Where Is CDNow, Now?

Most Net users and e-commerce watchers haven’t heard a great dealabout CDNow lately. But that mightbe 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 giantBertelsmann 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, evenin print, but yet their traffic numbers are still high, which means themoney that had been spent on brand building has had some residual effectthat’s continuing to drive visitor traffic,” Yankee Group research analyst Paul Ritter told theE-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 severalmonths ago was on the verge of extinction.

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

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

No Respect

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

In June 2000, CDNow closed its London office. Since starting business in1994, 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, BMGEntertainment, the second-largest label in the United States. Bertelsmann knewthat, despite CDNow’s financial woes, the site was consistently ranked among the topfive most frequently visited music sites on the Web.

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

“They provide a good Web experience in multiple search mechanisms to helpusers find what they’re looking for quickly,” Ritter said.

A Brand New World

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

“Brand building that hasn’t worked for so many other e-tailers seems to havebeen effective for CDNow,” Ritter said. “This may be in part to their longevity. Comparedto 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.

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