By now you’ve probably heard about Napster.com. This is the free software that allows consumers to connect to the net and easily and freely download any MP3 files stored on the computers of other consumers connected to the net at the same time.
Napster, and now its clones, is generating all sorts of debates in the press. For example, is what Napster doing legal? The Recording Industry Association of America (RIAA) says Napster encourages piracy on a grand scale. I agree, although Napster is predictably saying they have little control over what users do with their software. Right. Lawyers will make lots of money on this one.
Is Napster ripping off artists? Not directly, but Napster certainly encourages it. Aside from live appearances, musicians and songwriters make their living off of music sales, and piracy takes money from these artists.
And those who say this is about sharing, not stealing, because music is not a "physical" good just don’t understand the value of intellectual and artistic capital.
Most of all, will Napster represent the end of the music industry, as we know it? Maybe, but unlikely. We’ve heard this type of wild conjecture before remember how computers were supposed to dispose of the paper industry and of course the Internet would quickly eliminate bricks and mortar stores.
PIRACY AND WHAT CONSUMERS WANT
When I first heard of Napster, I thought of how piracy often indicates an unmet customer need. I’m not talking about isolated piracy, but the wide spread type evident with Napster. The other interpretation is that a large number of arguably reasonable people - such as college students - have simply turned into a bunch of thieves. I’m just not inclined towards this alternative simplistic view.
No, there must be a gulf between what the record industry sells and what music consumers now want.
In the face of this wide discrepancy most companies in the record industry have decided to respond with legal suits. But I think the companies are in part to blame for their problems by also choosing to ignore music consumers.
MASS CUSTOMIZATION
Every business is struggling to figure out how to give more choices to consumers. They’re taking what they sell and breaking it down into finer elements. They then let consumers use the net to easily configure a customized solution by mix and matching the various elements. So now we can design our own computers and have it made by companies like Dell (Dell), design our own clothes or bicycles or whatever over the net.
If conventional wisdom has some merit, consumers are getting used to and demanding more and more choices. They’ll continue to demand ways to easily customize what they buy over the net.
WHERE ARE THE RECORD COMPANIES?
The large record companies have not really embraced this idea of mass customization.
Were they to do so, they would first recognize that consumers are buying musical experiences. The record companies would break down these experiences into the enormous catalogue of songs they own, and then look for ways to help consumers easily configure their own musical experiences.
But that’s not what they do.
Sure, you can now easily buy albums from them over the net. Go to any big record company’s music site, say BMG, Warner, or Sony (SNE) and you may also be able to download some individual songs. Of course, these are simply promotions for albums they really want you to buy. But downloading a wide variety of individual songs from their current and deep catalogue (at a price) and easily mix and matching them into a customized configuration is another matter entirely.
The most forward thinking companies, as usual, are the smaller independent labels. They are trying out various pricing formats for downloading individual songs.
Emusic.com, for example, sells songs from a wide range of independent or small label artists for 99 cents each. But search for, say, the Rolling Stones and you’ll get no satisfaction and see how far the industry needs to move to really deliver real customization.
INTO THE VOID
One thing we know about consumers is that they are inventive and satisfy their own needs when nothing on the market will do. With music, consumers long ago began constructing their own music configurations regardless of the difficulty - remember "party tapes"? The record companies often respond with cheesy compilations ("Dance Hits from the 70s"), but this will not do in a world where we expect to have infinite choice.
Into this void between what customers want and what record companies provide steps Napster. Their software provides an easy to use interface that allows music consumers to customize an incredibly wide choice of musical options. No wonder people think it’s great!
WILL THEY GET IT?
The real question is whether the record industry will ever get it?
Of course, they’ll focus on the fact songs are free using Napster’s software and try to respond in kind. Right now, the RIAA claims they are "trying to make music as widely and easily available as possible", but by this they really mean offering "free promotional downloads of certain singles." Not exactly customization!
Maybe instead they should be asking how much people would be willing to pay to get the customization they want.
Sure I know there are a number of issues to work out, including performance rights issues, retailer compensation, pricing, and a bunch more. But the companies in the record industry are in essentially the same place as companies in every other industry who have successfully transformed the way they look at consumers in order to survive.
