Deal Flow

Inside the world of M&A, IPOs, and Venture Capital

Justin Hibbard
BUSINESS DIRECTORY
Find local experts in:

« Stealth Startup Du Jour | Main | Buy.com: How Soon We Forget »

January 25, 2005

A New Old-Napster?

Sarah Lacy

Back in 2000, it didnít take long for hipsters and music lovers to get Napster. Sorry, Roxio, but Iím talking about Napster as most of us still think of it: The good, olí illegal one that put digital music on the map.

I was living in un-high tech Memphis, Tenn. then and I remember my husband's advertising firm practically grinding to a halt the day before the courtís first threatened injunction, as everyone did one last music land-grab.

Since the final nail was put in the Napster coffin some months later, companies and investors have been scratching their heads to find a legal way to bring that kind of frenzied excitement back to digital music. The closest has been Apple, but more so because of the jazzy iPod than the iTunes store, in this humble iPod userís opinion.

Apple was part of the first wave of companies trying to find a way to charge for downloads that would please everyone. But clearly not everyone is sold. Despite scary lawsuits by the recording industry, black market downloading flourishes on sites like KaZaa and LimeWire.

Enter a new movement to find a sustainable and legal free model. Two Silicon Valley startups have been quietly signing up beta customers for much of the last year: Mercora and Grouper.

Both get around that whole legal thing differently. Grouper enables hands-off file sharing. You can share photos, videos, music and privately broadcast them to your specified group. When it comes to music, you canít download, just share. As far as copyrighted material, Grouper takes the ďdonít ask-donít tellĒ policy.

Mercora, which just announced $5 million in venture capital from Norwest Venture Partners yesterday, has key differences. When downloaded, it scours your PC for music and youíre essentially turned into a mini-radio station. Ditto for the 300,000 other beta users testing the service now. When your Mercora player is on, you are broadcasting and anyone can search and play your music. At any given time, Mercora has 7.5 million songs broadcasting, a number that will grow exponentially as more users sign up, the company says. Like Grouper, you canít download, and Mercora pays royalties on the ďbroadcastĒ the way a radio station would.

Novel ideas both, Iím not sold that either will be the new old-Napster. Remember when initial pay-for-download models were being bandied about? One suggestion was that people could download the songs but only enjoy them on their PC. Consumers balked. Isnít that sort of what this is? At a time when iPods are fashion accessories, isnít it a step back to limit your music collection to your PC?

I checked in with my much hipper husband, a one-time D.J. and bass player who somehow works 60 hours a week and still knows about every cool new band before anyone else. He said he wouldnít use either. For one thing, neither has a Mac version. (Heís a graphic designer and daily derides my Dell Laptop.)

But, ever the music snob, heís dubious his taste would be reflected in other peopleís playlists. Thatís why he doesnít listen to Internet radio. And, he says, Mercora sounds like a lot of effort, so thank you very much, heíll enjoy the six thousand songs on his iTunes and find out about new music the way he has for thirty-something years.

Surely not everyone is that snobby. And digital music is so huge, you donít need the whole market to win big, points out Mercora CEO Srivats Sampath. True, but no matter how many hundreds of thousands of beta users these companies sign up, they still have to find a way to make money. Like social networking sites, the idea is eventually to charge for a premium version. Solving the legal hurdle was clever, but clearing that pesky revenue hurdle will prove if these companies really have something to sing about.

10:56 AM


Trackback Pings

TrackBack URL for this entry:
http://blogs.businessweek.com/mt/mt-tb.cgi/

Comments

Post a comment






 


Copyright 2000-2009, Bloomberg L.P.
Terms of Use   Privacy Notice