IQ Interactive Special Report – If I Ran Napster

Hey, Napster, when you decide to go legit, we’ve got some ideas for you.
So your monthly unique audience has more than quadrupled since January to 2.8 million, and you just received $15 million in funding–OK, Napster, what do you do now? Well, since we asked, we’ll attempt to answer. The following are three takes on how you might just make money, Napster, once your legal battles are settled, of course. E-commerce, portal, content–they’re all possibilities for your San Mateo, Calif.-based filesharing site. Yes, we know it’s all about the music, man, but at some point your VCs will want their money back and more. So take off the earphones for a minute and concentrate–these guys have some ideas that they’d like to share.
Napster as e-tailer
Suggesting e-commerce for a multimillion visitor site like Napster is a “no-brainer,” says Aaron Cohen, CEO of dot-com builder Concrete Media. His New York-based company helps clients build and deploy Internet businesses from the ground up based on the experience and intellectual capital it has gained developing its own proprietary companies, such as teen destination Give Cohen free reign to convert Napster from a music site with no money-making model to one that rakes in the revenue with an e-commerce offering, and this is what he would do:

As a music/community site, Napster could prove to be a breeding ground for online commerce. Best known for its digitally transferrable music, Napster could bank on its Net following, generated by freebie funk, punk and rock, to purchase music-related memorabilia or merchandise, such as tickets, T-shirts and programs. For instance, Dr. Dre can auction off 1,000 first-time releases of CDs. Further, by virtue of visitors’ download selections, the site can segment its audience to deliver targeted, personalized offers to its member base–tapping into the hip-hop crowd to market Mariah Carey merch or enticing rap addicts with Will Smith stuff.
Will Napster’s current legal issues impede merchants from striking deals with the music giant? They shouldn’t present a hurdle. Napster could position itself as a David taking on Goliath, a.k.a. the music industry, or as Robin Hood taking on the Time Warners of the world. Some say it’s this “little guy versus the establishment” mentality that bonds the hard-core community. Originally, sharing music files forged online relationships between Napster members. Then, common music interests further fueled their Net affair. And now, the plight of the underdog may solidify Napster’s community, helping to build its longevity.
Since this community unites on so many levels, adding e-commerce [shouldn’t] alienate the typical Napster consumer. At first, Yahoo! didn’t offer shopping on its site; but once it did, the masses didn’t flee. Instead, the portal’s established consumer base accepted the megamall-like atmosphere, and even welcomed it. This example demonstrates that engendering community doesn’t mean that a site can’t sell merchandise. Actually, e-commerce flows quite naturally from the site’s sharing aspect.
Because of its loyal consumer base, Napster also could endeavor upon advertising. The site could carry lifestyle-specific ads associated with music, such as ones for automobiles, liquor and clothing, and sign sponsors, such as Gap, and concert tours.
Napster not only could generate dollars through e-commerce and advertising means, but also from its back-end technology. The company boasts killer software that it could sell to a number of vertical markets. Since the Napster name does not limit the company from branching into other domains–after all, it’s not called “Music-ster”–the site could even enter into these vertical markets itself.
By creating these e-commerce capabilities, Napster eventually could steal a slice of the Internet auction pie. Music is a huge collectibles industry. Eventually, members could swipe vinyls or bid on limited-edition or one-of-a-kind music memorabilia.
No matter what Napster decides to do, it must use original tactics. It can’t stick with the traditional, the boring or the blah. For instance, there shouldn’t be a Napster store. Instead, Napster should blend content and commerce, and should emulate such sites as Internet shopping behemoth Amazon by creating an environment ripe for browsing, not exclusively for buying. Just as the Internet deviant used innovative methods to capture Netizens’ attention in the first place, it must employ similar ground-breaking tactics to make money.

