The Broader Lessons From the Napster Case

Computerworld - Napster has been a great idea and a great service. Yet the music industry had no choice but to sue the company, and the Federal Court of Appeals' near-fatal anti-Napster decision was predictable. There are many ways of selling music online, and Napster chose by far the most controversial.
But before you ask, "Why should I care?" consider that the lessons of Napster actually extend far beyond the music industry or even copyright law. Whether you're in retail, finance, manufacturing or one of the various "content" industries, the Web has given new prominence to the principle of aggregation. Drawn from the same Latin root as congregation and segregation, aggregation is defined as the flocking together of similar items into a wider, more complete collection. It's something the Web is very good at.
Certainly, there are all manner of aggregators on the Web today. Napster aggregates music, Priceline aggregates discount travel reservations, eBay aggregates auction items, Amazon aggregates books and portals aggregate just about every form of content you can think of. With all this aggregating going on, it's worth understanding how such markets are formed and which of the various aggregation models are likely to prove the most successful. In my own work in this field, I have identified the following five broad patterns:
1. Strong vendor leadership. The best example of this would be the airline reservations systems initially developed by American Airlines that now includes all major U.S. carriers. Bertelsmann's efforts to build a joint service with Napster might someday repeat this pattern.
2. Consortium-led. The automakers' exchange, Covisint and other business-to-business exchanges are good recent examples of how market leaders can come together to aggregate their own marketplaces, but this pattern was established long ago by organizations such as Nasdaq, Visa and MasterCard. Certainly, the recording industry could build its own Napster, although there might be some serious antitrust and time-to-market issues.
3. Permission-based. Priceline works with airlines and hotels to resell excess reservation inventory. But Priceline's complete dependency on its partners is one reason why it's so vulnerable.
4. Voluntary. All merchandise on eBay is placed there voluntarily by the sellers; no permissions or licenses are required.
5. Fair use. Services such as Napster simply assert that what they're doing is legal under today's vaguely defined "fair use" principles. Although fair use is sometimes the fastest way to launch an aggregation business, this approach becomes increasingly less defendable as the service grows.
All of these models have their strengths and weaknesses in terms of their profitability