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October 03, 2005

Comments

Steve Krause

Good writeup. A quick question on this: "We had over 50 million users who were willing to pay $5 per month or $1 per download for digital music."

Is this something you could credibly assert at the time, or is it an extrapolation backward from the success of iTunes?

DonDodge

Five years ago while at Napster we did extensive user surveys to determine how many people were willing to pay for a subscription and how much they were willing to pay.

It was unscientific, we didn't publish the results, and obviously couldn't act on it. But, we learned that a very large percentage of users were willing to pay to be part of the Napster community. At the time the sweet spot seemed to be $5 per month or $.99 per song.

Today we know that subscriptions are sold for $8 to $15 per month depending on catalog size and usage rights.

cliffreeves

Great story, Don. I guess it's true that you write best when you write about what you know best.

I really enjoyed this!

SR009

Don Dodge, (On The Next Big Thing) who is now with my former employer (Microsoft) - formerly with "bad-boy" Napster, offers this detailed description of what Napster did right - and wrong.

Jawahar Mundlapati

Good analysis.
We should go for "win-win" in an established market.

Adam Bornstein

I showed your comments to the team I'm working with in Shanghai who are building a loyalty reward network program/venture in China (e.g. Nectar, MyPoints, Netcentives). All four of your lessons are things we've talked about at length; and while we are still trying to figure out the answers your posting gave us some comfort that we are at least asking the right questions. Thanks for your insights...

Juvenn

Thanks for ur lessons, Mr.Dodge!

Vic Berggren

I'm surprised that the artists didn't attempt to deal directly with Napster.

If the studios didn't have contractual rights to digital distribution wouldn't that have been a blessing in disguise for the artists that were at the mercy of the creative accounting?

DonDodge

Vic Berggren commented "I'm surprised that the artists didn't attempt to deal directly with Napster."

In fact some very prominent music artists did secretly work with, and invest, in Napster. But, they were still under contract to the major labels. They had to wait until their contract expired to take advantage of Napster's ability to go direct to consumers. They could have made a fortune.

This was another business angle for Napster...taking artists directly to the consumers. We figured it would only take one or two top name artists to pave the way and many others would follow.

Unfortunately, Napster was shut down before these particular artists contracts expired so we never got a chance to do it. And, don't ask. I can not tell you who these artists were...but they were huge!

Brett Nordquist

Very informative post. I didn't think I could dislike the RIAA anymore than I do but I was wrong. Thanks to Napster I was introduced to many groups I would not have otherwise listened to. I did download a few older singles for free but many of them lead to a CD purchase so I could listen to the entire album and rip it for my own use. Napster really was ahead of its time.

Richard Ruekema

I hear ya Don - been there, done that, paid the bill, lost the company.....and I've learned the lesson...just too bad I didn't realize it sooner

Tara 'Miss Rogue' Hunt

Don,

There is something to be said for pioneering. We need the Napsters of the world to blow open the doors on change. Instead of warning against it, we should put aside an insurance fund for people who innovated ahead of their time and were punished for doing it.

This way, brilliant teams like yours wouldn't have to worry about rocking boats. They could just effect change and the rest of us could benefit.

But then again, I'm a Utopian. ;)

Tara

pwb

I think the biggest mistake was thinking that Napster offered value to the music distribution industry.

Hank Williams

At the time you guys were doing napster, I was ceo of a company called clickradio. We were feverishly working on (and ultimately got) the first interactive licenses from the record companies.

I think the biggest problem you guys had was being in silicon valley. We were in new york and had regular contact with the music execs. And I can tell you there was never even one second, one iota, one shadow of a doubt in our minds that the record companies were *not* going to give you licenses. We negotiated for a year with universal, before we got our first license (which was before we launched) and we knew all the major players very well. At the time the silicon valley attitude was obnoxious and arrogant. You acted like you had a right to dictate how their content was used and they didnt like it. It is true that there were contract and other issues, but even if there werent, they *hated* you.

The amazing thing is to read this posting which seems to me (tho I wasnt at napster) to be an apologist, rewriting history. For you guys to really suggest that you were poised to make so much money, and you really believed you were going to get licenses is really... well I'll be polite and say, amusing.

Even if they didnt hate you, you had no encryption, no control, and more importantly, the record companies first didnt want any download services, and then wanted to do it themselves. And if they did do something, they were going to do it with friendly faces.

finally, you guys know there was no timely way to convert napster into a royalty tracking secure service. This was tried, and it took years, and tens of millions of dollars of bertelsmann's foolish money to get even close. And now, the pay services, aside from apple, each have maybe a few hundred thousand users. So I think the current truth belies your rosy scenarios, unless you are claiming that napster would have been apple. Heck, why not go ahead and be foolishly arrogant on that point too.

The truth is, even five years later, the tech world still knows nothing about the dynamics of the entertainment industry, but continues to ponificate about it. I am a programmer by training, but I spent enough years along side the entertainment guys to understand how they operate. It is funny to hear you, and your readers continue to talk about this stuff with a *totally* inacurate present day as well as historical perspective.

Adam

> Don’t try to convince [customers] that you have a
> solution to a problem they don’t know they
> have.
[... plus additional blatherings about how it's bad to be innovative, a first-mover... basically, a leader]

Shame, shame, shame! What a horrid and mistaken takeaway from the Napster experience!

All throughout history (and not just computing history), brave and insightful people and companies have opted to LEAD the way, rather than simply be followers. Some, nay, many have failed. Others have been great successes. Just like followers, in fact. Viewing Napster's (business) failure as a lesson in and of itself of anything other than a warning about mismanagement (internally and externally) is, IMHO, both foolhardy and shortsighted.

