Napster By Gediminas Sumyla

Company overview Napster was initially created in 1999 by 19 year old Shawn Fanning who attended Boston Northeastern University. The program was written to help better find music downloads online. Legal issues led to several major recording companies losing their revenues in music sales and backed by RIAA (Recording Industry Association of America) launching a lawsuit to file sharing companies. As a result of these legal actions an injunction was issued on March 5, 2001 ordering Napster to cease trading of copyrighted material. At last Napster’s assets were purchased by German media company Bertelsmann AG for $8 million as company filed for bankruptcy. Later company was purchased by Roxio, Inc. In 2001, before the bankruptcy Napster reached about 27 million users.

New Napster Napster reincarnated in 2005 offering legal music download service. Online music markets were set to grow and Napster entered market at the right time – at the beginning of the growth. New reincarnated Napster offers a free trial of their fee based music downloading service. This software also offers high streams and access to tracks. Napster premium permits listening to and downloading about 1,500,000 songs for about $10-$20 per month. Integrating popular devices with Napster’s services allows customers to move their digital media to portable devices and not limiting it to only one brand of devices, like Apple. After bankruptcy Napster lost its customer base and in 2005 it barely reached half a million customers. In 2005, BBC estimated that the global music market is worth $33 billion a year, while online music market is accounted for around 5%.

Management team Chris Gorog – chairman and CEO of the company. Chris Gorog led Roxio's acquisition of Napster and helped re-launch the music service into a legal digital music provider. Under his leadership Napster became a leading innovator in online music industry. Bradford Duea – president of a company. He is responsible for all international activities, overseeing the business development activities on a worldwide basis, and helping define the strategic direction of the Napster service.

Management team (cont’d) Nand Gangwani – Chief Financial Officer. Music also played big role in his life. He believes that you can create a soundtrack for your life. Nand also has over 12 years of strategic planning and corporate development experience and at Napster he develops the overall financial direction and is responsible for all accounting practices. Christopher Allan – Chief Operating Officer. He joined Napster as Chief Operating Officer on August 6, He is also responsible for product strategy, development and marketing and reports to Chris Gorog (CEO).

Competitors APPLE  According to Engadget Apple’s iTunes has a market share of 88% for legal US downloads. Company has sold over 1.5 billion songs and became the fifth largest legal reseller of music in the US. Outside the US, there are iTunes stores in 21 countries all over the world and it’s #1 in all of them. iTunes is integrated with iPod, which is the leader in portable media player industry and captures about 76% of market share.(According to Apple Inc.). Company uses pay-per-download model, where customers purchase a single or multiple tracks or even a full album for $0.99 per song, where Napster uses different model of online selling.

Competitors (cont’d) Rhapsody  Company uses the same selling model as Napster, where people pay monthly fee starting at $12.99 to gain access to million songs that can be streamed or downloaded. Company also allows customers to purchase individual songs for a certain additional fee. Rhapsody’s current market share consists of only close to 5%.

Challenges First marketing challenge that Napster faces is competition. With iTunes taking most part of online music market share, Napster has to find it’s way to tell people about the benefits of their service, build trust among online music consumers and promise the best price and service. Company is in need to find tools that will follow this trend and increase the revenues. Digital media is growing and Napster’s success is lying under the ability to acquire the customer base and survive in this competitive environment.

Other challenges Another challenge that Napster is facing is its brand. After the lawsuits and bankruptcy company lost its reputation among customers. Customer base decreased from about 27 million to about 0.5 million. Napster has to find ways to get these customers back and introduce the new subscription based way of accessing and downloading music. Company has to regain the trust and reliability.

Response to challenges Napster management team are focusing on several strategic initiatives that they think will help to become a market leader. In 2005 Napster was reborn with new services and new perspectives. Company started to focus on brand awareness to let people know about new and improved Napster. So company offered music fans the key to the world's music library for a low monthly fee.

Strategy Napster launched this new service that allowed customers to download as many songs as they want as long as they pay subscription fee. The software program was called “Napster to Go”. It made available company’s collection of million songs, but used new Microsoft’s newly introduced Janus copy protection technology to time stamp tracks.  So every time customers ran the program it would check against the user’s subscription and would not play unless consumer paid a monthly fees.  Customers were able to download as many songs as they want for that monthly fee, but if they wanted to burn those tracks on a CD they would have to pay additional pay-per-track amount which was lower than their biggest competitor and market leader Apple.

Advantages Napster is also compatible with most of the portable media devices, where Apple allowed only iPod. Company also retained previously used peer-to-peer structure, allowing customers to trade files with each other directly, but it has added security layer to prevent from trading unauthorized songs. Customers gained access to millions of songs. Pay-per-track prices were cheaper than competitors’.

Understanding customer needs and behavior:  Napster saw its competitor’s strategy to use pay-per- download services and created completely different way of accessing the songs.  Company saw that customers needed different approach to music, where it would be a lot cheaper to access the same amount of tracks.  Napster allowed almost all portable media devices.  Company was trying to find the ways to regain the trust. Evaluation

Formulating strategy Napster came up with a new online music service and made it cheaper then its competitors. This new Napster and new strategy would create brand awareness and start building the trust. Despite the fact that Napster was cheaper than its main competitor Apple, it also allowed people to access millions of songs. Customers could download as many songs as they wanted as long as they store them either on their PC or portable media device. Napster also fulfilled niche markets.

Implementing effectively and efficiently They created a new product but struggled to receive the benefit out of it. Despite the increase in subscribers and revenue, Napster was experiencing huge net losses due to their high expenses. From 2003 to 2005 Napster have incurred about $98 million in after tax losses. Negative side: Napster subscription model allowed access to all those millions of tracks as long as subscription fee was paid, but whenever customers stopped paying subscription all those songs were unavailable. After launching its new service Napster should have used market research or surveys to see the feedback about the product and continuously keep improving it.

Building relationships with customers By creating product awareness and building high-quality customer service Napster was on the right direction. More and more people started trusting the company and customer base was growing, but building trust takes time which Napster didn’t have. Napster succeeded in keeping the promise about its service, but failed to represent the brand and get rid of the past history. I think Napster missed the opportunity to represent itself to the customers as not perfect, but as honest. Napster also missed the opportunity to provide special deals for loyal subscribers, and guarantees for new ones.