive and provocative history follows and is reprinted with permission from Ms. Meyer (with my thanks and appreciation). Agree or disagree with the ultimate conclusions, it’s an astute retelling, and one that might hint at what’s to come in the Amazon/ABE shakeup: (e-niche Inc) had originally been set up by a newly graduated Harvard Business School alumni, Stig Leschly. It was far from sophisticated. It was essentially little more than an idea on paper. Unlike Bibliofind which had been active for several years, Exchange’s website was barely functional at the time and not even launched (see webpages for the site and this article).

Amazon had discovered it could not sell new books at a profit in the face of competition from Barnes & Noble and others. Basically most of Amazon’s books (60%) were sourced through book wholesaler Ingram. As a result Amazon’s potential sales margins were much smaller than those of its larger competitors who sourced directly from publishers rather than through wholesaler intermediaries. In compulsively lowering prices to beat its competitors, Amazon’s sales were quite simply loss making (to the tune of $610 million in 1998 and $1.64 billion in 1999.) Financial journalists would describe Amazon’s operations as “selling dollar bills for ninety cents.” Further in what was clearly a direct attack to Amazon’s jugular, Barnes and Noble had announced in November 1998 that it had reached agreement to buy Ingram [NOTE: This deal eventually fell through].

Robert Spector in his book “ Get Big Fast” (161) reported how, threatened by Barnes’ entry into the market, Bezos had already challenged Amazon’s Catalog Manager, Glenn Fleishman to come up with a way to trump them and that as a result the decision was made to move into ‘out-of-print’ books. Much to Amazon’s annoyance Barnes had beaten them to it by coming up with ‘sell through’ deals with Alibris and with Abe. This left only Bibliofind on the table.

Bibliofind founder Michael Selzer had expressed some animosity toward the ‘big box’ internet booksellers Amazon and Barnes and in particular to Amazon’s “Vapor Ware’ offerings of long out of print books. Press reports also stated that Michael and Helen Selzer, co-owners of Bibliofind, had already rebuffed advances from Barnes.

Shortly before bought Bibliofind, mysteriously became backed by insiders and associates of Amazon and its venture capital backer and 25% owner, Kleiner Perkins – as well as other beneficiaries of Amazon and Kleiner’s largesse, the so-called ‘keiretsu’ network. The Bibliofind purchase therefore seems to have been a classic Kleiner Perkins/Amazon ‘stock price ramp’ at the expense of Amazon’s public IPO shareholders and Bibliofind’s clients.

Kleiner or Amazon quasi-insiders Mitch Kapor of Lotus/Accel and Ralph Terkowitz of Washington Post/Junglee – both very significant beneficiaries of recent Amazon or Kleiner investment – were essentially brought in a few weeks before the Bibliofind purchase to inject capital into Exchange and ‘dress it up’. Another backer was a small venture capital biotech company called Polaris.

$10 million or so was injected by these backers into what had previously been little more than a company on ‘paper’, e-niche Inc., which changed its name and reincorporated in Delaware as at the end of January 1999 with this new capital (see: here and here).

It was from this investment that the purchase of Bibliofind was completed at the end of March 1999 for $6 million – partly cash and partly promissory notes. (See Jeffrey L. Cruikshank: “Shaping the Waves: A History of Entrepreneurship at Harvard Business School”)

No sooner had the Bibliofind deal been completed than it was announced that Exchange was to be bought out by Amazon. The price was initially kept a secret but Amazon’s SEC filings later in the year revealed that Exchange had been sold to Amazon for $185 million in Amazon stock in a deal signed at the end of April 1999. Everybody seemed to be surprised and pretended that the purchase was sudden and unexpected.

What nobody seemed to mention at the time was that the father of Stig Leschly, the founder and principal owner of, was Jan Leshcly the CEO of SmithKline Beecham, the largest pharmaceutical company in the world . Leschly senior, reportedly the highest paid executive in England, was being assiduously courted by Kleiner Perkins and Amazon who eyed with greed the internet possibilities in the health-care field as well as SmithKline Beecham’s massive biotech venture capital operations.

Leschly senior appears to have already been closely involved in other Kleiner Perkins’s shenanigans in the internet stock bubble. Look for instance at the now largely collapsed Kleiner Perkins as well as Amazon-associated companies such as Chemdex, Ventro, Promedix, Healtheon, WebMd or Webvan . (The Leshcly family and Kleiner Perkins line up as co-investors in the Chemdex SEC filings in May 1999 alone is more than a little circumspect when considering the timing of the Bibliofind ramp!)

