BUSINESSWEEK ONLINE : AUGUST 14, 2000 ISSUE
COVER STORY

Commentary: With Technology Like This, Who Needs Napster?


Napster Inc. could succumb to its legal enemies, or it could triumph. Whatever the outcome, the simple idea at its core--easy-to-use peer-to-peer computing--already has unleashed an intellectual storm that stands to change how digital bits, the lifeblood of the New Economy, are delivered, stored, and valued.

In Napster-like systems, every individual computer is both a receiver and a sender of information, be it MP3 files, dissertations, or recipes. That's a huge difference from traditional Web sites, in which most users only receive information from a central server--a method that makes it easy to keep tabs on content, usage, and payments. But with peer-to-peer computing, once you index each individual's files (which is how Napster operates), you've essentially created a sprawling brain full of information that others can tap into. That makes it possible to design a system in which usage and payments are difficult to track.

The fallout from Napster is already affecting industries beyond the music business. As everything from movies to books to comic strips goes digital, it becomes easier for people to swap virtually anything online. Dozens of for-profit startups such as AppleSoup and Lightshare Inc. are now using Napster as inspiration for copyright-friendly ways of sharing all kinds of information.

ANONYMOUS. Meanwhile, a slew of underground efforts have different motives: keeping music and movies freely available to the public, challenging the very notion of intellectual property and copyright. Napster clones, such as the well-known Gnutella, let people trade music files without revealing their locations on the Net. Another anonymous trading service, FreeNet, is specifically designed to make mincemeat of existing copyright laws. ''You can't stop file-sharing technologies,'' says Bill Bales, CEO of AppleSoup, a copyright-friendly company founded by Napster veterans. ''It would be like litigating against Oppenheimer for creating nuclear weapons.''

Some industries are trying. On July 20, the Motion Picture Association of America filed suit against file-sharing outfit Scour Inc. The MPAA claims that the Web site helps users distribute copyrighted movies such as current releases Gladiator and The Perfect Storm.

For now, the music industry remains the flashpoint for file-sharing. Its reaction to the Napster challenge will become a road map for other copyright-based businesses, though music execs concede that they are unsure how their responses will play out. EMI Group PLC and Sony Corp. have recently begun selling digital music online. Sony is now offering commercial downloads of about 50 tracks for about $2.49 apiece. EMusic, a San Francisco startup, is betting on a subscription service in which users would pay as little as $9.99 per month to gain access to a library of 125,000 MP3 singles. And on Aug. 1, Universal Music Group announced that it will begin selling encrypted music tracks that feature added content such as biographies and photographs.

But as long as Napster remains online, and free, it may be difficult for Universal, Sony, and others to find an audience. ''No one really knows whether consumers are going to buy music that way,'' says Yankee Group Research Inc. analyst Jim Penhune. ''Free is tough to beat.''

LOSING BATTLE. Next on the virtual chopping block is the film industry, which already has watched a handful of pirates zip first-run movies across the Net. With limited bandwidth, it's still virtually impossible to ship huge movie files electronically. But compression techniques and broadband connections should make that widely possible in two years or less, says John S. Ferrell, a high-tech intellectual-property attorney at Carr & Ferrell in Palo Alto, Calif.

In many ways, the software industry has anticipated the potential for massive piracy and file-sharing. It has already fought a mostly losing battle against pirates in Asia and Eastern Europe. That's one reason why Microsoft Corp. is pushing hard for a software-subscription model, in which computer applications will be sold as a monthly service rather than hard goods that can be duplicated and distributed. ''You'll only have access to it if you pay a subscription,'' says Merrill Lynch & Co. analyst John M.A. Roy. ''But you want to make it easy enough so people pay rather than pirate.''

Of course, no one has figured out how to do that just yet. But as Napster and others grow, the pressure is on.

By Dennis K. Berman
Berman covers the Internet.

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