© 2005 umfk. 1-1 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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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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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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