How The Love of Music has changed our Business World

How the LOVE OF MUSIChas changed ourBUSINESS WORLD

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

This is the story about howthe love of music laid theFoundation for manyInnovations in the past 12years, turning the BusinessWorld upside down. Told by Thorsten Faltings @faltings

Chapter 1First there was MP3

From 1982 on theFraunhofer Institutein Erlangen(Germany) wasresearching for amethod to storedigital audio data.

Karlheinz Brandenburgdeveloped the MP3 fileformat for audio datacompression togetherwith Gerhard Stoll (IRT-Germany), Yves-François Dehery (CCETT-France), Leon Van deKerkhof (PhilipsNederland) and JamesJohnston (AT & T-USA).

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

Only for some early adopters of tech-savvy musicfans, the new audio format had already takenhold - the digital MP3.

The small size of MP3 files enabled peer-to-peer filesharing of music ripped from CDs, which would havepreviously been nearly impossible.

Chapter 2The Foundation of Innovation

Back in 1999 ShawnFanning at the age of 19was a student atNortheastern Universityin Boston when he hadthe idea for a computerprogram that wouldmake sharing MP3seasier by allowing usersto see a directory ofsongs stored on othermembers computers.

He called it Napster.

After months writing the program, Fanning releasedit to a group of about 150 friends and internet relaychat acquaintances.

Napsters fame spreadby word of mouth, andit soon had 10,000 to15,000 users. But once the program was featured on Cnets 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 recognitionAcoustic 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 africtionless, convenient way to get content.

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

Chapter 3Disrupting the status quo

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

Heavy metal band Metallicaalso filed a lawsuit againstNapster in 2000."With each project, we gothrough a grueling creativeprocess to achieve music thatwe feel is representative ofMetallica at that very momentin our lives, ..."said Metallica drummer LarsUlrich in the accompanyingpress release.

“What record companies don’treally understand is thatNapster is just one illustrationof the growing frustration overhow much the recordcompanies control what musicpeople get to hear, ...“„Why should the recordcompany have such control overhow he, the music lover, wantsto experience the music? Fromthe point of view of the realmusic lover, what’s currentlygoing on can only be viewed asan exciting new development inthe history of music.” (Prince 2000)

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

Apart from Prince one company understood that formany customers the main purpose of using Napsterwasn‘t stealing music.

The customers instead wanted a seamless solutionto 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 Introductionof the first iPod 2001)

„With the best-selling iPod, which debuted in2001, and through the iTunes Music Store, whichlaunched in 2003, Apple Inc. and CEO Steve Jobscapitalised on consumers newfound freedom tocontrol their media.“ (Mike McGuire, Gartner)

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

Chapter 4Impact & Developments

Impact #1The Love of Music was Enforcing Technological Developments

„Napster in its heydayalso was cited as onereason consumerswere getting high-speed internet access.Since then, continuedbroadband adoptionrates have paved theway for the success ofpopular online videosites such as YouTubeand Hulu.“ (Phil Leigh, Internet Media Analyst)

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

Analysts say todays internetlandscape - with millions ofconsumers downloadingsongs from the iTunes MusicStore, watching videos onYouTube or Hulu andnetworking on social mediasites like Facebook - can betraced back to the day inearly June of 1999 whenFanning made Napsteravailable for widerdistribution.

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

Napster laid also thefoundation to Business ModelInnovation which arechallenging old paradigms:Napster „gave“ somethingaway for „Free“ which pavedthe road for varioussuccessful Business Modelslike „Freemium“and the logic of a peer-to-peer network illustrated thepossibility to deliver „Less ofMore“. The Idea laterdescribed as „The Long Tail“

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

Im not sure what influenced Lawrence Lessig, Hal Abelson, and EricEldred 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 copyrightmodel, 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 thenotable web-based projectsusing one of its licenses.And even this Presentationwould not have been possiblein this form without CC.

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

"What did Napster give everyone in theworld? It gave them a frictionless, convenientway 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 happenedsince has been a reaction to Napster.“ (Mike McGuire, Gartner Industries Media Team)

Due to the Distribution Channel Internet, new forms ofCopyright, 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 mediairrevocably.

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

Apple has understood best to grasp customerneeds and anticipate social and technologicaldevelopments.Apple performed a metamorphosis from acomputer company into a media companynow offering an attractive platform for digitalcontent of all kind.

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

„Marketing’s control over branding, messaging andpositioning are in unprecedented decline as peer-to-peer, crowd sourced, and affinity-basedcommunity 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 caughtin their old Business Models and Value Chains.

#1 MP3 enabled peer-to-peer file sharingRecap 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

Youve made it this far. Thanks for your attention and sharing! Thorsten Faltings Business Development Consultant Happy to help you through todays 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 Websites1. tfaltings.de - Pipi „P!nk“ Langstrumpf Flickr.com2. tfaltings.de - Bowie in a Boombox Wikipedia.com3. www.se2009.eu - Karlheinz Brandenburg - Photo: Margareta Stridh/Regeringskansliet Wired.com4. Flickr/Shawn Fanning aka Napster/Joi Ito accenture.com5. Flickr/Tower of Terror, aka CDs/William Hook6. Flickr/Diamond Rio PMP300/nrkbeta rateyourmusic.com - A Timeline on7. Flickr/IRC on my TRS-80/Blake Patterson Technology, Social, and Legal Battles8. Wikipedia/Screenshot Napster in 2001 that have changed in how we9. Wikipedia/Diagram Napster Unique Users receive and use music.10. Flickr/Green Hell/Mark Wainwright11. Flickr/Prince!/Scott Penner www.tech-faq.com - What Happened12. Flickr/Even If/Fey Ilyas to Napster13. Flickr/Money/Andrew Magill14. www.wide-wallpaper.de/Apple Logo15. Youtube/Steve Jobs presenting first iPod 2001/Screenshot16. Flickr/Ciber Cafe/Lars Kristian lFem17. Flickr/The new concept of friendship/Sylvain Latouche18. Flickr/Lessig_CC/Simon Bierwald19. Flickr/Creating Ghosts I-IV/Nine Inch Nails20. Flickr/A smile a day keeps the pain and the doctor away/Zitona21. Flickr/an old design 02/Hector22. Flickr/Apple Retail Store Fifths Avenue/Víctor Martín23. tfaltings.de - Lena Meyer-Landrut24. Flickr/The rough strength & the law sense . ./Joël Evelyñ & François25. Flickr/Retro Texture/Sarai

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How The Love of Music has changed our Business World

by Thorsten Faltings

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