Want To Stop Napster? Forget It--It's Too Late
(FORTUNE Magazine) – Now people get ready, there's a train a-comin' Don't need no baggage, you just get on board --Curtis Mayfield
As a columnist, I typically aspire to write about ideas or concepts that are unexplored, aiming to offer a new viewpoint. Occasionally, however, well-covered ideas can still be underappreciated. The rise of a software application known as Napster, which has been much discussed here in FORTUNE as well as in other national publications, is just such a phenomenon. The music industry is about to undergo a change that is ten times more important than the launch of the compact disk. Everything will change. And if that's not enough, once the bandwidth is available, the movie and book industries will be next.
Napster is different from most consumer Internet products or services. Typically we use our browsers to access large Websites. By contrast, Napster is a software application that uses the Internet--there is no browser. More interestingly, Napster allows its users to share information among PCs rather than between a big Web server and a PC. Users tell Napster where music files (mostly in MP3 format) are located on their hard drive, and then Napster shares this information with the world.
The result is that each Napster user can share music files with any other user. Download Napster, type in the name of a song, and Napster will show you other Napster users with that song on their PC. Double-click on the song you want, and you are now transferring it to your PC. This activity bothers the music industry for two reasons. First, in addition to exchanging music that is intended to be freely traded, users are also able to transfer any and all music that can be "ripped" to a digital file--without, of course, paying a royalty. This applies to all 50 billion compact disks in circulation. The second reason the industry is concerned is that Napster has accumulated a remarkable nine million users in only six months. By comparison, it took America Online 12 years to reach nine million users.
Despite the hype, it is not clear that the music industry or the press understand the size of this movement. In the future we will all listen to music via computer files--either on MP3 players or hard drives. In his FORTUNE column six weeks ago, Stewart Alsop highlighted two new MP3 players that use hard drives rather than flash RAM--each holds 80 hours of music and fits in your pocket. The compact disk, which in many ways still seems new, is actually on its way out. And here's the biggest issue: Files are easily copied and shared, whereas physical CDs can only be borrowed or traded. And with nine million users electronically connected through a centralized directory, the sharing is mighty easy.
That's only going to increase as technology improves. Until the past few years, MP3 usage wasn't widespread because files consumed a lot of space on a hard drive and required lots of bandwidth to be easily transferred. However, both bandwidth and storage space are becoming ever more plentiful and cheaper. Within six years the amount of drive space or bandwidth needed to trade high-quality music will be negligible. E-mailing an entire album of music to a friend will be no different than forwarding a Microsoft Word document today.
The obvious question is, Can anything be done to stop the free trading of music on the Internet? The answer is likely to be no. For one, the cat is already out of the bag. Every multimedia PC is capable of converting a music CD to a digital MP3 file. This means that more than 100 million encoding devices already exist. It's unlikely that we would recall either the PCs or the CDs. Could we produce new CDs that are "unrippable"? This is not likely if you want them to work in the 200 million CD players that are already in people's homes, offices, and cars.
Could we create a new type of CD or encrypted file type that couldn't be copied? The potential certainly exists to do this. However, as long as recorded music can be played, it will be extremely easy for someone to rerecord this into a digital file. No ifs, ands, or buts. The music industry believes a Holy Grail exists that can save the day. They assume that a technological solution is imminent. But the wait for a white knight will be a long one.
Could litigation and legislation stop Napster? The Recording Industry Association of America has sued Napster in an attempt to shut it down. Napster claims that, just like Betamax and the RIO MP3 player, the service has appropriate uses and therefore should not be liable just because its customers use it for illegal purposes. Even if a judge enjoins Napster, there are five or six more companies that have already launched similar products. I'm equally pessimistic that legislation can stop this movement. Make these illegal, and someone will launch one from another country. Shutting this down would require the Internet equivalent of wiretapping, which would send privacy advocates into a frenzy.
Another barrier that will make Napster difficult to stop is community. Napster's nine million users are passionate about it. Universities attempting to shut down Napster to prevent network overload are met with active protests. Today's college students are quite serious about their freedom to transfer digital files--whatever the content of those files may be. Stewart Brand's famous statement that "Information wants to be free" has become a rallying cry of this fervent young community.
The world will eventually settle into a new equilibrium some years in the future, and it will look very different from today. Musical artists may make more money from appearances, sponsorships, and product licensing than from the sale of the actual music. Advertising may play a role, as may new business models such as subscriptions to electronic distributions. We may even find that artists can deal directly with consumers via the Internet, bypassing the need for the large record companies. Innovative industry leaders will embrace the new models and increase their chance for survivability and success. Others will fight and increase the odds of failure. And all through this, only one thing will remain certain--dramatic and fundamental change.
J. WILLIAM GURLEY is a partner with Benchmark Capital, a venture capital firm. Except as noted, neither he nor Benchmark has a financial interest in the companies mentioned. To receive an expanded version of Above the Crowd, visit www.news.com, or to subscribe to the e-mail distribution list, please send an e-mail to email@example.com. If you have feedback, please send it to firstname.lastname@example.org.