Report: CDNow Tops Amazon in Home-Based Buyers

Online music store CDNow has surpassed Amazon.com as the e-tailer on the Net with the largest number of people buying while at home, according to market research firm PC Data.

PC Data reports that CDNow had 1.026 million buyers in February 2000, as opposed to 984,000 for Amazon.com. It added that February was the first month since August 1999 that Amazon dropped below one million buyers.

Monthly Survey

PC Data has conducted its survey of online buyers monthly since June 1999. The data is collected by tracking the activities of a panel of users and then projecting the results to the overall base of Internet users. Buying is tracked by monitoring sales confirmation pages that are issued by shopping sites.

PC Data says that while it knows that something has been bought, it does not know the amount purchased, so it cannot compare whether shoppers at CDNow spent more than shoppers at Amazon.com.

Home Versus Office

While CDNow has taken the lead in from-home buyers, PC Data also says that its survey does not measure those shoppers who buy while at offices. As such, PC Data analysts say they do not know which e-tailer has more buyers when both homes and offices are taken into consideration.

PC Data adds that Amazon still has a wide lead in terms of unique visitors. In February, PC Data reported that Amazon.com had 13,276,000 unique visitors, reaching 19.8 percent of Internet users, while CDNow had 8,263,000 unique visitors.

“We were as surprised to see this as anyone else,” PC Data’s Internet research analyst Cameron Meierhoefer told the E-Commerce Times. He added that the February report was the first instance of Amazon being surpassed in terms of the number of home customers.

Meierhoefer said that it is unclear whether CDNow’s victory will be the start of a trend. “February may have been a little more attractive in the music category than general categories that attract Amazon shoppers,” he said. “CDNow has also been doing some promotions for their new line of customized CDs.”

“Regardless of whether CDNow continues with its lead, it shows they have clearly been doing something right,” Meierhoefer added. We’ve seen their traffic growing steadily and they have generated a lot of loyalty from the holiday shopping season.”

Good Timing

This news could not have come at a better time for CDNow. Yesterday, the company announced that its widely-anticipated merger with direct mail music giant Columbia House had been called off.

The merger would have created a powerful retail combination, bringing CDNow’s 3.2 million Internet customers together with Columbia House’s 16 million mail order customers. Columbia House is a joint venture between Sony Music and Time Warner.

The Fort Washington, Pennsylvania-based CDNow said yesterday that it will now turn to consulting company Allen & Co. to explore its strategic options.

Best Move for Shareholders

“We are obviously disappointed that the merger envisioned last July will not be completed,” said CDNow CEO Jason Olim. “However, we feel the termination of the merger is the best move for CDNow and its shareholders.”

Despite the setback, relations with Columbia House remain cordial. CDNow said that Sony and Time Warner will provide $21 million (US$) in cash as an equity investment and will also convert a $30 million short-term loan into long-term convertible debt.

CDNow also said that it plans to reduce costs significantly over the next quarter by reducing its marketing and advertising expenditures by one-third. The company said that it expects lower revenues and gross profit as a result of the moves, but that the reductions will amount to $10 to $12 million a quarter in savings. No employee layoffs are expected.

While no reason was given for the termination of the merger, Columbia House might well have balked at the numbers produced by CDNow. While its fourth-quarter revenues were up 150 percent above the corresponding quarter in 1998 to a record $53.1 million, its net loss figure stayed steady at over $30 million a quarter.