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© 2005 UMFK.

Napster

internet business models

text and cases

Jeffery T. Pelletier

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© 2005 UMFK.

Topics • Napster History

• Napster Evolutions

• Customers

• Management Structure

• Lawsuits filed against Napster

• Some knockoffs of Napster

• Market Research done on Napster

• Competition

• GBF analysis

• What eventually happened to Napster?

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© 2005 UMFK.

Napster History

• Known as a content provider.

• Created in 1999 by Northeastern college dropout Shawn Fenning.

• Got Napster name from his own nickname.

• He wanted to create a place, on the Internet, where he could go and trade music files with his friends.

– First peer to peer mp3 file sharing network.

• He spent 60 hours, pretty much non-stop writing code for his new idea.

• Napster would be a place where users could find unreleased and bootleg music.

• Users could also find other users with the help of Napster’s databases.

• Record Companies got wind of this and started handing out lawsuits.

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Napster Evolutions

• Started as free file sharing service.– Forced to shut down in 2002 by RIAA(Record Industry Association of

America.

• Napter purchased by Roxio and evolved into a pay subscription service and became a major mp3 competitor with the release of Napster To Go.– Released Napster To Go in November 2003 just in time for holiday

season.

• In November 2005, teamed up with XM Satellite Radio.

– Users will be able to download music they hear from XM Satellite Radio.

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Customers

• 2 segments:– With free subscription.

• High School/Middle High students.

• College students.

– Pay subscription.• Still some college students.

• 20-40 age range.

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Management Structure• Chief Executive Officer – Chris Gorog

– Former CEO of Roxio.– Vast career in media and crossing that over to the world of technology.

• President – Bradford Duea; – Had previously worked with company People Support Inc.

– Had great Experience in closing big deals with big VCs.

• Chief Operating Officer – Laura B. Goldberg

• Chief Financial Officer – Nand Gangwanni– Had twelve years of experience in financial planning for previous companies.

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Lawsuits filed against Napster

• All lawsuits were filed by RIAA.– Represented five largest music labels and many of the small ones.

• Went after the idea of a free Napster.

• Argued copyright infringement violations.

• After targeting Napster, they went after individuals.– Individuals with large databases.

– More that half of users were teenagers.

• RIAA said that they were losing money because Napster was stealing from their record sales.

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Napster Clones

• Gnutella

• BearShare

• Morpheus

• LimeWire

• Kazzaa

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Market Research on Effects of Napster’s Free Service

• Forrester Research done in August of 2002.

• Some key facts that were uncovered:– Sales of digital music would reach $2 billion by 2007.

– Music sales were not down due to Napster at all.

– Three factors that were pushing Music sales down:• Current Recession in US.

• Emerging DVD sales.

• Emerging Video Game sales.

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Competition

• Can be segmented into two segments with Napster’s evolutions:

– Free Napster:• LimeWire

• Gnutella

• Morpheus

• BearShare

• Kazaa

– Pay subscription Napster and Napster To Go:• Apple Ipod

• Rhapsody

• Dell Pocket DJ

• Creative Zen Micro

• iRiver’s H-10

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GBF Analysis

• Network Effects.– Viral Network effects.

– Moderate.

• Economics of Scale:– Fixed with free Napster.

– High.

• Customer Retention:– High for the free Napster

– A little lower for the subscription Napster.

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Conclusion

• Napster used a Get It Right First approach and succeeded. – Shawn Fenning had an idea and wanted to get it out before anyone else could do it.

• Napster has gone through many evolutions and is still alive today.

• Napster keeps changing with the changing technology.– Example….The newly formed alliance with XM Satellite Radio.

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Questions?????

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