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

[TankGirl]

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:

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:

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