InternetWorld: Facing MP3’s Music

By Brian Caulfield, InternetWorld

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

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

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

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

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.