Napster, the snappy upstart company that's been facilitating the
free downloading of music tracks, is on everyone's mind since a federal
judge agreed with the music industry that Napster was engaged in massive
copyright piracy and ordered the firm to cease operations. But an appeals
court has stayed the order, giving Napster a temporary reprieve.
At the heart of the controversy is a clash that goes far beyond the
music industry. What we're witnessing is the beginning of an epic
struggle between two great economic systems. On one side lies the old
market-based economy, made up of sellers and buyers. On the other side
lies the new network-based economy, made up of servers and clients. In
markets, the parties exchange property. In networks, the parties share
access to services and experiences.
The new information and telecommunications technologies, e-commerce
and globalization are making possible a new economic era as different
from market capitalism as the latter is from mercantilism. In the new
century, markets are slowly yielding to network ways of doing business,
with profound implications for the future of society. By the middle
decades of the 21st century, markets, the hallmark of conventional
capitalism, will have largely disappeared, replaced by a new kind of
economic system based on network relationships, 24/7 contractual
arrangements and access rights.
Far from being an anomaly, Napster is really the first of a new genre
of businesses that operate by a network mentality rather than by market
logic. It is the new software technologies that are making companies like
Napster possible and revolutionizing the nature of commerce. Here are
some of the reasons why the Napster model is likely to set the pace for
the way companies do business in every field:
* The near warp speed of distribution and exchange on the Web makes
direct market-based transactions far too slow. With a simple click,
before a cash register can even ring up the sale for a single compact
disc, one can distribute music to people around the world and exchange
whole libraries of songs.
* Web distribution reduces transaction costs toward zero, virtually
eliminating the traditional profit margins on sales-related activity.
Compare the transaction costs of producing, packaging, inventorying,
transporting and merchandising a CD with the cost of producing a single
music track and distributing it instantaneously to millions of people, at
no appreciable additional cost, in an electronic network.
* In markets, the emphasis is on maximizing production, and profit is
made on the volume of the sales; in networks, the emphasis is on
minimizing production--making just one CD--and profit is made by pooling
risks and sharing savings. Everyone in the Napster network swaps their
music with one another. It's called peer-to-peer computing. But because
the music has been reconfigured digitally as pure information, it can be
shared with other people without any loss to the holder.
So how will companies like Napster make money? They will first build
up their network of users by providing a free service. Then they will
most likely transform their main asset, their network of millions of
users, into paid subscribers or members and share the revenue with the
music companies as well as charge for advertising and marketing new music
groups on their sites. While Napster continues to claim that it will keep
its service free, it's interesting to note that a recent poll of college
students found that 50% of Napster users say they would be willing to pay
a $15 monthly fee to access the Napster service.
Already, EMI Recorded Music, the Universal Music Group and Sony Music
Entertainment have announced plans to make their music available on the
Internet, as a subscription service, by the end of the year. Napster and
other similar companies might have little choice but to follow suit. A
Jupiter Communications study projects that by 2005, online subscriptions
for music will account for $980 million in revenue, while individual
market-based transactions of CDs online will account for less than $531
million in revenue. In networks, everyone is more likely to be a
subscriber, member or licensee.
The notion of substituting subscriptions and unlimited access to music
for sales of individual CDs gets to another key difference between a
market-based economy and a network-based economy. In markets, physical
property is exchanged between seller and buyer. In networks, access to
experiences over a fixed time is being purchased. When subscribers pony
up a monthly subscription for online music, they are paying to have
access to the experience of listening to their favorite music, rather
than purchasing the music in the form of a propertied acquisition. In
networks, ownership of things gives way to access to experiences.
In the new e-commerce economy, hyper-speed and continuous change are
the rule. The result is that the purchase and ownership of CDs or, for
that matter, any other fixed product, make less and less sense. Why would
anyone want to acquire or hold on to anything when everything is
immediately accessible and updatable in vast commercial networks, right
when you need it, and is cheaper to access than to buy? That's why
Napster is such a success. It provides instant access to music at
Finally, sophisticated software and the new telecommunications
technologies allow for a perpetual flow of feedback, turning the economy
from discrete market transactions to continuous nonstop access in
networks. One pays to be always connected to a steady stream of virtually
unlimited music rather than to buy an occasional CD. Commercial life is
now all day, every day.
Napster is only the tip of the commercial iceberg. The film industry
is locked into a similar court battle with hackers who have created code
that cracks the digital video disk format, allowing anyone who has access
to the code to make copies of DVD movies and exchange them free, like
Napster users are doing with music downloads. The new code is called De
CSS for Descramble Content Scramble System.
A federal judge in New York City ruled Thursday that the Web company
2,600 Enterprises cannot distribute the computer program used to crack
the DVD code. The defendant has appealed and both sides anticipate a long
and protracted court battle.
More than 300,000 movie downloads are happening each day with the De
CSS technology, and observers expect the number to reach 1 million or
more per day by the end of the year. While Jack Valenti, president of the
Motion Picture Assn. of America, warns that hackers should not be allowed
to put the code on the Internet and therefore share movie files the way
Napster does with music, there may be little he and the film industry can
do to stem the tide. In the long run, the film companies are likely to
follow the lead of the music industry and make their peace with the Net
by setting up their own sites and providing ongoing access to films to
While there has been a great deal of angst over how to protect
copyright and ensure that musicians and music companies are rewarded for
their contribution, little attention has been paid to where the whole
network process is leading society. Napster speaks to a much deeper
change in the economy. In the coming century, short-term access between
servers and clients operating in networks is going to redefine our social
dynamics as powerfully as did exchange of property in markets in the past
century. Today, Napster is an oddity. In the future, it will be the norm.
Jeremy Rifkin Is the Author of "The Age of Access: the New Culture of Hypercapitalism Where All of Life Is a Paid-for Experience" (Tarcher/putnam, 2000)
Copyright 2000 Los Angeles Times