How the LOVE OF MUSIC
has changed our BUSINESS WORLD

Over the last decade, there
was a Giant Refresh in the Business World: Many destroyed Value Chains Business Innovation everywhere Various new Markets with new Leaders Empowered & emancipated Consumers

This is the story about
how the love of music laid the Foundation for many Innovations in the past 12 years, turning the Business World upside down. Told by Thorsten Faltings @faltings

Chapter 1 First there was
MP3

From 1982 on the Fraunhofer
Institute in Erlangen (Germany) was researching for a method to store digital audio data.

Karlheinz Brandenburg developed the MP3
file format for audio data compression together with Gerhard Stoll (IRT- Germany), Yves- François Dehery (CCETT- France), Leon Van de Kerkhof (Philips Nederland) and James Johnston (AT & T-USA).

In 1999, music fans mainly
listened to prerecorded CDs on disc players. Portable MP3 players were still largely unknown.

Only for some early adopters
of tech-savvy music fans, the new audio format had already taken hold - the digital MP3.

The small size of MP3
files enabled peer-to-peer file sharing of music ripped from CDs, which would have previously been nearly impossible.

Chapter 2 The Foundation of
Innovation

Back in 1999 Shawn Fanning
at the age of 19 was a student at Northeastern University in Boston when he had the idea for a computer program that would make sharing MP3s easier by allowing users to see a directory of songs stored on other members' computers.

He called it Napster.

After months writing the program,
Fanning released it to a group of about 150 friends and internet relay chat acquaintances.

Napster's fame spread by word
of mouth, and it soon had 10,000 to 15,000 users. But once the program was featured on Cnet's Download.com site, the number of users soared into the millions.

Reasons Why Napster was useful:
It helped people discover new music Ar tists who were once unheard of gained recognition Acoustic and various versions of the same song were available The more peers online, the broader the spectrum of music and more.

Napster gave everyone in the
world a frictionless, convenient way to get content.

"It probably was the single-most-important
event as far as media consumption on the internet is concerned," (Phil Leigh, Internet Media Analyst)

Chapter 3 Disrupting the status
quo

The Recording Industry Association of
America (RIAA) denounced music "sharing" as equivalent to theft, and filed a lawsuit against Napster in November 1999 (and against thousands of customers over the coming years) for stealing music.

Heavy metal band Metallica also
filed a lawsuit against Napster in 2000. "With each project, we go through a grueling creative process to achieve music that we feel is representative of Metallica at that very moment in our lives, ..." said Metallica drummer Lars Ulrich in the accompanying press release.

“What record companies don’t really
understand is that Napster is just one illustration of the growing frustration over how much the record companies control what music people get to hear, ...“ „Why should the record company have such control over how he, the music lover, wants to experience the music? From the point of view of the real music lover, what’s currently going on can only be viewed as an exciting new development in the history of music.” (Prince 2000)

QUESTION From the music lover‘s
perspective was it really „free“ back in 1999/2000 to download music from Napster with a 28K Modem blocking the phone line, with some music files being corrupt, and no flat-fee and Broadband in sight?

Apart from Prince one company
understood that for many customers the main purpose of using Napster wasn‘t stealing music.

The customers instead wanted a
seamless solution to search for music, find, download and listen to it.

And they were willing to
pay for a successful solution.

The name of the Company
was Apple.

“...The choice we‘ve made, was
music. Now, why music? Well, we love music! And it is allways good if you do something you love.“ „More importantly, music is a part of everyone‘s life. Music has been around for ever. It will always be around. This is not a speculative market. (...) It‘s a very large target market all around the world. It knows no boundaries.“ (Steve Jobs during the Introduction of the first iPod 2001)

„With the best-selling iPod, which
debuted in 2001, and through the iTunes Music Store, which launched in 2003, Apple Inc. and CEO Steve Jobs capitalised on consumers' newfound freedom to control their media.“ (Mike McGuire, Gartner)

Closed! The RIAA achieved the
final victory against Napster in July 2001 but couldn‘t stop the revolution.

Chapter 4
Impact & Developments

Impact #1 The Love of
Music was Enforcing Technological Developments

„Napster in its heyday also
was cited as one reason consumers were getting high- speed internet access. Since then, continued broadband adoption rates have paved the way for the success of popular online video sites such as YouTube and Hulu.“ (Phil Leigh, Internet Media Analyst)

Impact #2 The Love of
Music was Laying the Foundation for Social Networks

Analysts say today's internet landscape
- with millions of consumers downloading songs from the iTunes Music Store, watching videos on YouTube or Hulu and networking on social media sites like Facebook - can be traced back to the day in early June of 1999 when Fanning made Napster available for wider distribution.

