December 26, 2000, 9:55 AM

It`s not just Amazon vs. CDnow anymore; there`s a whole lotta shakin` online

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Amazon, meanwhile, isn’t about to surrender its status as the No. 1 source for purchasing music online. Jennifer Cast, music general manager for Amazon, makes no bones about the company’s drive to widen its lead over CDnow-and any other competition that might come along: “Our mission is to have the very best music store in the world,” she says.

Amazon is building customer traffic through its recommendation center with reviews and contributions from 16 music editors on staff; exclusive CD titles from artists such as Cheap Trick and Cowboy Junkies; and free digital tunes by the likes of Public Enemy and most notably, Sarah McLachlan.

Digital diva

Less than a day after Amazon began offering digital downloads from McLachlan’s forthcoming live CD, Mirrorball, the disc hit No. 1 on Amazon’s sales chart in record time. Soon after, five McLachlan CDs-including all three Lilith Fair compilations-were among Amazon’s top 20 sellers in the same week. “The traffic was fantastic,” says an Amazon spokesman.

“Books and music go together like peanut butter and jelly,” adds Cast. “Customers are used to going into physical stores where they can buy both.” Today, she notes, 30% of first-time purchasers visit Amazon specifically to buy music.

None of this comes as a surprise to Parker. While the merger was pending, CDnow and Music Boulevard executives were completely reordering the new company. Top priority for the next few months is to assure customers that there won’t be any glitches in customer service as the companies blend their ordering, fulfillment and customer service functions. Next is refining what Parker calls the “snowflake strategy” of creating a structure so that each customer has a completely personalized store.

“CDnow made sure that each store reflected the customer’s own taste,” he says. “Music Boulevard was great with e-mail, taking the store to the customer. Now we have an end-to-end snowflake strategy, with each customer having her own store and personalization strategy.”

Beyond the headline-making deals that pose the greatest threats to CDnow-which itself has been mentioned as an acquisition target-many smaller competitors are already nibbling at its market. When it comes to selling music, “It’s a false paradigm that one company will dominate the Internet,” says Kevin Sheehan, president and CEO of SoundStone Entertainment Inc. of Somerville, Mass. He boldly predicts that half of all retailing will take place over the Internet in the next 10 years, with six to 10 brands thriving in each category “because customers want the merchandise selection edited to their point of view.”

Meanwhile, Durham, N.C.-based DVD Flix.Com Inc., which sells movies and music online, intends to thrive not by tackling the big boys head-on, but by catering to the alternative music market. The company has partnered with the All Music Guide (allmusic.com) to leverage its database as a means of drawing in customers who might be seeking, say, reproductions of original 1940s swing music. Company President Eric Garrison is also hoping to work closely with many of the smaller independent labels and promote up-and-coming bands. “Truthfully, my market strategy isn’t to beat Amazon or CDnow,” he says. “I’m looking to take 2% to 5% of the market share and build a good base and keep the customers happy.”

Counting ‘em down

In the most tangible sign yet of the Internet’s emergence as a retail power, Billboard began publishing a 10-position chart of the top-selling CDs online in May. The magazine draws its numbers from sales by CDnow, CD Universe, SoundStone and others, reported to SoundScan, which tracks sales electronically. (The most notable no-show, Amazon, elected not to share its sales data with SoundScan for competitive reasons, according to a company spokesman.)

One of the reasons for tracking online sales is that many albums chart far higher online relative to their overall sales position, reinforcing the profile of the Internet purchaser as older, whiter, and more upscale than the average consumer. In Billboard’s inaugural Internet chart, the Cranberries hit No. 1 with Internet sales totaling almost 2% of its national haul. By comparison, its overall Top 200 Albums rank was No. 13 (although Billboard’s Geoff Mayfield reports that the Irish rockers were involved in at least one site-related promotion).

For all the hype, Internet sales have a long way to go before they provide serious competition for traditional retail outlets. In May, for instance, the English-language debut album of Ricky Martin gyrated its way to the top with first-week sales online in the neighborhood of 2,000 units-a mere fraction of the title’s national first-week numbers of close to 661,000 units.

Mayfield thinks it’s going to take longer for Internet music sales to make a serious dent into their bricks-and-mortar counterparts than many prognosticators believe-in part because of the demographic pull of many popular acts. Backstreet Boys’ May 18 release, Millennium, moved 500,000 units in its first day in stores-at least one day sooner than any online purchaser could get their hands on a copy. “If you’re a young person who loves music,” Mayfield says, “do you really want to wait that extra day to get it?”

Probably not. But that could change quicker than Madonna’s hair color.

Joanne Cleaver is a freelance business journalist in Wilmette, Ill.

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