BrainTrust Query: The Napster Moment

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May 11, 2011
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Through a special arrangement,
presented here for discussion is a summary of a current article from the Retail
Prophet Consulting blog.

In 1999, a teenager and a relatively simple piece of
technology rocked the music industry. The teen was Shawn Fanning, the technology
was P2P file sharing, the phenomenon was Napster and it changed the music industry
forever.

After two long years of court battles, Napster was eventually shut
down, but in the meantime other similar sites had sprung up. In 2003, Apple
quietly launched iTunes and 26 percent of all retail music sales were channeling
through it by 2009.

What Apple understood (and what the music industry failed
to see) was that file sharing itself wasn’t the problem. People had been
sharing files, including music, over the internet for years before Napster
came along. The problem was their product — specifically that music was
sold in albums of 10 or 12 songs when what consumers really wanted were the
best one or two tracks. It had nothing to do with Napster and everything to
do with the record industry’s
archaic, arrogant and broken product model. Had the industry only been honest
and open minded about it, they might have actually partnered with or acquired
Napster and harnessed the future themselves.

These "Napster moments" are
happening all around us and in a multitude of industries. Newspapers, publishers
and DVD rental chains, to name just a few, are being overwhelmed by changes
that many saw coming a long time ago — changes
that they could have been leading, rather than being annihilated by.

Such moments
are particularly disastrous when companies or industries on the whole simply
refuse to acknowledge that their business model or core product must change.
For example, instead of embracing e-reader technology, the publishing industry
wasted precious time trying to convince us that nothing replaced the smell
and feel of a paper book! Really? Try convincing a five-year-old with an iPad
(which are now being sold at Toys "R" Us) in their hands
of that.

Likewise, Blockbuster wasted time haggling with consumers over
late fees while Netflix and others created the new distribution model right
under their nose.

Finally, a real life example of an industry I feel is due
for a Napster moment — the
architectural paint industry — an industry I actually spent some time
in as a marketer.

It’s my firm belief that the manufacture of paint (as
we now know it) for use by the average homeowner will be largely eradicated
within a couple of generations (maybe sooner) by thin-film digital technology.
As prices inevitably come down, thin screens will be wirelessly controllable
from any handheld or tablet in the space and will accommodate any one of thousands
of colors, designs and scenes. The décor can be changed any time with
touchscreen ease. No effort, no mess … no paint.

So the question for anyone
who makes his or her living from the manufacture, sale or application of paint
is "what then?" What will they sell?
How can a new and disruptive technology model work for them instead of against
them?

Like the paint industry, the "Napster Moment" for many is
coming and my bet is, it’s coming sooner than they might suspect.

Discussion Questions: What can companies do to protect themselves against “Napster Moments” or waves of technological upheaval? Why are so many companies getting caught despite apparently obvious warning signs in hindsight?

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19 Comments on "BrainTrust Query: The Napster Moment"


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Ed Rosenbaum
Guest
9 years 11 months ago

While I continue to think the spotlight on waiting too long belongs to Blockbuster, there are other industries and examples. Of course the book sellers are another industry where brick and mortar is failing and falling behind such opportunities, and made by amazon.com, etc. Now book sellers are getting what the public is demanding and following suit. The camera and photography industry is another example. Ritz Camera fell behind the curve but has come out the other side as a new and improved version of meeting the needs of the buying public. They are to be congratulated for the efforts they put into their recovery.

Fabien Tiburce
Guest
Fabien Tiburce
9 years 11 months ago
Human nature always seeks out simpler easier and cheaper ways of doing just about anything. Napster made the exchange of digital music files easy hence it succeeded. The music industry could have reacted by making it simple, easy, cheap and legal to do so but they lacked the vision, stuck to their comfort zone (a bad move especially when a new disruptive technology is introduced) and opted for litigation. Sure Napster was shut down but it was Apple, not music labels, who had the last laugh. Any company that fails to accommodate new technologies (and for that matter social trends), eventually goes out of business. But it doesn’t have to be that way. Commercial history is full of successful transitions. Ever wondered why the great Anglo-Dutch petroleum group is called Shell? Because they started transporting shells on boats! That’s what they did. Then one day, they figured oil was becoming big so they could make a little room on theirs boats to also transport oil. Shell seized the Napster moment and is thriving to this… Read more »
Ryan Mathews
Guest
9 years 11 months ago

Denial is a powerful force.

