CDnow homepage, December 1998; via Wayback Machine.
1998 started promisingly for CDnow, a leading online music retailer — or "e-tailer" as e-commerce sites were sometimes called at the time. "CDnow goes public with a bang," read a CNET headline on February 10, 1998:
"After upping its offering price, CDnow (CDNW) today launched its initial public offering and saw its shares rise nearly 40 percent."
Traffic was growing, too. CNET reported that average daily visits to the CDnow website "grew to about 132,000 in December 1997, up from 12,000 visits recorded during January of 1996." Of course, like many dot-com companies, CDnow was actually making losses every quarter. But sales were increasing, along with page views — so eventually, the thinking went, profits would come too.
CDnow, January 1998; via Wayback Machine.
CDnow's main competitor at the start of 1998 was N2K, which owned the Music Boulevard website. N2K had made its name as David Bowie's tech partner and shared an adventurous spirit with its rock star client. The company wanted be more than a mere CD retailer; it aimed to pioneer new ways to distribute music in the internet era.
Over 1996 and 1997, N2K had tried hard to make online downloads and digital singles commercially viable. But it had been a struggle. As 1998 began, Music Boulevard — which focused almost entirely on CD sales — continued to provide most of N2K's internet distribution revenue.
At this time, early 1998, Amazon was still only selling books. However, in its 1997 annual report the company flagged that it "intends over time to expand its catalog into other information-based products, such as music."
Sure enough, around April 1998 Amazon began testing a new online music section. Suddenly Jeff Bezos became a real threat to CDnow and N2K. Not that you would know it from a book published later that year by CDnow’s founders, twin brothers Jason and Matthew Olim. In the book, entitled "The CDnow Story: Rags to Riches on the Internet," it was N2K and not Amazon that the brothers focused on:
“Our major competitors are Music Boulevard (which is owned by N2K), Tower Records and Blockbuster—and very recently Amazon.com joined the fray.”
CDnow comparing its website favorably to Tower Records; "The CDnow Story".
The Olims were certainly wary of the new entrant, Amazon, which they said was five or six times bigger than their company. But they affected not to be concerned. “Well, we don’t feel threatened,” the brothers wrote defiantly.
However, by the time their self-aggrandising book was published on 1 October 1998 (and no doubt made available for purchase on amazon.com), CDnow’s founders had changed their tune.
Amazon's Expansion
In June 1998, Amazon officially branched out from books and began to sell CDs on its now expanding e-commerce website. As The New York Times reported on June 11, Amazon’s music catalog contained “more than 100,000 CD's, with 225,000 songs to sample using Real Audio.” The article mentioned that CDnow, Music Boulevard and Tower Records “are already far ahead of Amazon.” But given Amazon’s reputation for big spending, there was reason for those companies to be concerned. Amazon was just over a year old as a public company and had huge losses every quarter. But it was growing, fast.
Amazon.com, October 1998 — note the 'Music' tab; via NIST / Version Museum.
The following month, Amazon acquired two non-book companies: Junglee and Planet All. It was, said the Times in another article, “a move indicating that its aspirations extend to selling far more than books over the Internet.” The same report noted that Amazon.com had “grown to be the most successful merchant on the Internet, with 3.1 million customers.”
While the media mostly focused on Amazon’s ongoing competition with US book chain Barnes & Noble, alarm bells were ringing at CDnow and N2K. Both were already losing money, but now their stock prices deflated too. On 22 June 1998, a columnist at Network World wrote that CDnow's stock had "been almost all downhill" since April. Of CDnow's founders, Jason and Matthew Olim, the columnist said: "Not since Milli Vanilli has a music industry duo's fortunes appeared to have fallen so fast."
Custom CDs and My CDnow
CDnow tried hard to differentiate itself from Amazon. In June it acquired a custom-CD company called superSonic BOOM, which let you make a CD from whatever music the company had managed to license. Of course, music selection was the limiting factor. Scanning an alphabetical artist listing from October 1997, it seems it was a mix of unknown artists and old jazz musicians. For example, an act called Chewing on Foil (which sounds like a failed grunge band) was followed on the list by Count Basie And His Orchestra.