Napster as portal
“What is the ultimate objective of a destination site?” asks Scott Kurnit, CEO of New York-based “Targeted and direct advertising.”’s vertical site network, which covers subjects ranging from gardens to game shows, follows this philosophy to the nth degree. Manned by experts or “guides” who provide original content, related links and interaction, its 700 topic sites give advertisers the ability to reach a specific demographic and serve relevant ads. In turn, the portal can ask a premium for advertising space.
To make money, Kurnit says, Napster can do this, too. In addition, Napster could migrate from a non-paid model to a paid one.
Here, the CEO explains how the online music giant can turn eyeballs into earnings:
To participate in Napster, consumers would have to offer information about themselves. Much like BargainDog, an online resource which directs shoppers to sales and discounts at dot-com merchants, Napster would ask users a series of questions during the registration process. [In other words], in order to benefit from a free service like Napster, consumers are presented with the burden of having to say, “Here’s who I am, here’s how old I am, here’s what my interests are.”
Napster would use this aggregated data to attract advertisers interested in targeting each demographic or psychographic. Compared to a general site or portal that tries to be all things to all people, the site could charge a higher fee for ad space based on its unique user base. Napster could use the personal information coupled with a matching engine to pair one subscriber’s information to similar member profiles. It could then make complementary or cross-promotional pushes. For instance, a person who downloads a Carly Simon tune might be matched to other fans. If the matching tool finds that a majority of this group also enjoys Natalie Imbruglia, it would then suggest the consumer check out the Australian singer by serving ads, offers or messages to this effect.
While Napster could remain free with ad support, it could also evolve into a pay-per-use or subscription-based model. (Editor’s note: Surveys reveal that many of Napster’s constituents would be willing to pay for the service.) In doing this, Napster could alleviate some of its legal problems by sharing the revenue from sales with the copyright holders and record companies.
[It’s unlikely that] this approach would annoy or alienate consumers. If a company such as HotMail or eFax, however, decided to change their model from free to pay-a-fee, consumers might become disillusioned or outraged. HotMail offers consumers free e-mail accounts, while eFax gives out free eFax numbers from which consumers can receive faxes via their e-mail account. Altering the dynamics of these services most likely would cost users, even if they chose not to participate once the modification took place. For instance, HotMail or eFax users may have printed their information on business cards or circulated it to colleagues and contacts. In that case, they would have to reprint their cards or keep the cards and pay for the service.
On the flip side, Napster-ites lose nothing from the proposition; if Napster were to switch to a paid service, consumers could opt out without forfeiting anything. In general, visitors to the site, so far, have only gained. If they’ve downloaded six to a dozen MP3s, they’ve already received compensation for the perceived value of the time it took to complete the exercise. Bottom line: Napster can survive this change, especially if it is presented to the Napster population through creative marketing. For instance, the music site could say, “We’ve tried to do it this way, but the courts shut us down; or [from a business standpoint], we can’t go on this way.”
User backlash shouldn’t be Napster’s only concern, however. If the music site switched to a for-fee offering, record companies could emerge as their chief competitor. By eliminating the “free” factor, Napster loses the component that differentiated it from the pack in the first place. What’s to stop record companies from adopting similar models? Further, what’s to stop consumers from drifting to these other sites? Consumers would expect a flawless distribution flow from an established record company, whereas, with Napster, consumers have grown accustomed to quirks found in a shared file system. Right now, Napster consumers are forgiving because service is free. But, would they be as laid back if money were involved?

Napster as content site
When Slate launched in 1996, it followed a basic rule of consumer print magazines: Sell what you publish. But like most content sites, Slate eventually found that online rules are different: There’s money to be made, just not through subscription copy. Since becoming a free site in February 1999, Slate has seen its monthly unique viewers rise to 1.9 million from 222,000. Slate publisher Scott Moore shares some lessons learned in creating a revenue-generating content site:
If I was in their shoes, my goal would be to create the next MTV. If you think about how MTV came about, it took advantage of the community, if you will, of teenagers’ interest in music, and then extended that interest into a new technology–music videos. They then built an enormous media brand.
I think you could try to do a similar thing [online] with Napster. And I don’t necessarily mean with music videos, although that certainly could be one component. I mean conceptually: Take advantage of this community of interest and this new technology and try to build a massive media brand off of them.
Getting [users] to look at ads is relatively easy, and that would certainly be, from my point of view, a major revenue source. But I think you also need to put some things on the site to make it sticky. Build the community. Instead of just being a directory that sends you off to other places to download music, start offering music downloads on Napster itself, for example. Hire some good writers to produce really high-quality music reviews–think Rolling Stone magazine. Let users share their own original music. Napster could even program some radio stations themselves and stream music via the Internet, [and it] could also let users create their own radio.
Another thing Napster could do is let users post their comments to BBSs. That’s been something that’s proven extremely effective for us. We have a bulletin board [called The Fray] where, after you read an article, you can then post your comments. We’ve started taking the best comments and attaching them to the bottom of the articles themselves. We’re thinking now that we’ll hand out merit badges, if you will, to the best posters. So if you’re in The Fray and you make some intelligent posts, we’re going to identify you [by putting] a little icon by your name. If someone is glancing through The Fray, they might think, “Oh, this person has a merit badge, he must say some smart things. I’ll read their post.” I think that particular sort of user involvement will make [Napster] very sticky. Technologically savvy young people are using the site. To give them a chance to see their name in lights and to get their 15 seconds of fame is attractive.
Now, [Napster] would have to spend some money to do what I’m describing here, but they’ve already raised what, $15 million in venture capital funding? And getting a critical mass of users to a site for any media property is like 75 percent of the battle. If you can do that, if you can put out a magazine that people are interested enough in to read or develop a television show that people are interested in watching, you have a valuable commodity that is certainly monetizable. It seems to me that Napster has fallen into that [category]. It’s got that audience. Now it can leverage that and build a business around it.
Anything that Napster offers from their site, they’re clearly going to have licensed or created as work-for-hire. They could also do live concerts, the upcoming band of the month or week or something like that where they feature bands that haven’t signed yet with a record label. Napster could get them to commit to a live concert that users stream from and then Napster could promote those concerts through viral marketing and notices on the site. And maybe the band says, “Take this single and let anyone who wants it have it.”
The people behind MTV built it into a brand that’s arguably one of the most powerful media brands in the world. This is where Napster has similar potential, although, let’s face it, they also have some challenges. The intellectual property rights issues with the music industry are things that they’re going to have to grapple with and work through. They also have to figure out how to monetize and take advantage of its shared community.