More than 130 years ago, crowds used to wait on New York’s docks for the next installments of Charles Dickens’s serialized novels. “What happened to Paul Dombey?” someone might shout as the packet ship came in, referring to the Victorian author’s brooding account of an English tycoon.

Something similar is happening in today’s business press with, not Dombey & Son, but a tale of triumph and reversal that might be called Riggio Bros. The question that people keep asking is: What happened to Leonard Riggio?

The story of Riggio, the chief executive of Barnes & Noble, reads like a 19th-century potboiler: A powerful personality of humble origins, assisted by a sibling lieutenant, creates a smashing success in the elitist world of bookselling. At the height of his powers, he is dubbed the “Baron of Books.” He builds a personal net worth of more than $500 million and begins to move in high political circles. He becomes so successful that a backlash develops. A coalition of small booksellers, hundreds of whom he has put out of business, sue him based on allegations of unfair trade practices. Literati denounce his chain’s supposedly vulgarizing influence, claiming he is killing artistic experimentation in favor of the mass-merchandising of bestsellers through cleverly disguised warehouses.

When an upstart competitor appears, Riggio commits the classic sin of hubris. The son of a prizefighter dismisses Amazon.com as a minor threat. He has launched his own on-line bookselling operation, he notes confidently. It’ll be bigger than Amazon. It’ll be better.

But, as familiar as the outlines of the story may be to readers of classic fiction, the twists and turns of the tale are too interesting to ignore. For, like a tragic protagonist—and like many executives today—his problems stem directly from his success. Moreover, his tale is a narrative filled with Dickensian irony and coincidence. Sample these plot twists:

  Long before Amazon came along, Riggio, who is now 58 years old, could have created his own Internet business. But in 1994, he and his brother Steven, now 44, summarily dismissed a fledgling company called America Online that wanted Barnes & Noble’s assistance in starting an on-line book-ordering site. Five years later, an executive from AOL, Jonathan Bulkeley, was hired as chief executive for the laggard barnesandnoble.com venture.

  Then there were the months of uncharacteristic indecision. Riggio was strangely reluctant to link his bricks-and-mortar superstores to his on-line store, even though the links would let him exploit the major advantage he has over Amazon: his nationwide network of conveniently local superstores. The reason: fear of state tax laws that, while troublesome, he shouldn’t have let stop him.

Barnesandnoble.com’s Bulkeley says the story is just beginning, that it’s “not about the first inning; it’s about the next eight.” Perhaps. But even if he’s right, and Barnes & Noble mounts a comeback, what has happened so far merits at least a chapter in that book. Let’s give it a Dickensian title: “Len Riggio’s Drive, Vision, and Phenomenal Success—and How They Landed Him in the Mess He’s in Today.”

Born in Manhattan’s Little Italy in 1941, Riggio grew up in the Bensonhurst section of Brooklyn. His father, Steve, was a middleweight boxer in the 1940s, best-known for twice beating Rocky (“Somebody Up There Likes Me”) Graziano. Not able to afford college full-time, the young Riggio attended New York University at night, working days as a clerk at NYU’s bookstore. Although, as he admitted later, he had no particular interest in books, he dropped out in 1965 to open SBX (Student Book Exchange), where he also dabbled in radical politics and sold posters. By 1971, Riggio owned five SBX college bookstores and had decided to purchase an old-line Manhattan bookshop. Riggio transformed the ailing Barnes & Noble by having it sell remaindered and second-hand books. Then, in 1974, he changed the face of bookselling by being the first to offer deep, almost predatory, discounts on best-sellers.

Riggio’s next big move came in 1986, when he had Drexel Burnham Lambert float junk bonds so he could acquire the giant mall chain, B. Dalton Booksellers. Overnight, his company became America’s biggest bookseller. But, never a man to stand on tradition, even his own, Riggio somehow cannily understood that shopping malls were heading into decline. So he dismantled his own company before someone else could. Starting with the 1990 purchase of Bookstop, a Texas-based chain of 24 superstores, Riggio began shuttering the mall-based B. Dalton stores and opening the 20,000-square-foot, free-standing superstores that became the hallmark of Barnes & Noble.

His current chain of 521 superstores was built on twin marketing insights; he has said that bookstores are a form of theater and that you can sell more books than people will ever read, if you present them as a glamorous product. Indeed, Riggio’s wave of expansion—fueled by the stores’ draw as destinations for readings, author signings, kiddy storytellings, and coveted shopping bags plastered with pen-and-ink renderings of literature’s most famous faces—quickly left the superstore pioneer, Borders Group, in second place.

The problem is that Riggio’s more recent insights about theater and glamour didn’t prepare him for selling on the Internet. Especially initially, when the technology was even worse than it is now, e-commerce was all about convenience and breadth of selection, not about the experience of buying or discussing books. Certainly, the Internet had nothing to do with sipping lattes in a cozy chair amid stacks of books.

