Nowhere Men

The anatomy of a start-up built around creating a cyberstore on the World Wide Web to sell CD recordings.

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No store. No catalog. No sales staff. Is this the future of retailing?

A beige box sits on the floor, under a Formica-topped table. Wires connect the box, a $60,000 Sparc 20 workstation, to various disk drives and to two battery backups. Every flash of a tiny red light on one of the disk drives indicates that somebody is in the store and shopping.

Store? What store?

CDnow, a Generation X-launched start-up that sells music CDs, cassettes, and a few additional products, doesn't have a traditional retail store with walls, aisles, fixtures, and products that customers purchase at cash registers. CDnow exists only in cyberspace, where commercial sites are popping up like mushrooms after a rain. But CDnow is unlike most of the tens of thousands of .com sites on the World Wide Web, the majority of which are foot-in-the-door, me-too enterprises struggling to connect existing businesses to the Internet. CDnow was conceived from day one as a low-overhead, virtual business, and it is already making money. An Internet vet approaching the second anniversary of its maiden on-line sale, this rapidly growing basement start-up has sprinted to an early lead in a wild and lucrative race -- grabbing market share in the brave new world of Internet commerce, which, according to a report from International Data Corp., should grow to $150 billion to $200 billion by 2000.

Piloting CDnow into that turbulent, uncharted future are company founders Jason and Matthew Olim, fraternal twins who were not yet two months old when the Woodstock rock festival immortalized Max Yasgur's farm. Both tie their long brown hair in ponytails, prefer socks to shoes in the office, wear worn jeans, and look like a couple of primo slackers.

Some slackers. Both recall the last two years as a blur of 16- and 20-hour days. Jason, who conceived the notion of an Internet music store, is the entrepreneurial twin, an outgoing deal maker, the corporate visionary. Brother Matt is the back-shop programming wizard. Happiest when he's writing elegant computer code, he prefers to labor in the wee morning hours.

As recently as February, the brothers were adding an employee a week to their company and had just built the head count to two dozen. Of the staff they hired, only their controller has ever blown out 30 candles on a birthday cake. Music posters adorn the walls of the company's new offices in Penllyn, Pa., near Philadelphia. Salaries are low, and the energy level is high -- as one would expect at a small, cutting-edge company that is doubling its sales every couple of months, in an industry in which entry barriers are few and new entrants plentiful.

And no one is more surprised at all of that than Jason Olim. While he was still a programmer for a software company in February 1994, he was sitting in a bar with friends when the idea of setting up shop on the Internet struck him as a perfect way to create a new kind of music store that could address the glaring gaps he saw in most music retailers' customer service. Too often he found their salesclerks unhelpful and unknowledgeable and their selection limited -- problems an on-line store could easily avoid while simultaneously achieving another advantage: convenience. Shoppers could enter Jason Olim's cyberstore in seconds from their home or work computers without fighting through bad weather, snarled traffic, or crowded shopping malls. Instead of flipping through finite racks of ill-sorted CDs, they could click immediately on virtually any title, because Jason's store would never stock or warehouse a single compact disc. He'd fulfill orders by tapping the combined inventories of other companies in the distribution chain. Equally important, he'd add value by improving the shopping experience. Browsers would find themselves only a mouse click away from performer profiles and album reviews, concert information, and more. A limited sampling of selected CDs would also be available.

The younger (by 40 minutes) Olim's draft business model was almost na×ve in its simplicity, which is unsurprising, as his entrepreneurial rÈsumÈ began and ended with the house-painting service he ran for two summers while at Brown University. "I'll get my CDs wholesale, ordering them from the warehouse when the customer orders them from me. All I've got to do," he remembers thinking, "is charge more than I'm paying, and that difference times the volume has to be enough to pay for my computers and my salaries." Another thought crossed his mind, too. A successful on-line CD store would be his demo. If it made sweet music, he could leverage its reputation to get him into the business of showing others how to create and operate their own cyberstores.

"I was imagining three people. We were going to manage a computer and eat pizza," he says. "I never expected to sell $2 million worth of CDs in my first year." But back in February 1994, the Web barely existed. In 1995, CDnow's first full year of business, the number of Web users jumped eightfold, from one million to 8 million, according to International Data. That number has probably shot past 13 million by now.

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