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Old 22-10-05, 02:11 AM   #1
TankGirl
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Brows Napster's business lessons - plus a few lessons of non-commercial nature

Napster's business lessons - plus a few lessons of non-commercial nature

Sources:
C|Net story
Don Dodge's blog

Don Dodge, Napster's former VP from its wild early days, has written to C|Net an interesting story about his insider experiences within the company during the time it was simultaneously enjoying huge popularity as the meeting place for all music lovers of the planet and being fiercely attacked by the RIAA. He accounts the same story even more personally and interestingly in his blog.

He sums up his personal business lessons into these points:

Quote:
What lessons can be learned from this experience?

• Never get too far ahead of the market. Creating new markets, business models, and value propositions is very risky and takes lots of time and money.

• Understand who your customer is, what problems you need to solve, and how much they are willing to pay for it.

• Never start a business focused on solving a big company's problem. They don't know they have a problem...and they are probably right.

• Test your assumptions. Interview your potential customers. Understand their top 10 problems. Don't try to convince them that you have a solution to a problem they don't know they have.

• Marketing and image matter. Provocative challenges make good headlines but don't make good business.
Those of us who were there to witness the Napster drama from the user community point of view remember well how intense, dynamic and chaotic the whole phenomenon was until the RIAA killed it. Napster's exploding popularity challenged the server side of the semicentralized network constantly, and the discussion forums that were there to serve both as a community meeting place and as a feedback channel were wild and noisy to say the least. Even in retrospect it is hard to see a strategy or sequence of moves that would have allowed the company to create a succesful business out of that chaotic activity in those very unstable and hostile conditions. Despite developing one of the true killer applications of the PC era and despite being passionately loved by its customers, Napster the company was simply too small, too resource stretched, too financially vulnerable and politically way too uninfluential to survive the RIAA's attack. The RIAA had all the lobbying power, all the paid politicians, all the mainstream media and virtually unlimited legal funding on its side. In the early days even the majority of p2p users were still under the spell of the RIAA's propaganda machine, buying the idea that they are doing something naughty or illegal that might harm the proverbial starving artist so tenderly cared by her corporate masters. It took years for the average p2p users to start to see the true nature of copyright cartels and the damage they are doing to culture, creativity and legislation, not to talk about their often criminal practices to manipulate and rip off their customers.

Napster's smallness as a company also prevented it from establishing a stable and committed customer base that might have turned profitable at some point in the future when the company would have figured out a working business model for all that feverish filesharing activity and the all-time social gathering it was hosting. It had gained millions of enthusiastic customers in record time but these customers made it clear early on that they would not pay for the software, for the service or for the content that they provided themselves, nor would they tolerate any filtering or censorship on sharing. So the profit method would have to be something else, something more indirect. I suppose they could have come up with some useful ideas later on but they ran out of time long before that.

If you want to keep millions of customers happy and committed to your service, you need preferably hundreds and at minimum dozens of customer service professionals to make it work. Enthusiastic self-assigned volunteers stepped in to help with customer support, just as other inspired volunteers stepped in to virally market the service and thus save the company from all marketing costs. That sort of community based strategy might have even worked had it been properly organized, supported and coordinated. The company never did any serious moves into that direction though, and being left on their own these often active and talented volunteers naturally grew loyal to each other, distancing themselves from the weird non-communicative company. One by one they started to embrace the free p2p agenda where they could take their fate and activities into their own hands, thanks to the emerging open source p2p software.

Dodge concludes his blog entry:

Quote:
Napster changed the world. Millions of people rediscovered their love of music through Napster, and created a whole new way to enjoy it. We made mistakes, but we learned valuable business lessons. The business lesson of the Internet is that you can attract a much larger audience, and generate more revenue, with a “try it for free, and buy it if you like it” approach. Five years later, the music industry is still struggling with how to capitalize on the Internet business model.
What Dodge says about millions of people rediscovering their love of music through Napster is certainly true and perhaps the most essential thing that happened. Napster indeed changed the world - especially the online world - and it initiated a wave of further technical innovation with related social developments. That wave has been going on strong ever since, and as much as the copyright cartels would love to see it dying away, the movement just keeps growing stronger, smarter and more popular every year.