So, while Barnes & Noble had consistently redesigned the physical experience of buying a book, Len Riggio—Mr. Cannibalization himself—seemed blind to Amazon’s incipient on-line revolution. When AOL inquired in 1994 about setting up an on-line joint venture to sell books, the Riggios barely hesitated before saying, no. People at Barnes & Noble say they didn’t even start to seriously examine the Internet until 1996.

Even then, the Riggios viewed the Web mainly as a marketing tool to support the physical stores, not as some fundamentally new way of selling books. Moreover, they fretted that an on-line business would eat into their booming store operations, which had improved Barnes & Noble’s share of U.S. book sales from 7% in 1992 to 15% today.

After the Riggios finally started barnesandnoble.com in 1997, they still underestimated how big a lead Amazon had built. As recently as last year, when Business Week did a laudatory cover story on Len Riggio, the long piece included the briefest mention of Amazon and suggested that Barnes & Noble would soon surpass it. But, because of the hoopla over the Internet, Amazon had managed to quickly build a brand that was synonymous with Internet book sales. It had also learned a great deal about how to sell on-line and launched a series of innovations, such as “one-click” buying, that customers loved.

The Riggios’ “downfall was their focus just on the product of books themselves, whereas Amazon’s focus has been on its deep understanding of e-commerce and on what drives customers,” says Eric Kuhn, chief executive officer of Varsitybooks.com, an on-line seller of college textbooks. “What we’re seeing as much more important is a deep relationship with that e-commerce customer, not such a deep understanding of the product.”

Steve Riggio, installed as chief executive of barnesandnoble.com, boasted that it would soon “dominate the on-line book business” because of its sterling brand name, its physical stores, and its connections with publishers and distributors. Inside the company, the assumption was that Amazon would quickly be reduced to just the name of a big river. (The Riggios, sensitive about the press these days, declined to be interviewed for this article.)

For a while, through 1996, barnesandnoble.com made progress. It went back to AOL and paid $40 million to become the exclusive book retailer on AOL’s proprietary portal site. It built a Web site that provided the up-scale ambiance of the bricks-and-mortar brand. Meanwhile, barnesandnoble.com’s marketing corps hatched all sorts of ideas for cross-promotion between the stores and the Web site.

But then the push to maximize these synergies led the Riggios to a crossroads—where they dithered.

If the stores and on-line businesses promoted each other heavily, the Riggios reasoned, barnesandnoble.com would run afoul of state “nexus” laws. The laws require Web-based companies to charge sales tax to consumers living in states where the company has physical operations that are integrated with the Internet business. In the price-focused e-commerce arena, Steve Riggio decided that he didn’t want to be paying taxes on every transaction while Amazon—which has a significant physical presence only in Washington and Nevada—avoids taxes on nearly every sale. So, barnesandnoble.com ceded whatever advantage it has because of its network of physical stores. The site might as well be Nile.com for all the good its affiliation with the king of bookstores has done it. [Sears Chief Executive Arthur Martinez says he intends to integrate his stores and on-line business as completely as possible, because he thinks his ability to combine the two is a major advantage over Amazon and others. [See “The Cyber Side of Sears.”]

This year, the Riggios have made a long series of moves. They negotiated a $100 million cash infusion in barnesandnoble.com by German publishing giant Bertelsmann, in exchange for a 50% stake. After some fits and starts, they brought barnesandnoble.com through an IPO, raising $422 million in May by selling 20% to the public, leaving Barnes & Noble and Bertelsmann with 40% each. The Riggios also took a stab at acquiring the huge book distribution company Ingram Book Group—which would have made Barnes & Noble the main supplier to Amazon, giving it leverage over its competitor—before backing off under threat of a government antitrust suit.

Again, barnesandnoble.com made headway. Its site today is the 28th- most-visited on the Web, as measured by Media Metrix, a Net-traffic monitor. (Amazon is No. 8.) Barnesandnoble.com is also by far the most popular Internet destination among those created by traditional retailers. No other ranks in the Media Metrix list of the 50 most popular sites. In the process, barnesandnoble.com has built up an impressive stock-market value of $2.4 billion.

Some analysts think barnesandnoble.com will continue to make inroads into Amazon’s market share, partly because of Amazon’s big push to sell movies, music, and a host of other things on its site. “Amazon is continuing to dilute its positioning. I’m pretty Net-savvy, but I get lost on Amazon’s site,” says David Garzotto, president of Bestsellersforless.com, a site that concentrates on New York Times best-sellers. Michael May, digital-commerce analyst for Jupiter Communications, a research firm, says: “Amazon can’t go anywhere but down in the on-line book market, because it’s still got 80% of it. So it will be fairly easy for Barnes & Noble to gain some share points.”