CDnow tv advert, 1998; via ArchiveAnnex. Description by LA Times, March 1998: "In a series of four mock documentary commercials, the fictitious roadie Ian Plimsoll is continually amazed by the CDnow online buying service."
Over the following months CDnow went on a marketing blitz, featuring deals with Yahoo, Lycos and Movielink. Most expensively, it signed a three-year $22.5 million deal with MTV — which, among other things, allowed them to be the exclusive online music store for the 1998 MTV Video Music Awards.
Then, in September, it launched My CDnow, which allowed users to customize their shopping experience based on their musical preferences. It was another example of "personalization," a buzzword popularized by the web portals that year.
My CDnow example in September 1998; via Internet Watch.
CDnow talked as big as it spent. In a MarketWatch article in September, Michael Krupit, CDnow's VP of Technology and Creative Services, made the following ill-timed boast:
"You can go to Amazon.com's home page, and get blasted with the Titanic or Clinton videos, which is not necessarily something you want to buy. Or you can come to CDnow, and see the sorts of things that you want to buy. CDnow is no longer one music store; it is 600,000 music stores with each customer having a different experience."
Amazon would soon get wise to personalization — 1998 was when it invented "item-based collaborative filtering," its pioneering product recommendation system — but it didn't even need that to vanquish its e-tailing competition. By the fourth quarter of 1998, the gig was up for CDnow and N2K.
The Fall of CDnow
On October 23, 1998, CDnow and N2K issued a joint press release:
“Following weeks of discussions, online music retailers CDnow Inc. and rival N2K Inc. Friday agreed to merge, creating a company worth $250 million. The union comes only months after Amazon.com Inc. broadened its retail line to include music and as losses continue to widen at both companies.”
CNN Money illustration of CD e-tailer sharemarket trends, October 23, 1998.
It wasn't just in music retail where the big players were starting to win.
In November 1998, AOL acquired Netscape. The web’s first startup had been vanquished in a few short years by the much bigger and richer Microsoft. Netscape’s once pre-eminent web browser had been losing ground to Microsoft’s Internet Explorer every month, because IE had the massive advantage of being pre-installed on the world’s leading PC operating system: Windows. With the writing on the wall, Netscape sold to one of the very few internet companies that could compete with Microsoft’s scale: AOL.
At the same time, upstart portal Excite was scrambling to sell itself, in order to compete at the suddenly super-scaled level of Microsoft and AOL. Excite entered negotiations to sell to its biggest rival, Yahoo, and also held talks with Microsoft. But in January, Excite instead sold to a large cable ISP company called @Home Network. In hindsight, it was the beginning of the end for Excite.
Indeed, the last quarter of 1998 was a key period for the World Wide Web. It was when the power dynamics shifted to favor large, well-funded companies. Expansion was the name of the game, and Amazon had only just begun to broaden its scope.
By May 1999, Amazon had added more tabs, including Video. There would be MANY more tabs to come. Image via NIST.
Post-98 Platform Power
So what happened to CDnow? Well, its "merger" with N2K was finalised in March 1999, with CDnow effectively folding N2K into its business. But the combined entity couldn't recover the lost ground to Amazon, and CDnow eventually sold itself to Bertelsmann Music Group in July 2000. The price BMG paid was down 90% on CDnow’s stock market peak valuation in April 1998.
In a further twist of the knife, by November 2002 Amazon was running CDnow. “Amazon will operate CDNow's Web site and it will ship most of the merchandise from Amazon warehouses,” reported The New York Times that month.
Hmmm, those tabs look familiar... CDnow in February 2004, by which point Amazon was well and truly in charge of the e-commerce market.
So in the space of just over four years, starting in mid-1998, Amazon managed to obliterate all of its rivals in online music retail. This early demonstration of platform power on the Internet was just as brutal, in its way, as Microsoft’s demolition of Netscape in the web browser market over a similar time scale.
Big internet companies would come to control many cultural industries over the coming years, including music. But we saw the beginnings of that shift in 1998, with Microsoft and Amazon the early victors.