During its short and stormy life Napster managed to demonstrate to millions around the planet the dramatic benefits that non-commercial social networking on Internet can provide when the software is powerful enough to provide each participant global visibility, global reach, tools for unrestricted sharing and searching plus elementary social tools like browsing, IMs and chatrooms to make social life possible. This is all the technology needed to enable spontaneous growth of fascinating, diverse and deep content pools where new interesting works and artists can be discovered anytime through active searching, random browsing or peer recommendations. This is also all the technology needed to set up a virtual social playground where likeminded people can find each other regardless of their geographical locations, ideologies or social statuses, where they can enjoy each other's personal tastes and personal libraries, to chat and make friends with each other. And it soon became obvious that all this good stuff could be provided effectively for free, if not by commercial ventures then by open software developers who (led by the charming Justin Franklin) had already started to work on fully decentralized technology requiring no hardware, bandwidth or personnel investments to keep the network running.

Napster's impressive technological demonstration and the following collective realization of how much we could already do on our own, with no contributions or assistance whatsoever from old copyright businesses, official institutions or government authorities, was a crucial, paradigm-changing one. Technology had swiftly and almost without warning evolved to a point where we private citizens were suddenly empowered with industrial class distribution powers and could therefore see for ourselves that all the digital fruits of culture, commercial or not, could be efficiently and economically kept available and delivered to whoever happened to need them anywhere on the planet. In other words we had suddenly been given both the means and the know-how to move the majority of world population over to a new era of cultural abundance - with virtually zero costs. This realization of sudden and dramatic consumer empowerment hasn't gone anywhere, and it won't, as it is based on solid technical reality. We cannot avoid the obvious logical question: if we already have a superior free technology to give us a superior cultural infrastructure, why the hell are we still wasting precious time and our hard earned money to fill the pockets of copyright cartels whose technical services we don't need anymore and whose greed-driven corporate agendas make them irresponsible and often harmful guardians for our culture?

While Napster was being developed, Groove, another early p2p startup, was also poised to make a technological breakthrough by developing a p2p based virtual office environment for business customers. Being a much more solid and better resourced company with a straightforward business idea Groove fulfilled its venture capitalist agenda perfectly, their independent story ending into a succesful sale to Microsoft. But Groove was never to cause any revolution á la Napster - it was just innovative software business as usual. Revolutions need the passion and the momentum of the masses to fuel them, and Shawn Fanning just happened to find the magic formula that would first excite the masses and then start a revolution that would go much further than Shawn himself or his venture capitalist pals could ever have imagined.

- tg
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Old 22-10-05, 06:35 AM   #2
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Quote:
Originally Posted by TankGirl
Enthusiastic self-assigned volunteers stepped in to help with customer support, just as other inspired volunteers stepped in to virally market the service and thus save the company from all marketing costs. That sort of community based strategy might have even worked had it been properly organized, supported and coordinated. The company never did any serious moves into that direction though, and being left on their own these often active and talented volunteers naturally grew loyal to each other, distancing themselves from the weird non-communicative company. One by one they started to embrace the free p2p agenda where they could take their fate and activities into their own hands, thanks to the emerging open source p2p software.
none more enthusiastic than you, if i remember correctly in fact, Napster also introduced many (like me) to the forum experience...and while i might have gotten involved with forums elsewhere, it was indeed that strong sense of community on the Napster boards - that sense that i was indeed on the threshold of something quite revolutionary and that there were many others who felt the same - that got me hooked.

very nice look back, tg
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Old 22-10-05, 03:29 PM   #3
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Reading Mr. Dodge's blog I can't help but notice the similarities between Napster and the company I started working for about a year ago. This of course does not bode well for this little startup called Access Color, being a first-of-its-kind company.

A brief synopsis: Access Color mixes wall and house paint in thousands of different colors and bottles it into 2 fluid ounce jars (enough to paint a couple square feet), and the result is a color sample that can be brought home from a paint or hardware store and painted onto a wall to test that color in the real world. This saves people from the guesswork of holding a two inch square color chip against the wall to try to imagine what it will look like. At the paint store I used to work at we made them in house and they sold like crazy so my boss decided he'd start a business to sell them to other paint stores. However, it hasn't turned out to be the cash cow he thout it would be.

We bottle Benjamin Moore brand and Pratt & Lambert brand colors because these are the brands sold at small mom and pop hardware and paint stores, the idea being that they're more flexible than the big box stores and more willing to make room on their sales floors to display our product. This model works, but just barely. We're learning more and more that the best thing for us would be either to sell samples to Home Depot and Lowes, or else sell samples directly to BM and P&L so they can redistribute them to the mom and pop stores. The latter would be preferable because those paint manufacturers already have established bulk distribution chains.

