On February 10, 1998, CDNow, started in 1994 by twin brothers Jason and Matthew Olim out of their parent’s basement in Ambler, completed its initial public offering. The online music retailer, which sparked a revolution in music distribution, closed the day up 37.5% at $22, from its opening price of $16. CDNow raised $65.6 million, and had a market capitalization of $342 million at day’s end. Based in Jenkintown at the time it went public, it later moved to Fort Washington.
When it went public, its prior year revenue was $17.4 million, with a net loss of $10.7 million. Shortly afterwards, CDNow acquired its largest competitor, another Philadelphia area company named N2K. Revenue grew rapidly to a $150 million run rate, and CDNow was an early innovator in ecommerce and web marketing techniques.
However, as the crisis in the Internet economy materialized in 2000, investors lacked confidence in CDNow’s financial performance and future outlook. The company slashed its workforce and soon sold itself (after a prospective merger with Columbia House fell through) to German media giant Bertelsmann in the summer of 2000 for $117 million. The brand later ended up with Amazon, and gradually faded away.
Mike Krupit was serving in a CIO/CTO role for CDNow at the time of the IPO. He soon afterwards became COO and later CEO after Bertelsmann took over. He had already seen a couple of companies he had been with go public, including Infonautics. I asked him by email what things were like for CDNow at the time of its IPO. His response:
“CDNow was one of the first dotcom and ecommerce companies to go public. Obviously, we were thrilled to be able to put the money in the bank and have [it] to invest in our growth. But we also knew it didn’t guarantee our success. It was tremendously exciting for the team, [though] as you’d imagine, the honeymoon doesn’t last too long.”
“Culturally, it’s a double-edged sword. The expectations of the IPO isn’t always met by the reality. The dream of the value of our equity is now something easily calculated. When the stock is up – great; when not, demotivating. We also had to stop sharing lots of information with the team. A lot of healthy chatter had to stop by being a publicly-traded company, which was a big change to CDNOW’s startup culture.”
Krupit told Technically Philly last summer that what ultimately killed the company was the planned merger with Columbia House; CDNow focused much of its resources on that and when it fell through there wasn’t much of a backup plan.