CDNow

CDnow, Inc.

Founded	February 1994;30 years ago (1994-02)
Founder	Jason Olim Matthew Olim
Defunct	2013
Fate	Acquired by Bertelsmann, Acquired by Amazon.com, shut down
Headquarters	Ambler, Pennsylvania

CDnow, Inc. was a dot-com company that operated an online shopping website selling compact discs and music-related products. In April 1998, during the dot-com bubble, the company was valued at over $1 billion (~$1.74 billion in 2023). In July 2000, it was acquired by Bertelsmann Music Group for $117 million (~$197 million in 2023); shortly thereafter Amazon was contracted to operate the website. At its peak, it employed over 750 people and had offices in Fort Washington, Pennsylvania, New York City, London, and Los Angeles. ^[1]

Establishment and growth

CDnow was founded in February 1994 by twin brothers Jason Olim and Matthew Olim in their parents' basement in Ambler, Pennsylvania. ^[2] Initially launched as a Telnet service in August 1994, CDNow became a retail website in September 1994 using Valley Records Distributors as a drop-ship fulfillment center. ^[3] With three employees, the company moved near the Penllyn train station in Lower Gwynedd Township, Montgomery County, Pennsylvania and a couple years later it moved to the Strawbridge & Clothier building in Jenkintown, Pennsylvania. ^[1] In December 1994, CDNow claimed to be the first company that allowed people to buy albums online. ^[4] At the time, it said it had over 140,000 different albums available for purchase on its web site. ^[4] In 1995, an article in the Los Angeles Times said that CDNow had brought the web "one step closer to the day when artists will market directly to consumers, cutting out distributors such as record labels." ^[5]

In 1997, the company had revenues of $18 million and in February 1998, with 100 employees, the company became a public company via an initial public offering. ^[6] CDNow then embarked on a large Internet advertising campaign, and was an innovator in preference-based retail recommendations, online video, the use of editorial content as a means to promote interest internet affiliate marketing programs, and email marketing. On March 17, 1999, CDNow acquired its largest competitor, another Philadelphia area company, N2K, whose online properties included Music Boulevard and Jazz Central Station. ^{[7] [8]} In July 1999, the company announced a deal to merge with Columbia House, establishing a new public company jointly held by CDNow's shareholders, Time Warner and Sony. ^{[9] [10]}

Decline

CDNow was among the first of the Internet companies to show signs of struggle with the dot-com business model. On March 20, 2000, as the dot-com bubble burst, Barron's published a cover article called "Burning Up", which noted that the company was running out of cash. ^{[11] [12]} In March 2000, the Columbia House merger was called off. ^[13] In June 2000, the company closed its London office to cut costs. ^[14]

In July 2000, Bertelsmann Music Group acquired the company, intending to combine it with its BMG Direct record club as a new venture called BeMusic, and eventually add Napster to the service. Bertelsmann paid just $117 million (~$204 million in 2023), a price that was down over 90% from the valuation of the company at its peak in April 1998. The founding Olim brothers received a total of $17 million. ^[15] In April 2001, the company cut 40 employees, 10% of its staff. ^[16] In August 2001, the company closed its Japanese website and laid off 200 employees. ^[17]

In November 2002, Bertelsmann announced it would close CDnow's Fort Washington facility and lay off the company's remaining 33 employees. ^[18] Later that month, they signed a deal to outsource CDnow website operations to Amazon. ^[19] The new deal retained a revised version of the BMG Direct model called the "Preferred Buyers Club", offering a 20% discount for club-edition records; all other music was sold at standard Amazon prices. ^[19] In 2011, the CDnow.com URL was redirected to a maintenance notice, ^[20] and in 2013, it was permanently taken offline.

References

1. Valania, Jonathan (February 27, 2002). "CD Then ... and Now". Philadelphia Weekly .^{[ permanent dead link ]}
2. Reyes, Juliana (July 31, 2012). "CDNow: 3 lessons from Fort Washington-based pioneering 1990s-era online music retailer". Technically Media .
3. Olim, Jason (January 1, 1999). The CDnow Story: Rags to Riches on the Internet. Top Floor Pub. ISBN   0966103262.
4. Beach, Patrick (December 22, 1994). "Tunes on Infobahn". The Des Moines Register Datebook (Des Moines, Iowa). p. 10D.
5. Kaplan, Karen (July 12, 1995). "Listening Boom: Music-Oriented Sites Lead the World Wide Web Hit Parade". The Los Angeles Times. p. D1, D7.
6. "CDnow goes public with a bang". CNET . February 10, 1998.
7. "Form 8-K". U.S. Securities and Exchange Commission. March 17, 1999.
8. "CDNow: Now is the Time". Wired. Reuters. March 18, 1999.
9. Glasner, Joanna (July 13, 1999). "CDNow, Columbia House to Merge". Wired .
10. "Columbia House merging with online retailer CDNow". Deseret News. Associated Press. July 13, 1999.
11. Willoughby, Jack (March 20, 2000). "Burning Up" . Barron's .
12. Garrity, Brian (21 March 2000). "CDnow Stock Drops After Report It's Low On Cash". Archived from the original on 8 June 2010. Retrieved 21 December 2018.
13. Richtel, Matt (March 14, 2000). "CDNow Deal With Sony and Time Warner Is Called Off" . The New York Times .
14. "CDNow reportedly closes office". American City Business Journals . June 19, 2000.
15. "Bertelsmann buys CDNow". CNN . July 20, 2000.
16. Miles, Stephanie (April 18, 2001). "Web Seller CDnow Cuts More Staff Amid Integration With Music Club". The Wall Street Journal .
17. "CDNow staff to dip at Fort Washington". The Times Herald (Norristown, Pennsylvania) . August 31, 2001.
18. Kanaley, Reid (9 November 2002). "The song's over for CDNow: Last employees set to go". The Philadelphia Inquirer . Archived from the original on 16 February 2003.
19. Hansell, Saul (November 26, 2002). "Bertelsmann to Let Amazon.com Run CDNow". The New York Times .
20. Internet Archive. "cdnow.com". cdnow.com archive. Archived from the original on August 7, 2011. Retrieved August 7, 2011.

Further reading

The CDnow Story: Rags to Riches on the Internet by Jason Olim and Matthew Olim