Most retailers don’t keep up with technological innovation, stay on the bleeding edge of research or give innovators (inside or outside their companies) anything approaching enough credit.

It’s not hard to get blindsided when you have your head firmly planted in the ground — or some equally dark location.

Peter Fader
Guest
9 years 11 months ago

I can’t comment on changes in the paint industry but it’s important to recognize that Napster should have been seen as a wonderful resource that could have taken the music industry to great heights (and profitability). But the industry never fully understood or appreciated its value and killed it before they could ever leverage its enormous value. Click here for more perspectives about this.

It’s a shame that being “Napsterized” is now seen purely as a bad thing instead of a unique opportunity to leverage once-in-a-lifetime technological and cultural changes. Other industries must learn the lesson to embrace these changes rather than fighting them.

Cathy Hotka
Guest
9 years 11 months ago

It’s easy to become irrelevant if your purpose in life is to keep doing what you’re doing…and we could all name retailers who fall into that category. (You know who you are.) The key to innovation is to watch what customers are doing, or want to do, and serve their needs. I wish more retailers had a Chief Customer Officer….

Ed Dennis
Guest
Ed Dennis
9 years 11 months ago

There is not really anything you can do. And when we do try to do something the unintended consequences often [come back to] bite us. Take cell phones. Remember the cry that arose when it was discovered that cell phones weren’t in the 911 system? So we all got a new tax to include our cells in 911. Then somebody realized that your cell phone might not be at your billing address so 911 responders couldn’t find you. So someone MANDATED that cell phones have location technology built into them so that 911 could find you. Now everybody is all upset because your movements can be tracked via your cellphone. The best thing to do is keep government away from technology and your life. If you don’t, every improvement is going to be slowed down and if at all possible, TAXED! If you think it might be possible to do something just consider the “NO CALL LIST.”

Kai Clarke
Guest
9 years 11 months ago

Really? We cannot hope to lead technology, but instead to perhaps more closely follow it. Technology is the leader of innovation and vice versa. As such, business models need to always be open, flexible and trying to change. In today’s business environment, it is adapt or perish. At the speed of adaptation required by each of us, this mandates that businesses embrace technology and the changes that it requires on an almost daily basis.

Mike Spindler
Guest
Mike Spindler
9 years 11 months ago

I am dead sure we cannot avoid being Napsterized. A salient question is whether you Napsterized yourself or had someone do it to you. And you will need to ask that question every day.

Derek Rodner
Guest
Derek Rodner
9 years 11 months ago
Innovate or get left behind. It applies to all areas of business. Even within different parts of the retail organization, change is inevitable. If solution providers don’t innovate, they will be the next to go. A couple of examples: 1. Security and Video. You’d be surprised how many retailers don’t even have networked video access today. But, the big change that’s coming is video in the cloud. The network isn’t quite there yet for the bigger stores, but it will be shortly and we will see the end of the DVR/NVR. All the video from the store will be streamed to the cloud (whether public or private) and there’ll be one less box to manage. 2. POS. The same can be said for the POS. Why have a store controller? It’s just more hardware and software to maintain in the store. Put it in the cloud and have a single repository for all of your stores to access. Too many POS vendors continue to push large POS environments and servers in the store. 3. Untethered… Read more »
Tim Hood
Guest
Tim Hood
9 years 11 months ago

I would suggest that the home computer/personal computer industry is facing a ‘Napster’ moment. Tablets are one piece of it, but consider ubiquitous home Wi-Fi (even community Wi-Fi as has been implemented in trial markets), cloud storage solutions…all reasonably priced for the home market. Why would I buy a a brick from Dell or HP that is stuck under a desk in one room of my house when I can have a sleek and sexy device that goes wherever I have the need for computing. Even better, the home Wi-Fi now ties my entertainment systems (music, video, etc.) into my ‘computer’ (or what used to be my computer).