But, so far, every time barnesandnoble.com has made a move, Amazon has responded. When barnesandnoble.com cut its deal with AOL to sell books on its proprietary site, for instance, Amazon came back with an agreement to sell books on the public AOL site. A week before barnesandnoble.com’s IPO, Amazon tweaked the giant by increasing its discount on best-sellers to 50% from 40%, forcing barnesandnoble.com to match. The move made the IPO rocky, because booksellers can’t make a profit at that level. It was as if Len Riggio were battling his younger self.

Notwithstanding the Riggios’ best efforts, Amazon has built up a huge discounter brand and has great customer service and features. It also has an enormous stock-market valuation—five times that of barnesandnoble.com— that gives it bottomless pockets for acquisitions.

And, in general, barnesandnoble.com also kept moving too slowly to catch up with hard-charging Amazon. Aliza Sherman, the 32-year-old founder of Cybergrrl.com, says a marketing executive from barnesandnoble.com collared her at a conference this spring to talk about being “very large partners” co-sponsoring Net-orientation sessions with Sherman’s Webgrrls chapters around the country. She presides over an intriguing niche of the Internet world, dispensing zeitgeist and feminine advice through her Web site and a new book, Cybergrrl: A Woman’s Guide to the World Wide Web. Her audience consists of avid book readers, and she had done similar sessions in 1998 with Borders. But barnesandnoble.com never even got back to her. “I just found it curious that they started out so excited about this idea and even came to me about it, and then never followed up on it,” Sherman says. “It would’ve been a great marketing tool for them.”

Despite all that has happened, barnesandnoble.com still doesn’t treat Amazon as that big a threat. “We’re trying to get our people to focus not so much on [Amazon] as on controlling our own destiny,” says Bulkeley, 39, who was brought in to be the permanent chief executive of barnesandnoble.com in January. “It’s still early in the process. The number of people who already have shopped on-line compared with those who haven’t yet is really negligible.”

What about the “first-mover” advantage in e-commerce, something that has become synonymous with Amazon? “It’s a myth,” says Bulkeley, who had built AOL’s subscriber base in the U.K. to a half-million people from nothing in the three years before arriving at barnesandnoble.com’s headquarters in the old Port Authority Building in Manhattan, where polished-cement floors and exposed ceilings provide both an Industrial Age kitsch and a Net-age openness. Bulkeley says: “CompuServe was the first mover on-line and was alone for 15 years [but couldn’t even manage to complete an IPO, before being bought by WorldCom last year]. Just because you move first doesn’t mean you execute well.”

Bulkeley says that, despite the earlier concern about nexus taxes, barnesandnoble.com “will use the stores aggressively to move traffic on-line and vice versa.” Maybe kiosks will be installed in stores to let customers order out-of-stock books off the Net via barnesandnoble.com. Bulkeley also envisions linkages from barnesandnoble.com to individual store sites, to promote events, and expects to allow on-line consumers to return books to the stores. Meanwhile, barnesandnoble.com keeps trying to make itself feel more like the welcoming environment of the physical stores. Melissa Roberson, vice president and executive editor, says, “The challenge that we’re thinking about constantly is: How do we replicate, in what we do, the cappuccino and the stuffed chairs and the sense of browsing that we have in our superstores?”

Bulkeley says: “The real opportunity is...to reach the store customer and to consolidate that customer’s book-purchasing behavior between the stores and us on-line.

It remains to be seen, of course, whether barnesandnoble.com can get out of its own way long enough to take advantage of its physical stores. Its history would suggest that the prospects aren’t great. But, if it can, it could yet do some damage to Amazon. [For more on the benefits of linking on-line and physical presences, see, “Getting Physical.”]

As a metaphor for his plans for barnesandnoble.com, Bulkeley uses the children’s book, Harold and the Purple Crayon. In the book, Harold simply creates himself into and out of various situations—drawing a shortcut if he’s on a path that is too long or sketching a boat if he finds himself in deep water. Bulkeley has passed out copies of the book at a barnesandnoble.com board meeting, to show that he wants everyone to be creative and to assume that they, not Amazon, control the future. At a meeting in early June, Riggio figuratively pulled out a purple crayon and X-ed out the timid nexus policy that has kept Barnes & Noble from using its superstores and on-line presence to promote each other. The message: Damn the possible tax consequences.

Len Riggio’s favorite book is actually Franz Kafka’s The Metamorphosis, which serves as a good-enough metaphor for what Barnes & Noble hopes to do on-line. But Dickens’s Great Expectations would be a better metaphor for what Riggio intends to achieve. The book is essentially a tragedy, but, in the final serialization, Dickens tacked on a happy ending.

Dale Buss is a veteran financial journalist and principal of Veritas Communications in Detroit. He can be reached at veritascom@aol.com.