1. © 2005 UMFK. 1-1 Napster internet business models text and cases Jeffery T. Pelletier

2. © 2005 UMFK. 1-2 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?

3. © 2005 UMFK. 1-3 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.

4. © 2005 UMFK. 1-4 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.

5. © 2005 UMFK. 1-5 Customers 2 segments: –With free subscription. High School/Middle High students. College students. –Pay subscription. Still some college students. 20-40 age range.

6. © 2005 UMFK. 1-6 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.

7. © 2005 UMFK. 1-7 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.

8. © 2005 UMFK. 1-8 Napster Clones Gnutella BearShare Morpheus LimeWire Kazzaa

9. © 2005 UMFK. 1-9 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.

10. © 2005 UMFK. 1-10 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

11. © 2005 UMFK. 1-11 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.

12. © 2005 UMFK. 1-12 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.

13. © 2005 UMFK. 1-13 Questions?????

14. © 2005 UMFK. 1-14