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E-business Watch
Tracking the
online media to bring you the key e-business trends
April
7, 2000
Napster rocks
the music industry
What
began as a simple tool to share music files foreshadows dramatic changes that
will transform the nature of intellectual property and the business models of
the entertainment industry.
It
was a classic, ‘build a better mousetrap’ project: 19-year old, Northeastern
University freshman Shawn
Fanning wanted an easier way to search and share music files on the Web.
He purchased a programming book and then wrote Napster, a relatively simple
Windows application. The results have been spectacular. Not only has
Napster become one of the most popular downloads on the Internet, it has sparked
fierce debate over the nature of intellectual property and threatened the
foundations of the recording industry.
Here's
how Napster works: Once users have downloaded and installed the small (less than
1 MB) and free application, they can share music files on their hard drive with
anyone else running the program and connected to the Internet at that moment.
Users can search, in real-time, the music collections of every other connected
user and download the songs of their choice. The music files never
actually reside on Napster’s servers, they are directly transferred from user
to user. The program, in effect, transforms individual computers into
mini-servers that exchange files directly with other computers. (Click
here for a video demo)
In
a few short months, Napster has become an Internet phenomenon. Since its launch
last September, more than five
million copies have been downloaded. According to its CEO, Napster’s rate
of growth is faster than that of ICQ, the AOL-owned giant of instant messaging.
“It took ICQ 14 months to get where we are in only six months,” she recently
told Newsweek
magazine. As of early April, there were typically over 3,500 users
logged into Napster, sharing, at any given time, more than 500,000 songs.
Not surprisingly, Napster has been most popular
among university students. So popular, in fact, that it has become somewhat
of a nightmare for university computer departments. For instance,
Indiana University’s computer department reported that Napster use was
consuming 61% of its bandwidth before they blocked access to the site last
month. Universities across North America have reported similar
problems, with dozens of
them taking steps in recent weeks to deny students access to the Napster
site. These moves have sparked outrage among Napster’s loyal
users. Two Indiana University students have gathered over
16,000 signatures protesting the denial of service, which they refer
to as the universities’ “assault on first-amendment rights.”
Equally
unsurprising has been the recording industry’s reaction to Napster. The
Recording Institute Association of America (RIAA) has
sued Napster for facilitating the illegal distribution of material and is
seeking $100,000 per illegally distributed song. The RIAA’s claims that
there is " an incredible disconnect out there between what is normal
behaviour in the physical world versus the online world….There are people who
think nothing of downloading entire CD collections on Napster who would never
dream of shoplifting from Tower Records."
Mutating
at Internet Speed
New variations
of Napster’s file-sharing concept are emerging on an almost daily basis.
Programs such as Gnutella, Wrapster,
Spinfrenzy, Scour
Exchange and iMesh now make it possible
for users to exchange any type of file on their computer, opening the door to
the widespread sharing of music
videos, software, and even full-length
feature films. As the New
York Times observed, Napster provides "a glimpse into the future"
of the television and movie industries. "While high-quality video
files are currently too large to be sent quickly over most Internet connections,
high-speed—or broadband—services will soon expose other media to the
opportunities and threats posed by digital distribution," it recently
observed.
While
Napster has been vulnerable to lawsuits and restrictions on access to its site,
these new “strains” of file-sharing applications are much more resistant to
efforts to shut them down. Hours after Nullsoft, an AOL subsidiary,
released “Gnutella,” it was abruptly “taken
down” by its parent company, amid concerns that the program threatened
music labels owned by AOL’s merger partner, Time Warner. However, within
days, freelance programmers had
developed and launched an open-source version of Gnutella. This new
program is not controlled by Nullsoft, or any other company, has no central
administrative or technical infrastructure. With no central servers to shut down
or company to sue, Gnutella is effectively immune from legal or technical
retribution.
Challenging intellectual
property and business models
Although
it is not yet clear how Napster and its peers will actually make money, the
large, loyal communities that they are building may eventually create
opportunities to earn revenue from data-mining, premium-service subscriptions or
advertising. Regardless, these new, rapidly growing file-sharing
communities will seriously erode the business models of established companies.
In
the short term, the music industry is most clearly threatened. However, in
the longer term, the impact will be felt across a broad range of industries.
Ultimately, anyone who produces digital content now protected by intellectual
property laws will be vulnerable. Entire sectors -- most notably movie,
software, books, and graphics -- will eventually face Napster-like challenges to
their business models. How they respond to these challenges will significantly
shape their future.
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