Impact #3 The Love of
Music was Stimulating Business Model Innovation

Napster laid also the foundation
to Business Model Innovation which are challenging old paradigms: Napster „gave“ something away for „Free“ which paved the road for various successful Business Models like „Freemium“ and the logic of a peer-to- peer network illustrated the possibility to deliver „Less of More“. The Idea later described as „The Long Tail“

Impact #4 The Love of
Music was Influencing Copyright-licenses free of charge

I'm not sure what influenced
Lawrence Lessig, Hal Abelson, and Eric Eldred in 2001 to found the non-profit organization Creative Commons (CC), but if Napster hasn‘t played a role, I would wonder.

Creative Commons was invented to
create a more flexible copyright model, replacing "all rights reserved" with "some rights reserved". In 2008 Nine Inch Nails successfully released their latest Album „The Slip“ under a CC-Licence over the Internet.

Also Wikipedia is one of
the notable web-based projects using one of its licenses. And even this Presentation would not have been possible in this form without CC.

Impact #5 The Love of
Music was Disrupting the Traditional Media Industry

"What did Napster give everyone
in the world? It gave them a frictionless, convenient way to get content.“ „Napster helped change the mindset of a generation that now sees digital forms of all media, from music to newspapers, as more convenient.“ „You can argue that everything that happened since has been a reaction to Napster.“ (Mike McGuire, Gartner Industries' Media Team)

Due to the Distribution Channel
Internet, new forms of Copyright, continuously shrinking costs for Bandwidth, Computing Power and Memory Space the exclusive „right“ to produce and distribute content such as Information, Music and alike was taken from the traditional media irrevocably.

Impact #6 The Love of
Music was Inspiring New Markets and new Market Leaders

Apple has understood best to
grasp customer needs and anticipate social and technological developments. Apple performed a metamorphosis from a computer company into a media company now offering an attractive platform for digital content of all kind.

Impact #7 The Love of
Music also had an Impact on the New Marketing Reality

„Marketing’s control over branding, messaging
and positioning are in unprecedented decline as peer- to-peer, crowd sourced, and affinity-based community interactions gain increasing influence.“ (Accenture Interactive, Point Of View Series 2010)

Chapter 5 The Result: A
NEW BUSINESS WORLD

Business Innovation is everywhere

Customers are empowered

Marketing became conversation

Apple is melting the competition

More Music is being produced
than ever before!

And traditional media companies are
still caught in their old Business Models and Value Chains.

#1 MP3 enabled peer-to-peer file
sharing Recap of music #2 Napster gave everyone in the world a frictionless, convenient way to get content #3 This was disrupting the Music Industry and influencing: Technological Developments Social Networks Business Model Innovations Empowered Customers New Marketing Reality #4 The new Giant Apple was inspired #5 The exclusive „right“ to produce and distribute content was taken from traditional media irrevocably

You've made it this far.
Thanks for your attention and sharing! Thorsten Faltings Business Development Consultant Happy to help you through today's Marketing & Business Revolution Let‘s network! @faltings Also featured“on facebook.com/faltings SlideShare.net slideshare.net/faltings linkedin.com/in/faltings fa.ltings.de faltings@ymail.com

Credits: Photos Websites 1. tfaltings.de
- Pipi „P!nk“ Langstrumpf Flickr.com 2. tfaltings.de - Bowie in a Boombox Wikipedia.com 3. www.se2009.eu - Karlheinz Brandenburg - Photo: Margareta Stridh/Regeringskansliet Wired.com 4. Flickr/Shawn Fanning aka Napster/Joi Ito accenture.com 5. Flickr/Tower of Terror, aka CDs/William Hook 6. Flickr/Diamond Rio PMP300/nrkbeta rateyourmusic.com - A Timeline on 7. Flickr/IRC on my TRS-80/Blake Patterson Technology, Social, and Legal Battles 8. Wikipedia/Screenshot Napster in 2001 that have changed in how we 9. Wikipedia/Diagram Napster Unique Users receive and use music. 10. Flickr/Green Hell/Mark Wainwright 11. Flickr/Prince!/Scott Penner www.tech-faq.com - What Happened 12. Flickr/Even If/Fey Ilyas to Napster 13. Flickr/Money/Andrew Magill 14. www.wide-wallpaper.de/Apple Logo 15. Youtube/Steve Jobs presenting first iPod 2001/Screenshot 16. Flickr/Ciber Cafe/Lars Kristian lFem 17. Flickr/The new concept of friendship/Sylvain Latouche 18. Flickr/Lessig_CC/Simon Bierwald 19. Flickr/Creating Ghosts I-IV/Nine Inch Nails 20. Flickr/A smile a day keeps the pain and the doctor away/Zitona 21. Flickr/an old design 02/Hector 22. Flickr/Apple Retail Store Fifths Avenue/Víctor Martín 23. tfaltings.de - Lena Meyer-Landrut 24. Flickr/The rough strength & the law sense . ./Joël Evelyñ & François 25. Flickr/Retro Texture/Sarai