Polaris, another backer of Exchange, incidentally was run by Geroge Conrades – whose fellow member of the board of directors of CBS was none other than Jan Leschly!

Chemdex, another Kleiner Perkins venture for which Kleiner completed financing also in early 1999 was run by David Perry who was Leschly Jr’s roomate at Harvard Business School. The company after its IPO was one of the worst disasters of the Internet Stock Bubble eventually collapsing even after the involvment of Leschly Sr. and American Express, on whose board Leschly Sr also sat, had agreed to invest. (which had changed its name from e-niche Inc.) barely had a website at the time of its purchase of Bibliofind and sale to Amazon and indeed Leschly Jr’s proposal for a music ‘swap meet site’ ( whilst he was a student at Harvard Business School the year before had been given the big thumbs down by his professors (See Boston Globe of Apr 30, 1999 and also see Jeffrey L. Cruikshank: “Shaping the Waves: A History of Entrepreneurship at Harvard Business School”).

What is stunning about the whole thing is that (with all the Amazon/Kleiner insiders on board) paid $6 million to acquire BiblioFind at the end of March 1999 (see Cruikshank – ibid) and then on April 26 1999, – with NO OTHER REAL ASSETS except for Bibiliofind – was acquired by Amazon for $185 million in Amazon stock ( Inc. SEC Filing 8-K 14th May, 1999 and also). The deal essentially, in a month, ramped the value of Bibliofind by $179 million expanding Amazon’s balance sheet to justify its continued high stock market price and diluted existing Amazon shareholders in favor of Bezos and Kleiner insiders.

It seems to me simply inconceivable that Bibliofind, a company with relatively small income, was actually worth $185 million at the time. Bear in mind that the Bibliofind fees were a flat $25 a month per seller, the contract with sellers was fixed and did not provide for future alteration, that there were 3,500 booksellers on Bibliofind and there were no other commissions! Annual income BEFORE operating expenses was therefore about $1 million a year.

If it was worth $185 million then Michael and Helen Selzer who had sold it were clearly ripped off. If it wasn’t then Amazon shareholders were the ones ripped off.

Indeed Amazon shareholders would later file a class action suit alleging, amongst other things, stock price manipulation and fraudulent accounting in connection with similar Amazon/Kleiner Perkins chains of related inflated acquisitons over the period. Amazon reportedly settled that suit in 2005 for $27.5 million without admitting wrongdoing.

In March 2001 Bibliofind, through a freelance PR company, announced that its customers’ credit card information had been exposed to hacker attacks then in a press release said “that it will move its operations to the site of its parent company,” However the conditions of purchase of Bibliofind shown in Amazon’s SEC regulatory filings had specifically required that Bibliofind move its operations to Seattle following purchase back in 1999 (along with 25 of its 31 employees according to local press reports.) Leschly Jr. had in fact been in charge of Amazon Z Shops since 1999 and had been assiduously using the Bibliofind database of dealers, customers and book listings to create Amazon’s Marketplace and Z Shops ventures. Indeed, Leschly himself co-authored a report on Amazon for the Harvard Business Review which was published in 2002 and which revealed that in January 2000: “In a pivotal Saturday morning meeting, senior managers in charge of the marketplace initiative met with Bezos at his home to discuss what was working and what was not. The key insight that emerged in the discussion was the need to give Amazon’s third party sellers access to the ‘product detail’ pages inside Amazon’s.”

What Amazon essentially meant was that it was using the excuse of the supposed ‘hacks’ to terminate its $25 a month Bibliofind seller contracts and move them into Marketplace.

In short, does it seem entirely unlikely that Amazon had bought Bibliofind in 1999 firstly to extract $185 million from its IPO shareholders and pass this to its insiders, secondly to ‘steal’ the customer’s of Bibliofind’s bookdealers for its fledgling used book marketplace and thirdly having done that, for the purpose of shutting the site down to increase its own market share now at 15% commission and $40 a month listing fees as opposed to Bibliofind’s flat $25 a month?

Expecting Amazon to behave any differently with Abebooks would simply be naive.

« Sanctioned Forgery : Publisher Recruiting People to Sign Books For the Author
10 Reasons Not To Write Off Reading From A Screen »