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Music was an early e-commerce hit, but its growth has only just begun.
Do you know how many holes it takes to fill the Albert Hall? If you're the type of person who can I.D. this oblique Beatles reference, you may well be one of the 7 million U.S. customers who visit online music sites. Music retail online will rake in an estimated $300 million in sales this year, according to Jupiter Communications. That equals a percent or two of domestic music sales of $20 billion, meaning bricks-and-mortar types like Tower Records and Musicland aren't exactly quaking in their boots. But Jupiter projects online music will hit $2.6 billion in 2003, and you don't need a weatherman to know which way the wind is blowing.
Big growth in this category is a given. But how will it develop? Currently, the business is dominated by two giants with diametrically opposed models: the mall-like Amazon and the vertically driven CDNow. Other online giants are sure to jump into the fray: Barnesandnoble.com, for instance, already has. And that's just the big guys. Altavista offers links to some 75 music retailers, from used CD shops and reissue specialists to custom CD-burners.
While online CD sales have yet to soar, Jupiter analyst Ken Cassar believes they will follow the model set by the Net's e-commerce breakthrough segment, books. "Both can be "evaluated equally well from a Web site," he says. "There's no need to touch. [In fact, online stores can offer more info in the form of a wider array of sound clips.] Deep catalog is a benefit. You have the ability to cross-promote, to learn what your customers like and make recommendations. And there's the price paradigm"-that is, hefty discounting that is great for attracting customers if not generating profits.
Cassar also sees "a distinct separation of the really, really big and the really, really small at the expense of the middle. [Middling] companies, with sales between $5 million and $50 million, will be acquired by the big players, like CDNow, or big companies like Virgin or Musicland or someone who wants to get into this space. I don't think the Web will support ten merchants in every category."
The big boys are running way ahead of...