EDITORIAL
INTERNET WOES
e were staning to feel left out. For several and all the other aspects of running a store. require skills monlhs now. the news has been filled wilh and knowledge that take time to acquire. Yet during the W stories of high-flying Internet ventures. in heighl of Internel mania, "visionaries" sold a lot of the every conceivable industry. crashing to eanh. general public on lhe idea that none of these gritty Pelstore.com, Web 1D.com. Internetcapital.com. detai Is mallered. If you managed to Slake oul a presence Doubleclick.com. and countless other "new economy" online, everything else would lake care if itself. and stanups have inflicted untold damage on inveslors in an everyone would gel rich. Less than a year later, the ver eXlraordinarily shol1time frame. Yet the music products dict is in. On or offline. basic business skills still matter industry was noticeably under represented on the casu and the Internet wields no particular magic. alty list. Ulllil now lhat is. As this issue went to press, Brick and mOrlar music retailers should take hean from tZounds Music earned lhe dubious distinction of alilhis. The problems at zZounds, and other etailers too becoming Ihe industry's firsl notable Internel casualty. numerous to list here conclusively prove that ecom Afler an apparent financial crunch prompled several merce, despite the hype, is not going to replace the tra major suppliers 10 curtail shipments. the high-prorile ditional store anytime soon. Furthermore, etailing is not IrHernet retailer was acquired by American Musician's a low cost mode of doing business. and any etailer with Supply, a leading catalog retailer. hopes of staying alloat simply can't afford to offer slash We don't know allihe inner workings or zZounds, and and-burn pricing. as this issue weill to press we were unable to contact any Ecommerce may yet live up to its inilial promise. of company's principals. However, on lhe surface. lhe However, before lhat happens, a lot of sman people will company saga appears to follow the trajectory of numer have to go back to the drawing board. ous olher Inlernel ventures. It staned with some bright Brian T. Majeski people with an idea. In this case, prominenl lawyer Ray Editor Campbell crafted a business plan i1lustraling how e commerce could transform a mature industry, like music retailing. After the idea slage came the hunt for capital. Eager to gain first-enlIant advantage. Campbell secured WHAT IS VALUABLE? an investment of approximately S 15 million from ust eight months ago. tiny Sonic Foundry, a company Micro oft founder Paul Allen. to fund an aggressive roll Joffering software for transmining music online. was out. Then came the challenge of operalions. Following lhe industry's second most valuable company. Yamaha. the Amazon.com model. uounds offeredlhe induslry's with sales of $4.7 billion and over 18,000 employees moM aggressive pricing in an effort to drive consumer~ lopped the ranking. But Sonic Foundry. with sales of just 10 the site. After a year of loss leader pricing, zZounds $14 million and huge losses, wasn't far behind, valued al was forced to relrench dramatically and ullimately a whopping $955 million. As the accompanying chart ended up as pan of a tradilional relailer. indicates, investor sentiment has changed rather drastical ly and Sonic Foundry shareholders have taken a major We live in all age characterized by instantaneous com haircut. Obviously, a rethinking of online business poten municalion and an incredible volume of easily accessi Lial is underway. ble information on every subject under lhe sun. Yel _2000 despite this exponential increase in data. the same irra Markel ValuallOn lional enthusiasms and herd mentality lhat marked lhe 311212000 121612000 Sales Earnings dark ages arc still very evident today. zZounds and lhe YAMAHA 51,500.0 52,100 $4,7000 570.0 SONIC FOUNORY (.$240) olher now flagging Internet ventures painfully illuSlrate 5955.0 565.0 $24.0 KAMAN CORPORAnON 5215.0 53200 $1,010.0 533.5 this fact. GUITAR CENTER $200.0 5256.0 57850 520.0 All successful retail businesses rest on a combination STEINWAY MUSIC $170.0 51540 5314.0 517.0 of management expertise, solid internal systems, andlhe MACKIE DESIGNS 572.0 575.0 5205.0 57.3 ability to generate adequate gross margins. Purchasing, Valuation f'Jures represent closing stock price as of December 2, 2000, multrpfied by the num inventory management order fulfillment, promotion, ber of outslanding shares. An figures are in rn~lions of dollars.
32 MUSIC TR/\DES JANUARY 2001