Don't need no baggage, you just get on board.
As a columnist, I typically aspire to write about ideas or concepts that are unexplored, aiming to offer a new viewpoint or fresh perspective. Occasionally, however, well-covered ideas can still be underappreciated. The rise of a software application known as Napster, which has been much discussed in many national publications, is just such a phenomenon.
The music industry is about to undergo a change that is, at the very least, 10 times more important than the launch of the compact disc. Everything will change. And if that's not enough, once the bandwidth is available, the movie and book industries will be next.
To be comprehensive, let me start with a brief description of Napster. As we all know, the Internet basically connects together all of the computers in the world. To date, this has manifested itself in a Web server-client relationship, in which we use browsers on PCs to access large Web sites. Napster is different in two big ways.
First, Napster is a software application that uses the Internet--there is no browser. More interestingly, Napster allows its users to share information among PCs rather than between a big Web server and a PC. People tell Napster where music files (mostly in the MP3 format) are located on their local hard drives, and then Napster shares this information with the world.
The result is that each user of Napster can share music files with any other Napster user. Download the software, type the name of a song you're looking for, and Napster will show whether the song is available. Double-click the song you want, and you are now transferring it to your PC.
This activity bothers the music industry for two key reasons. First, in addition to exchanging music that is intended to be freely traded, people also can transfer any and all music that can be "ripped" to a digital file. For what it's worth, this includes all 50 billion CDs in circulation. The second reason the industry is concerned is that Napster has achieved the remarkable milestone of 9 million users in just six months. For perspective, it took AOL 12 years to reach 9 million members.
Despite the hype, it is not at all clear that the music industry, as well as the broader press, understands the enormity of this movement. In the future, we will all listen to music via computer files--either on MP3 players or on hard drives. In his Fortune column six weeks ago, Stewart Alsop highlighted two new MP3 players that use hard drives rather than flash RAM; each holds 80 hours of music and fits in your pocket.
The CD, which in many ways still seems so new, is actually on its way out the door. And here's the biggest issue: On the Internet, files are easily copied and shared, whereas physical CDs can only be borrowed or traded. And with 9 million people electronically connected through a centralized directory, the sharing is mighty easy.
Remember that the amount of bits it takes to represent high-quality audio is finite. Until the past few years, the amount of space on a hard drive, as well as the bandwidth required to transfer an MP3 file, was prohibitive for widespread usage. However, both bandwidth and storage space are susceptible to Moore's Law (the idea that the pace of microchip technology change is such that the amount of data storage a microchip can hold doubles every year or at least every 18 months). This means that within six years, the amount of drive space or bandwidth needed to trade high-quality music will be unnoticeably negligible. Emailing an entire album of music to a friend will be no different than forwarding a Microsoft Word document today.
The obvious question is, Can anything be done to stop the free trade of music on the Internet? To the amazement of many, the answer is likely to be no.
The first reason for this is that the cat is out of the bag. Every multimedia PC in existence is capable of converting a music CD to a digital MP3 file. This means that more than 100 million encoding devices already exist that can convert the more than 50 billion CDs floating around the world into digital files. It's unlikely that we will recall either the PCs or the CDs. Could we produce new CDs that are "un-rippable"? This is unlikely if you want them to work in the more than 200 million CD players that already are on the market.
Could we create a new type of CD or encrypted file type that couldn't be copied? The potential certainly exists to do this. One fundamental irony exists, however. As long as you can listen to the music, it will be extremely easy for someone to rerecord it into a digital file--no ifs, ands or buts. People seem generally circumspect of technology until they want to solve a particular challenge. In this case, the music industry and the public still believe a Holy Grail exists that can save the day. They assume that a technological solution is imminent. But the wait for a white knight will be a long one.
Could litigation and legislation stop Napster? The Recording Industry Association of America (RIAA) has sued the software maker in an attempt to shut it down. Napster claims that, just like Betamax and the Rio MP3 player, the service has appropriate uses and therefore should not be liable just because customers use the product for illegal purposes.
I doubt that legislation can stop this movement. Even if the RIAA were to injoin Napster, there are five or six more companies that already have launched similar products. Make these illegal, and someone will launch one from another country. America Online's Nullsoft division temporarily launched a product called Gnutella that uses a distributed directory rather than a centralized one. Shutting this down would require the Internet equivalent of wiretapping, which would send privacy advocates into a frenzy.
Another barrier that will make Napster a difficult craze to stop is community. Napster's 9 million users are passionate about this product and are not afraid to make their feelings known. Universities attempting to shut down Napster to combat heavy traffic on their networks have faced active protests.
Although it may not seem as noble a cause as the Vietnam War, today's college students are quite serious about their freedom to transfer digital files, whatever the content of those files may be. Stewart Brand's famous quote that "information wants to be free" has become a rallying cry of this fervent young community.
In some years, the world will settle into a new equilibrium, and it will look very different from today. Musical artists may make more money from appearances, sponsorships and product licensing than from the sale of the actual music. Advertising may play a role, as may new business models such as subscriptions to electronic distributors.
We may even find that artists can deal directly with consumers via the Internet, bypassing the need for the large record companies. Innovative industry leaders will embrace the new models and will increase their chance for survival and success. Others will fight and increase the odds of failure. And through all of this, only one thing will remain certain: dramatic and fundamental change.
J. William Gurley 2000. All rights reserved. Above the Crowd is a monthly publication focusing on the evolution and economics of high-technology business and strategy. This column also can be found on CNET online and in Fortune magazine. To be placed on the email distribution list, please send an email to firstname.lastname@example.org. To be removed from the email distribution list, please send an email to email@example.com. The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete, and its accuracy cannot be guaranteed. Any opinions expressed herein are subject to change without notice. The author is a general partner of Benchmark Capital, a venture capital firm in Menlo Park, Calif. Benchmark Capital and its affiliated companies and/or individuals may, from time to time, have positions in the securities discussed herein. ABOVE THE CROWD is a service mark of J. William Gurley.