* * *

Oh, Mr. ClickRadio...

"At the time the silicon valley attitude was obnoxious and arrogant."

And the Entertainment Industry is/was... a bunch of friendly, welcoming, thoughtful souls?!?!?!? HA HA HA HA HA HA!

And ClickRadio... where is that today? Gee, clickradio.com, clickradio.net, nothing is coming up. How odd, given that -- with your vast amount of wisdom and brilliant business acumen that enabled you to do a deal with the benevolent recording industry -- surely your venture must have been a raging success? ;)

Michael Ridley

A response to Mr. Clickradio-

As a matter of fact, I worked for Napster for a while - very early on, before Don was there actually - and your characterization of the situation is not accurate.

You stated:

"At the time the silicon valley attitude was obnoxious and arrogant. You acted like you had a right to dictate how their content was used and they didnt like it. It is true that there were contract and other issues, but even if there werent, they *hated* you."

Despite what the public perception of Napster's attitude was or came to be (much of which was fueled more by the record industry's shaping than by any active marketing or statements fron Napster), that was not at all the nature or tone of the conversations we had with the RIAA. I was in the room the first time our original CEO called the RIAA. I heard the voicemails from Hilary Rosen's assistants. I don't recall if I heard any from Hilary or not, I know that for the longest time they would never acknowledge us or call us back.

We were too small and they didn't care.

There are no doubt many legitimate issues with the Napster strategy, many of which Don has highlighted. However, back in October of 1999 when I started there we were in no sense naive about the uphill battle we faced. We knew early on that there were if not necessarily legal violations implicit in the service, there were certainly some grey areas of potential risk (which turned out in the end to bankrupt the company of course). From day one we wanted to transform the service into something that the record industry could work with.

And far from arrogant, we probably would have made any reasonable deal that came by at that point. While we were relatively small at that point, we could see the direction the juggernaut was heading and it was clear that any sort of revenue split with the record industry would really be fine. Even if we had some small percentage of the revenues, it wouldn't matter. In this case even 20% - even 5% - hell probably even 1% of what the subscription fees could have been projected to be would still be "fuck you money".

I dunno, I'm rambling, maybe I should write my own post on "inside napster" - but I think I won't. Enough has been said about Napster already I think. But I did want to clarify our initial approach with the industry. The problems we had in dealing with them had nothing to do with arrogance - or at least not arrogance on our part - it had to do with the record industry executive management having no concept of technology or the reality of what the Internet was or could be. They didn't see what was going to happen because they didn't know what the Internet was. To them P2P file sharing was no different from a rogue CD-stamping plant in Southern California or China producing pirated CDs. Take them to court, get an injunction, and it goes away. That was naive on their part, not ours.

-m

thomas

this is really a great article

Martin

Hello Don, my name is Martin, i live in cologne, Germany. I read a lot of in web about you - now i found your blog. You are a "idol" for me... I hope you can answer my question: i read (2 month ago...) that microsoft will sell an "zunephone". So i designed a small website: http://www.zunephoneinfo.de - you think Microsoft bring the zunephone on the market? Please leave feedback. Greetings from Germany, Martin

DonDodge

Martin,

Microsoft has not announced any plans for a Zune phone. The Zune music player just launched a few months ago and they are already working on the next version.

Microsoft works with Motorola and several other cell phone manufacturers now by supplying the operating system, Windows Mobile.

Sorry, I can not confirm or deny any unannounced product plans.

ben leefield

Awesome article. What a great experience, to be on one of the first and greatest commercial websites.

The record companies are still just stupid and greedy. They think they can still charge too much money for something that can be downloaded digitally for no practically no distribution and marketing cost. They are greedy because they don't get the fact that if music drops to a few pence / cents per track that more people will spend more on music, building bigger collections. Until they get it, the pirates will florish. They find it hard to get digital download to work in their business model, but they hadn't worked out that it was the model that was outdated and that needed to change(and probably still does) - not that the new technology should just go away. And thats why they are stupid... and lazy.

Ps. I'm a property developer who believes in the rule of law, property rights, blah, blah, blah - but you can't stand in the way of new technology - it will swamp you.

David

My name is David, and I'm currently doing research for a paper on the whole issue with "illegal downloading," focusing particularly in the music industry (as I presume the majority of the issue lies in the music medium). Other than simply being fascinated with this topic, my father was the VP (either customer service or marketing) for Napster a few years back.

From Mr. Dodge's article and my father's information, I do recognize the fault and miscalculations on the part of Napster during the period in which Mr. Dodge was with company. However, it can't be denied that the RIAA was just too greedy (and moreover stupid) when their injunction killed Napster. I say that they are stupid because from my dad's explanation, there was ample room for Napster's launch to be mutually beneficial to both Napster and the record industry, and thinking that killing Napster would change the flow of technology was OBVIOUSLY wrong.

Considering I'm writing this in mid-2007, I don't see anything around me that has shown that "illegal downloading" has changed at all.

Beba84

I just wanted to say that this is one of my favorite business related posts of all time. The entrepreneurial wisdom will stay with me for a long time as I make my own journey through the startup world. Thanks!

Yan Gunawan

Wow. that's a great story. I just found this blog and so funtastic. I'm from Indonesia (Jakarta). I think many of great enterpreuners over here. May i have your suggestion, what' s the good startup internet business in Indonesia? Thank you so much.

take surveys

how did you handle 50 million users in 7 month. this is such great work. I just loved your article.

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