Nipper takes on the mighty Amazon

How do you turn two such powerful high-street brands as HMV and Waterstone's into a major presence online? The man to whom the task has fallen talks to Ian Burrell

Moving content from one environment to another without devaluing the end product is a conundrum at the forefront of Alan Giles's mind. Giles has had to reboot his new-media strategy in order to safeguard the future of the HMV Group, of which he has been chief executive for the past eight years but from which he will stand down this month.

The company owns 223 music stores in the UK and Ireland, and 337 Waterstone's book shops. Somehow it has to find a way of following the sizeable portion of its customer base that has taken its business online, a move that is at the expense of High Street stores.

To that extent, Waterstone's new online presence launches officially this month, attempting to transfer the culture of Britain's best-known bookstore chain to the internet. The new HMV advertising campaign, also launched this month, is specifically intended to encourage music and DVD buyers to shop online at hmv.co.uk.

The policy, Giles hopes, will help the two brands protect themselves from further incursions into their market share by rivals such as Amazon, as well as by supermarket websites such as tesco.com. But it is not Waterstone's first venture onto the web. "Back in the late 1990s we were running our own online operation and, frankly, what we were doing was the worst kind of combination of not providing a very good service and losing a lot of money in the process," admits Giles. "We took a pragmatic view based on where the organisation was at the time that we had a lot of higher priorities with Waterstone's, and the right thing to do was effectively outsource that operation to Amazon."

Waterstone's is going back online under its own name, he says, because: "internet purchasing... has become too large for us to feel comfortable about allowing our customers to deal with what is effectively a competitor. It's now too big and too important and we need to bring that back in-house." The tipping point was reached, he believes, after a succession of well-established High Street brands - Giles quotes Argos and John Lewis - began heavily marketing their online offerings, accompanied by growing broadband penetration of the UK.

Giles, a small, energetic man, is widely admired in the City for having seen HMV Group through one of the most challenging times in a corporate history that began in 1897 as His Master's Voice, famously symbolised by Nipper the dog sitting attentively alongside a gramophone.He believes the key to the success of both Waterstone's and HMV's websites will be their abilities to replicate online their in-store reputations for customer service.

"This evening, if you go into any HMV or Waterstone's store you will almost always be able to sustain an intelligent constructive conversation with the person dealing with you because they will share your passion about music or movies or books," he says. "We can convey something of that character with the websites. Many of our competitors are very efficient, provide very good service and low prices but, if I was being a touch critical, I would say their websites are often a little sterile. There's no shade of differentiation between the way they will try to sell photographic goods, electricals or gardening equipment than, say, books.

"We don't think that's right, we think books are very special. Everybody working in Waterstone's thinks that actually selling books is quite a good thing to do and so we want to build a website that conveys some of that character."

Instead of the reader-comments typical of some other sites, Waterstone's and HMV will replicate the "mini pithy reviews" written by staff on cards in the stores.

"During the course of the year we will have had hundreds of authors in our stores talking about their work. That's material we should be able to webcast to a much wider audience," he adds.

The growth of the internet has not always been universally welcomed by HMV and Waterstone's staff. "There was a sense in our stores that they were in competition with the website. The business has gone through a very difficult year and there are relatively few consolations, but one is that the organisation fully embraces and understands that we need to get wholeheartedly behind our online operations."

HMV has also had to contend with the growth of the digital download. Giles, more than most company bosses, must carefully evaluate each new technological development and weigh up which will last and which will be a fad. "Great technologies like laserdisc, DAT, and MiniDisc have failed to secure a long-term place in content delivery. Equally there are many technologies that have come along that have proved to be additive rather than substitutional," he says. "So often the death of the book has been forecast because of seemingly more rich and powerful forms of content-delivery and yet the book still remains centre-stage in terms of a medium of entertainment and information."

Although HMV has introduced its own digital download service, Giles says the impact of the iPod on music-buying has to be seen in perspective. "People are buying music digitally and it is growing very rapidly, but it's still only about three per cent of the market - [though] the iPod is a phenomenally successful piece of consumer electronics. If you take iTunes [for which you have been largely restricted to iTunes for legal downloads], and divide the number of tracks sold by iTunes by the number of iPods, you get about 30 tracks per iPod. It's very clear that most people have many more than 30 tracks on their iPod." But Giles is no nay-sayer. The internet tipping-point has been reached now, he readily admits. "I don't suppose that in five to 10 years' time we will be selling many road atlases".

He is a canny operator and knows a winner when he sees it, as show by his decision some years ago to switch football clubs from Southampton (who have since been relegated) to Reading (since promoted).

He rates Nipper as a winner too. "Nipper will remain firmly centre-stage. What a fantastic iconic branding device!" he says. "He's every bit as salient to younger consumers as he is to an older demographic."