W. Frank Dell II
Guest
9 years 11 months ago

Another example is Kodak film which was replaced by digital cameras. Bill Gates wrote some years ago that everything should and will go digital. Companies are successful and just keep doing what made them successful. Too many companies never look outside their industry to see what is going on the world. In the case of Blockbuster, movies on demand were discussed for over 10 years and they did nothing. Companies must be asking the questions: Can my product go digital? What technology will make my product obsolete? How will the internet change my business model? These questions need answers every year. When there is an early indication of change is when research and investment must begin, with the idea of how market share can be increased.

Dan Berthiaume
Guest
Dan Berthiaume
9 years 11 months ago

There is no real protection against the “Napster moment,” as the arrival of most game-changing technologies cannot be predicted and there will always be ideas so simple that it’s inconceivable nobody else thinks of them, but nobody else does. The best companies can do to defend against becoming irrelevant in the face of innovation is to constantly strive for improvement and keep an open mind when game-changers come around. Record companies may have succeeded in crushing Napster, but they also crushed themselves in the process.

Bill Hanifin
Guest
9 years 11 months ago

I have tried to sell around similar objections and agree that the truth prevails. If consumers are moving in a certain direction, it’s better to accept the change and adapt.

Loyalty marketing is reaching a Napster moment and IMHO, it is this:

Brands can no longer settle for the legacy model which offers a “bribe” in exchange for a transaction. Loyalty models have operated “behind” the transaction for the past 25 years (rewarding consumer behavior post purchase), and social networks and location based services are opening the door to change the game.

Referral, recommendation and word-of-mouth marketing are each core to human behavior, and should become part of the equation for brands wishing to get “ahead” of the transaction.

Let’s see which players in the supplier side of the industry acknowledge the change and adapt to meet Consumer 2.0 where they are and where they are headed.

Larry Negrich
Guest
9 years 11 months ago

It’s important to stay current, look for tech as it evolves, and embrace technology where it may provide competitive advantage and real business value. Definitely look at cloud and computer-everywhere solutions to be trends that are changing business architecture and consumer usage.

Stacey Silliman
Guest
Stacey Silliman
9 years 11 months ago

The day the paint industry is affected and people use digital screens to decorate the walls of their homes is the day I’ll jump off a bridge. So instead of painting walls and doing a chore, we’ll replace it with technology. Why be creative and choose colors when you can upload them, right? I can just see the scales tip to the obesity side of the scale yet again as we eliminate yet another physical activity. I’m 100% for technology provided it doesn’t prevent creativity and ability for people to live as healthy individuals (endurance and using one’s mind is essential). Otherwise we are just drones that computers are replacing!

James Tenser
Guest
9 years 11 months ago

Add personal privacy and intellectual property to the list of “bedrock” institutions that are being napsterized in America. In McLuhan-esque terms, “napsterized” means “displaced,” as when a new medium or construct displaces the role of an older one. Writing displaced memorization, for example; Gutenberg displaced calligraphy; TV displaced radio; and so on. So Web-based sharing on Napster and its successors displaced the trading and copying of Grateful Dead concert tapes. iTunes displaced vinyl albums. Social-Mobile-Local is displacing the screens in our living rooms. Older media technologies get left behind as quaint art forms–not quite gone, but certainly less relevant to daily life. Institutions must accept that this churn is inevitable and continue to re-define themselves in terms of what’s next, not what’s ending.

Bobby Martyna
Guest
Bobby Martyna
9 years 11 months ago

I recommend “The Innovator’s Dilemma” for the (possibly) few who haven’t read it. Addresses this issue dead on.

For a more recent treatment, there is a great talk from Geoffrey Moore from about a week ago on Stanford’s Entrepreneurial Thought Leaders podcast (available on iTunes as well as on the Stanford site). Also dead on.

Ralph Jacobson
Guest
9 years 11 months ago

I think the traditional format supermarkets are threatened, along with department stores. Take a look at photographs of these stores 50 or even 100 years ago. Nothing much has truly changed. However, there are some great innovators who have blasted through the age-old paradigms of what these stores should look like. These innovators are taking market share in big chunks.

Mark Burr
Guest
9 years 11 months ago

Walmart came right out and announced a ‘Napster’ moment recently. How many heard about it and will react to it by innovating in the direction they are inevitably headed?

Being ‘Napstered’ is a choice in many cases – but not all. However, if you look to the most recent companies impacted by this type of a beating at their own game by innovation, it’s fairly clear that it didn’t happen through not being able to see it coming.

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