How one of America's great bookstore chains handed its online business to the company that would help destroy it
In September 2011, the last Borders bookstores in America went dark. The shelves were stripped, “Everything Must Go” signs hung in the windows, and nearly 11,000 people lost their jobs. A company that had once seemed as permanent as the post office was simply gone.
Most people think they know what happened: the internet came along, Amazon got big, and bookstores died. But that’s not quite the story. The real story is stranger. Ten years before the end, Borders made a decision that now looks almost unbelievable. It went to the company that would eventually help destroy it and said, in effect, here, you take care of our customers. And Amazon said yes.
To understand why that mattered, you have to remember what Borders was. In the 1990s, it was the second-biggest bookstore chain in the country, and for many readers the best. Its stores were huge, with armchairs, a café, a music section, author readings, and shelves you could wander for hours. People didn’t just buy books at Borders; they spent Saturday afternoons there. Borders was brilliant at building a place you wanted to be.
The internet was a different story. Borders.com opened in 1998 and flopped. In 2000, the site brought in about $27 million, which sounds like a lot until you compare it with Amazon, which sold $1.7 billion worth of books, music, and movies that same year. Borders wasn’t just behind; it was barely in the race. The website was losing money, and the company’s leaders faced a choice: pour millions more into fixing it, or find a way out. In April 2001, they found a way out. Borders handed its entire website to Amazon.
The deal that seemed smart
Here’s how it worked. If you typed “Borders.com” into your browser, you’d see the Borders name, but behind the curtain, Amazon was running everything. Amazon’s warehouses held the books, Amazon shipped your order, and Amazon answered your emails if something went wrong. Legally, you weren’t even buying from Borders; you were buying from Amazon. In return, Amazon sent Borders a small cut of each sale.
It sounded sensible. Borders would stop losing money online and focus on what it did best, its stores, while Amazon did what it did best, selling things on the internet. Everyone would win, and in 2003 the two companies renewed the deal.
But look closely at who was paying whom. Borders wasn’t paying Amazon to run its website. Amazon was paying Borders. Why would Amazon pay for the privilege of doing all the work? Because Amazon understood something Borders didn’t.
What Amazon was really buying
Every time a Borders customer shopped online, they walked straight into Amazon’s world. Amazon saw what they searched for, which books they lingered on, which ones they bought, and which ones they almost bought and abandoned. All of that fed Amazon’s recommendations, its “customers who bought this also bought” suggestions, and its ever-sharpening sense of what readers want. Borders knew which books sold well in its stores. Amazon was learning what you, personally, wanted to read next, and that turned out to be worth far more than the books themselves.
It got worse. Borders built a hugely popular loyalty program, Borders Rewards, which signed up tens of millions of members. But those members couldn’t earn rewards when they shopped on Borders.com, because the website wasn’t really Borders’. One Borders executive later admitted it had basically been their logo slapped on Amazon’s store. Think about what that means: the company’s most loyal customers, the people who loved the brand enough to join its rewards club, were being quietly handed to its biggest competitor, and Amazon was paying a small fee for each one.
Meanwhile, the world was changing fast. Shopping online was no longer a novelty; it was becoming normal. Why drive to the mall, hunt for parking, and hope the store had your book, when you could find it in ten seconds from your couch and have it at your door in days? And Amazon was never planning to stay a bookstore. Books were just where it practiced. With every order, including every Borders order, it got a little better at the thing that would change retail forever. Borders was running the most beautiful bookstores in America, while Amazon was building the future, partly with lumber Borders had supplied.
Too late, twice
In November 2007, Amazon dropped a bomb on the book world: the Kindle. Now you didn’t need a store at all, or even a delivery truck. You could buy a book in seconds and start reading it right away, on a device that plugged straight into Amazon’s store and knew exactly what you were reading.
Borders, meanwhile, was in trouble. It was losing money, and earlier that year it had announced a rescue plan whose centerpiece was a brand-new website of its own. After six years, it wanted its customers back. On May 27, 2008, the new Borders.com went live, and the Amazon partnership was over. The site had some genuinely clever ideas, including a “Magic Shelf” designed to recreate the joy of browsing a real bookstore, and for the first time Borders could connect its website to its stores and its rewards program.
But no clever feature could fix the real problem. Borders was starting from zero. Amazon had spent the previous seven years racing ahead, learning and growing into a machine that analysts now described as nearly impossible to beat. Borders had spent those same years standing still online, and helping train the competition.
Then it happened again. When e-books took off, Borders didn’t build its own e-reader. It partnered with Kobo, a young Canadian company, and in 2010 began selling the Kobo eReader alongside a Kobo-powered e-book store, with the bold goal of grabbing 17 percent of the e-book market within a year. By then, though, the Kindle had been out for two and a half years, and Barnes & Noble, Borders’ great rival, had already launched its own e-reader, the Nook. Once again Borders was relying on someone else’s technology, reacting instead of leading, and it was running out of road.
The end, and what really killed Borders
The numbers turned brutal. Sales fell by double digits in 2008, again in 2009, and kept falling through 2010. On February 16, 2011, Borders filed for bankruptcy, owing about $1.29 billion, slightly more than everything it owned. It announced it would close about 200 of its roughly 640 stores right away, and a month later added 28 more to the list. There was one last hope, a buyer who might keep the chain alive, but that deal fell apart. In July 2011, Borders announced that all 399 remaining stores would be liquidated. By September, the lights were off.
So did Amazon kill Borders? Not by itself. Borders made plenty of other mistakes. It carried heavy debt, churned through leaders, and bet big on CDs and DVDs just as music and movies went digital. It faced fierce competition from Barnes & Noble and discount stores, and the 2008 financial crisis hit just as it was trying to turn itself around.
But here’s the telling detail. Barnes & Noble faced the same threats and made the opposite choice. It kept its own website, built its own e-reader, and held on to its own customers. Barnes & Noble survived; Borders didn’t. The difference wasn’t that one company understood books better, because Borders understood books beautifully. The difference was that Barnes & Noble held on to what turned out to matter most: its relationship with its readers.
The lesson
The Borders story isn’t really about bookstores. It’s about what happens when you give away something you don’t realize is precious. Borders believed its stores were its fortress, and Amazon believed the internet was. Amazon was right.
There’s a warning here for anyone in publishing today. Your most dangerous competitor might not be the company selling the same thing you sell, but the company that controls the road everybody else has to travel. Look at Amazon’s path. It started as a bookstore, then ran other bookstores’ websites, and then became the biggest marketplace on earth, the biggest e-book seller, a publisher, a printer, a home for self-published authors, and an advertising giant. Books are still everywhere, but more and more, Amazon controls how they get from the writer to the reader.
Borders thought it was handing off a headache. In fact, it was handing off its future. A headache can be passed to someone else, but the knowledge of how your own customers think, what they want, and how they like to shop is almost impossible to win back once you’ve given it away.
Borders didn’t run out of time; it had seven full years. What it ran out of was the one thing it had signed away in 2001: the chance to learn, alongside its own customers, how the world would buy books next. Amazon learned that lesson instead, and Borders’ customers helped teach it.
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