That's where the similarities between Napster and Access lie. Those big companies are hard nuts to crack and we're just too small to make it work. Napster came along and showed the music business that online digital distribution was not only possible but also extremely cheap, and that's kind the stage Access is at now. Benjamin Moore in particular want's nothing to do with us, they don't see the benefit of selling tiny amounts of paint. Then Napster shut down and along came Apple iTunes to broker authorized sales between the music companies and the music buyers, which is the direction Access is trying to go. We're working on deals with other manufacturers to bottle their product and send it back to them so they can redistribute it. The problem is that other contract packaging companies my try to do the same thing and for the first time we'd be facing competetion. Now the music companies are showing signs that they want to nix their deals with Apple and open their own online music stores, and already Access Color's business is being threatened by Benjamin Moore making their own samples (though they only produce 260 of the 3,262 colors in their catalog).

I'm not complaining. A decade from now there will be 2 oz paint samples being sold in every paint and hardware store in the country, and those bottles probably won't have our logo on the label but hopefully we'll be remembered for our innovation. We didn't invent the paint sample and we aren't making a huge profit selling them, but at least we did create a market for them, the way Napster created a market for online music delivery.

Just thought I'd share the wave of dejá vu I got reading that blog.
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Old 22-10-05, 07:22 PM   #4
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TG, Excellent post and insights about Napster. You are right, it was chaotic and exciting. We knew we were making history, and there were many times we thought we would actually win. We almost did. We were just too far ahead of the curve, and moving way too fast to back up and wait for the record labels to get to where they are today.

However, the Napster revolution made it possible to have digital downloads of music today. Without Napster it wouldn't have happened anytime soon.

Funny you should mention Groove. After leaving Napster, I was VP of product management at Groove. Groove flirted with the idea of using its secure encrypted network for music...but never seriously. Groove was great for business, and for consumers who had large files to share.

P2P has lots of potential applications, many of which we will discover in the years ahead.

Thanks for the great forum.

Don Dodge
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Old 22-10-05, 09:05 PM   #5
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Thank you, DonDodge, and welcome to P2P-Zone.

Yep, you were clearly ahead of your time. In a sense you started the new p2p timeline, the clock started to tick from you, and therefore you were doomed to be ahead of all other businesses. The music industry woke up from its own status quo and stagnation only when Napster already enjoyed huge popularity, and at that point the RIAA had its entire learning curve ahead.

My own gut feeling is that the RIAA has remained some 1-2 years behind the technical edge to this date, and I doubt whether they have even today any clue of what has happened on the social p2p scene. They were obviously incapable of making any realistic scenarios or predictions about what would happen to p2p technology or to p2p users after Napster's shutdown but nevertheless they insisted on shutting it down. The mass exodus of deserted users first to OpenNap servers and later on to Morpheus, Fasttrack etc. happened surprisingly smoothly, and after a few obligatory evacuation practices the average p2p users have grown savvy enough to survive any such attacks or scare campaigns. The insecure and ignorant Internet rookies of year 2000 have grown into smart, battle hardened p2p experts of 2005. This collective learning process has been one the remarkable consequences of the p2p revolution, and it is a new factor to be considered by anybody wishing to do serious reality-based business on the public p2p scene. But as said, I have my doubts on whether the RIAA is even aware of such a remarkable social development within its previous customer base.

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Old 16-12-06, 04:28 AM   #6
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another related thread bump

this one is related to the 'Ramona's lessons in spam etiquette' doctored spam thread ..hmm

but a good (re)read...none the less
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Old 16-12-06, 11:19 AM   #7
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Life after Napster
Dawn Kawamoto

Hank Barry has come full circle: attorney, venture capitalist, chief executive, attorney.

But his career has seen far more twists than these titles might suggest.

For example, his foray into the entrepreneurial realm, vis-a-vis his role as a venture capitalist, landed him the role of interim CEO at Napster. In that position, he played a part in helping define the boundaries of the file-swapping, or peer-to-peer, industry.

Quote:
Q. It seems you got both [law and operations] at Napster. What are some of the key lessons learned while serving as interim CEO at Napster that can be applied to the companies you'll be representing at Howard Rice?

A. Barry: The No. 1 thing I have an appreciation for is how fast things move on the operations side. As lawyers, you're trained to reflect. But on the operations side of things, you don't have time. The marketscape map is changing on a daily basis. You don't come to appreciate it until you experience it. And that experience will make me a much better lawyer as a result.

I also have a better understanding of what is functionally important, rather than what is important in the abstract. One thing we did at Napster that I regret is having somewhere around 30 engineers to develop a filtering system. With all the delays we had, we could have had a smaller team and made more progress in the same amount of time.
Interview

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