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Last year, Internet commerce schemes were the darlings of venture capitalists and small investors alike. For months, it seemed that almost any business plan, no matter how half-baked, could attract millions of dollars with the simple mention of "online retail sales"—otherwise known as "e-commerce" or "e-tailing."

The mood began to change late last fall when e-commerce startups discovered it was becoming increasingly difficult to secure financing for their sometimes ill-conceived ventures, which offered everything from groceries and auto parts to sporting goods and electronics for sale at deep discounts, sometimes below cost, simply to gain market share. In most cases, the presumably low overhead of running an Internet retail site was offset by enormous promotional costs, and the estimated time to profitability stretched out toward infinity.

Earlier this year, some highly positioned analysts began to question the hysteria for Internet stocks. Some even went so far as to dismiss them as "Ponzi schemes." The message finally trickled down to individual investors early in April, and tech stocks took a beating shortly after the court decision against Microsoft.

One company left in the lurch is music retailer CDnow Inc., which early in the year was poised to merge with Time Warner and Sony Corporation's Columbia House music club. The deal stalled, partly because of a prolonged anti-trust investigation, and then was scuttled altogether when America Online and Time Warner announced their impending marriage. CDnow, which was flying high last July with its stock at $23.26 a share, is now in the gutter. It began a long slide shortly after the TW/Sony deal was announced, and has yet to recover. CDnow stock closed at $4.44 a share on Friday, April 7, after hitting an all-time low of $3.40 on March 29.

The company that pioneered sales of CDs over the Internet may not last the year, according to several reports. Backing away from the merger, Sony and Time Warner pumped $51 million into the operation as "strategic partners," but the transfusion may not be sufficient to sustain it. CDnow is again searching for a merger deal, toward which purpose it has hired investment bank Allen & Co.—which assembled the failed merger with Columbia House. The company has enough cash to last through September, assuming it can sustain its present rate of business, but without a partner it may disappear from the screen. The Wall Street Journal quoted sales figures last year of $157 million for CDnow, while mentioning that it probably needs to do at least a billion dollars annually in order to be profitable.

CDnow's problems are compounded by the move of mulitnational entertainment conglomerates into the arena of music sales (see related story on BMG). The major players can fund their own operations and make their own deals with retailers both traditional and online without outside help. Thus the value of any long-term relationship with an e-tailer like CDnow becomes, at best, questionable.

CDnow chief Jason Olim has told interviewers that he is "as confident as ever that we will find" a merger partner. Unfortunately, investors have become wary of business plans that take seriously the old joke about losing money on every sale but making it up in volume. Almost every Internet retailer has spent far more per customer landing that customer than the customer ever gives back in sales. Despite all the marketing theory about "branding" and creating "sticky" sites, Internet customers have proven amazingly fickle when it comes to making purchases, reinforcing the simple observation that the only two reasons anyone buys anything on the Internet are price and convenience.

The next few months may be the swan song for CDnow and other Internet retailing pioneers, as they give way to huge corporations with a long history of adeptness at moving vast quantities of merchandise. Companies on the scale of BMG, Sony, Philips—even Circuit City—will likely dominate online retailing. The day of instant millions for startups may be over.