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InternetWorld: Facing MP3's Music

Apr 19, 2000, 23:18 (3 Talkback[s])
(Other stories by Brian Caulfield)

By Brian Caulfield, InternetWorld

Napster.com's CEO weathers a legal storm to fill a need for consumers.

Napster CEO Eileen Richardson says there are two kinds of companies. One kind is created by overpaid MBAs trying to work out the next killer app on a venture capitalist's whiteboard. The other is built to fill a need. Make no mistake, San Mateo, Calif.-based Napster wasn't sketched out on a whiteboard.

The person who created Napster is Shawn Fanning, known as "Napster" because of his nappy hair. The 19-year-old college dropout created a way to index the MP3 files on his hard drive so he could share them with others online. His creation, Napster.com, lets people look up music on anyone's hard drive and download it.

The result is the kind of hit most Internet companies only dream of--and an unholy mess. Napster has become so popular on colleges that it has brought down high-speed campus networks. Schools have banned Napster and blocked access to its site. Student protests have ensued. If that weren't enough, the Recording Industry Association of America has sued Napster, claiming it encourages piracy, and is seeking to shut down the site.

It's easy to see why the big record labels are infuriated. Unlike earlier online music ventures, Fanning's simple idea could dramatically alter the one-to-many manner in which music has been distributed--either at record shops or Web sites--by taking advantage of the Net's unique potential for many-to-many content communication. But it is hard to see how the music labels can make money every time music is passed from one person to another online.

Although Richardson, 38, won't comment on the lawsuit, she says it's ridiculous to blame Napster for piracy. "We didn't invent MP3; we didn't invent the Internet," she says.

She argues that the Net is exposing people to music they wouldn't otherwise hear, creating new customers for record labels. It has helped her, for instance, develop a taste for British house music.

Some observers agree. Napster is more about building online communities and spreading branding messages than about piracy, says Aram Sinnreich, an analyst at Jupiter Communications. "There are short-term piracy implications, but I think ultimately Napster can be leveraged to deliver music to people who haven't heard it before," Sinnreich says. "I personally have bought two CDs because of songs I've heard on Napster."

Shutting Napster down wouldn't help the recording industry much. In March, Nullsoft, a team of MP3 software developers that was bought by AOL last year, released an open source program that enables Napster-like file sharing. Although the Nullsoft Web site distributing the software was quickly shut down, scores of others are now distributing the software.

Richardson came on board to run Napster after the company received an investment of $2 million from ValiCert CEO Yosi Amram and others.

She gets rave reviews from the likes of Amram. And she seems ready to handle Napster's mess. But Richardson doesn't see herself taking Napster very much further. She's looking for a CEO who can lead Napster into maturity even as she wraps up another funding round. The qualities that allow her to run a 20-person startup, she said, might not work so well at a firm with 100 to 200 employees where things are much more structured.

Meanwhile, things remain decidedly unstructured at Napster. Richardson, who got into the VC business about 10 years ago and made very successful investments in companies like Firefly and SilverStream, doesn't try to sugarcoat that, and she says she's not sure how Napster ultimately will make money.

There are many ways Napster might become profitable, says Jupiter's Sinnreich. He says Napster, or a service like it, offers a great way to learn about the buying and listening habits of the markets that music labels want to reach. That information could be used to tailor marketing messages. Also, a Napster-like service could be offered as a private-label brand on a larger media site with advertising and sponsorship.

The bottom line: "I think Napster is going to drive more purchases than it will prevent," Sinnreich says.

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