When Eileen Richardson joined the tech startup Napster in 1999 as CEO, she was eager to shift the music industry. Napster had received its first outside investor and was at the forefront of change. The business became the fastest growing in internet history, at one stage daily user growth was at 50%.
Richardson envisioned a world where music producers and makers would view Napster as a wonderful opportunity. A mass community of music lovers sharing music from artists and bands that they loved.1 One place for producers to access consumers and connect them with new music through recommendations based on everything they currently followed. The marketing costs to the producer would be insignificant compared to the payback.
What this vision didn’t acknowledge was that the big players in the industry would fight to stop this change with a ferocious level of aggression. Richardson and her colleagues expected some resistance and minor legal battles, but ultimately they expected to settle any challenges. Napster led the way on music file sharing, but they weren’t alone. They were however the figurehead, and the industry juggernauts went after Napster with everything they had. The big players certainly didn’t have the same perspective that Richardson did.
The Winners and Losers
When an industry fundamentally changes, there are winners and losers. Those with the most to lose are at the top. They have the assets, physical or intellectual, which put them in the position of power. They maintain their position if things stay as they are.
When David plays Goliath at his own game, he loses. The outsider only wins when she plays the game differently. When the rules fundamentally change, as they did with music file sharing, everything changes. Those in power fight against the change, even though change is inevitable. Whilst they’re fighting to resist, small players recognise the opportunity and take it.
Kodak could have invented the next GoPro. Instead, they focus on their profitable business model of selling film, despite the fact that digital is taking over. Nick Woodman invents the GoPro for surfers out of his garage. He builds a multi billion dollar business whilst Kodak spirals out of existence. Hoover had the opportunity to buy the rights to the Dyson design, but they made their money on consumable bags that collected dirt. Dyson takes over the market, Hoover becomes obsolete.
Change favours David, not Goliath
The advent of music file sharing signalled the decline of unit sales. The businesses selling millions of CDs each year have zero interest in the marketing potential of a free file sharing website. In their view, every file shared is a CD sale lost. They have built an asset based on CD sales. A powerful supply chain, and prominent PR machine. The system at stake is one which keeps them in a position of power.
The people that stand to win are the underdogs. The up and coming producers and artists. They’re not selling CDs, so for starts they lose very little when their music is shared for free. The upside potential is enormous. Exposure to millions of music lovers. They don’t need to wait for a big label to pick them in order to get their music heard, they can go straight to the listener. You don’t make any money at first, but earn enough fans and you can start selling concert tickets and merchandise.
The lesson from the music business can be applied to any business selling intellectual property or expertise. Firstly, if you’re trying to sell an idea or product that fundamentally changes the way an industry works, you need to target the people at the bottom. They’re the people that stand to win from a change, so they’re the people that will be receptive to what you have to sell.
Secondly, try as it might, the big players in the music industry couldn’t stop the inevitable change. File sharing, and later streaming, was inevitably going to replace the majority of unit sales. You can’t stop the movement of technology and society, regardless of the amount of money and power at your disposal. If you’re a large player in a big market and change is coming, better to be a part of it than waste time, energy and money trying to stop it.
All of that resource could have been spent on building Spotify rather than trying to sue Napster and its users, which would have been a far greater outcome for all parties involved.
- Joseph Menn, All the Rave