Where Is CDNow, Now?

Most Net users and e-commerce watchers haven't heard a great deal about CDNow lately. But that might be the way the former high-flier wants it.

After CDNow dominated the e-commerce headlines in 2000 with its financial troubles, a U.S. Federal Trade Commission (FTC) lawsuit, and a buyout by media giant Bertelsmann AG, the company appears to have vanished off the radar screen.

But before you forget about CDNow, take a look at the numbers.

According to the latest holiday research from PCData, CDNow was the No. 3 e-tailer in terms of the number of visitors in December. In addition, a new alliance last week linking Napster users directly to the CDNow site could have a dramatic impact on the company's sales going forward.

"I don't see a great deal of advertising for CDNow on TV or the radio, even in print, but yet their traffic numbers are still high, which means the money that had been spent on brand building has had some residual effect that's continuing to drive visitor traffic," Yankee Group research analyst Paul Ritter told the E-Commerce Times.

Life Support

According to Ritter, CDNow is the No. 1 seller of music online. Not bad for a company which analysts said only several months ago was on the verge of extinction.

But that's been the story of CDNow ever since it began in 1994. For every disastrous financial outlook, its customer numbers keep growing.

Last March, just as the music e-tailer announced that its proposed merger with direct marketer Columbia House had crashed and burned, PC Data released figures showing that the company actually outpaced Amazon.com in home-based buyers for February 2000.

No Respect

In the first quarter of 2000, the company added 440,000 new customers and its revenue nearly doubled, yet shares of CDNow were trading 90 percent below their all-time high. At the same time, the company's auditor cited "substantial doubt" about the company's viability, reporting that it was down to US$28.7 million on its balance sheet.

In June 2000, CDNow closed its London office. Since starting business in 1994, CDNow had lost $212 million.

Then came Bertelsmann.

Older and Wiser

It cost Bertelsmann $141 million to pick up the ailing CDNow, but the move gave the media giant a direct pipeline between the Internet and its record label, BMG Entertainment, the second-largest label in the United States. Bertelsmann knew that, despite CDNow's financial woes, the site was consistently ranked among the top five most frequently visited music sites on the Web.

And now comes the most recent news: affiliation with Napster and the strong holiday showing. CDNow seems to be slowly rising from the ashes, and according to Ritter, they're doing it through high visitor-to-buyer conversion rates.

"They provide a good Web experience in multiple search mechanisms to help users find what they're looking for quickly," Ritter said.

A Brand New World

Although the jury is still out on whether CDNow will recover from its financial slump, the outfit seems to have produced what many of the recent dot-com casualties have not: an online brand that keeps going and going.

"Brand building that hasn't worked for so many other e-tailers seems to have been effective for CDNow," Ritter said. "This may be in part to their longevity. Compared to other companies that tried to build brands in a span of say, six months, CDNow has been building it for over six years."

Maybe Bertelsmann was counting on this advantage all along when it decided that there was still a future for CDNow.