From Yahoo
<Internet Retailer Seeks Brand Name
By STEVE FARR
AP Business Writer
JENKINTOWN, Pa. (AP) -- Haven't heard of CDnow (Nasdaq:CDNW - news)? Just wait.
Its blue-and-white logo is popping up all over the World Wide Web, as the online music retailer races to establish its brand name and stave off competition from better-known foes.
At Internet directories Yahoo, Lycos and WebCrawler, cdnow.com is just a click away. At entertainment sites Mr. Showbiz, Wall of Sound and the Rolling Stone Network, readers are urged to become CDnow customers.
Television is the next frontier. CDnow, based in suburban Philadelphia, recently agreed to a $22.5 million sponsorship deal with MTV Networks, the division of Viacom Inc. (AMEX:VIA - news) that owns cable music stations MTV and VH1.
''We're building a brand,'' said founder Jason Olim, 28. ''I see (music sales) probably as being a three-brand game.''
Which three will prevail remains to be seen.
Less than 1 percent of recorded music sales occur over the Internet, divided among hundreds of retailers, from mass marketers to record labels to local skateboard shops.
CDnow led the market last year with 33 percent of online music sales, twice the share of No. 2 Music Boulevard, according to New York research firm Jupiter Communications.
But well-known rivals are crowding the field. Tower Records and mail-order merchants K-Tel and Columbia House have moved onto the Web. Blockbuster and booksellers Borders and Amazon.com (Nasdaq:AMZN - news) also offer music at their sites.
Olim isn't worried. ''I'm looking at the fact that 99 percent of retail sales are not taking place on the Internet,'' he said.
That figure will shrink. Jupiter predicts online music sales will reach $1.6 billion annually within four years. And today's Web marketing battles will determine which retailers survive to cash in, Jupiter analyst Ken Cassar said.
''Everyone is losing money because the margins are so low. What people are shooting for is an established market share by 2002,'' he said. ''It is important that you be No. 1, No. 2 or maybe No. 3.''
To make themselves known, CDnow and other online retailers have allied with portals -- the search engines and Internet services such as America Online (NYSE:AOL - news) where most Web surfers start their ride.
The strategy is necessary, Cassar said, because CDnow and many of its competitors offer pretty much the same wide selection.
CDnow made its first deal with Yahoo, paying for the right to stick its button alongside the Web's most popular directory.
That was in August. Since then, ''the portals have effectively been locked up for the next two to four years by the big players,'' Cassar said.
He anticipates that online retailers will begin to shift more dollars to traditional advertising, such as CDnow's MTV deal and its spots on Howard Stern's radio show.
CDnow also offers ''cosmic credit'' to enlist average folks in its marketing army. Similar to programs offered by Amazon and Borders, cosmic credit rewards people who link their Web pages to CDnow's with a slice of the revenue generated by the link. So far, 18,000 have joined up.
''You build the name, you build the brand, then you make the money,'' said Lauren Shanahan, spokeswoman for the Association of Internet Professionals. ''This is a traditional retailing concept.''
Olim was a Brown University graduate and software engineer when he launched CDnow four years ago with his twin brother, Matthew.
Inspiration dawned in college, after he received a copy of Miles Davis' ''Kind of Blue.'' When he went to a record store seeking more of the same, the teen-age clerk pointed him to section ''M.''
''What I wanted was a better music store,'' Olim said. ''I thought what would work is a database that would take the information in review guides and put it together with the records.''
Starting with $20,000, the Olim brothers spent six months ''coding like madmen'' before they were ready in August 1994.
The Olims launched a dial-up site and netted $14 the first month. A friend then told Olim that he should think about going on the then-nascent Web.
''He said, 'It's going to be huge,''' Olim recalled. ''I said, 'Well, maybe.' At no point did I imagine it would be this big.''
CDnow's revenues grew to $17.4 million in 1997, and $10 million in the first quarter of 1998, Cassar said. The company has tripled its staff in a year, to more than 130. While CDnow lost more than $10 million last year, it benefited from Wall Street's enthusiasm for Internet stocks earlier this year. The company began trading its shares on Nasdaq exchange in February and raised $61 million in cash, which it has been spending on the new promotions.
CDnow.com can be read in nine languages and boasts 250,000 titles but no inventory. When an order is placed, CDnow has it sent out by a distributor. Compact discs run a few dollars below list, plus shipping.
Unlike N2K's Music Boulevard, CDnow produces little of its own content. CDnow has a four-year deal with College Media Inc. to allow customers to access record reviews from the CMJ music monthlies. Under the three-year deal with MTV, CDnow will sponsor MTV and VH1 telecasts while offering reviews and music news from the networks at its Web site.
''You won't find us trying to build a magazine,'' Olim said. ''We're not going to try to waste our time trying to compete with our partners.'' > |
