Felix Stalder on Thu, 11 May 2000 18:47:11 +0200 (CEST)

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[Nettime-bold] Re: <nettime> a nyt article on freenet and gnutella

[It's important to remember that we haven't seen much yet when it comes to
new business models on the Internet. Amazon.com certainly isn't very
innovative (it's mail order on steroids, that's  why everybody understood
it immediately). A bit more "native to the Net" is eBay which is hampered
by the fact that there is no easy way to exchange money between people over
distance. Credit cards are based on a structural distinction between buyer
and seller which doesn't apply to eBay. Clumsy circumvention technologies,
such as Paypal.com, speak of the need to create new types of exchanges
(including exchanges of monetary value). Just imagine what something like
nastier could if coupled with  a micropayment system.

Right now, the main reason why, say, bands need the recording industry is,
besides marketing, that they have no other way of getting money for their
records. As long as this problem is not addressed, new ways of distribution
won't do much. The same applies to publishing and other industries. As long
as authors are dependent on publishers to get their royalties, they have
very convincing reasons to be loyal to them.


Napster's real importance

Perhaps the greatest shame of the whole Napster debate is that the focus on
MP3s and the recording industry obscures the real issue. Napster's
fundamental architecture has the potential to destabilize many of the
accepted premises that underpin the Internet.

At its core, by independently connecting computers across the Internet,
Napster enables the creation of a distributed, disembodied marketplace.
This marketplace has no center and no owner, just a shared group of
participants. This idea of a decentralized marketplace runs counter to much
of the thinking behind many Internet marketplaces both in the consumer and
business-to-business sectors. After all, companies are spending hundreds of
millions of dollars creating centralized marketplaces founded on the
premise that customers need a single, central destination.

However with software, such as Napster's, the need for a centralized
marketplace is greatly diminished, and in some cases possibly eliminated.
Just look at the MP3 sites. Prior to the advent of Napster, numerous sites
flourished as centralized marketplaces where consumers could download/trade
MP3s. One of them, MP3.com even went public. However, with the advent of
Napster, marketplaces for MP3 files were instantly commoditized. Original
MP3 marketplace sites have either gone out of business or have hastily
repositioned themselves.

Napster everywhere

Taking the idea of Napster a step further, what's to prevent someone from
creating the Napster of consumer auctions. If the Napster approach hit
auctions, how could the existing auction players such as eBay, Amazon.com
or Yahoo! hope to compete? For that matter, what's to prevent someone from
creating Napster-like programs that take on the numerous players currently
creating business-to-business exchanges?

The short answer is nothing. There's nothing to stop programmers from
adapting Napster to a wide variety of applications, each of which will
challenge the site-centric thinking that predominates on the Internet

The death of network effects?

In some cases Napster's architecture fundamentally undermines one of the
crown jewels of Internet stock valuation theory. This theory holds that
Internet marketplaces generate network effects as they grow in size. These
effects in turn accelerate the growth of the marketplace and make it almost
impossible for competitors to catch up. As it stands, the network effects
generated by sites such as eBay are thought to be so powerful that it is
almost impossible for these sites to be unseated. However, Napster's
fundamental architecture and its impact on the MP3 market suggests that
network effects are much more fragile than suspected.

If this is indeed the case, some of the premium valuations that are enjoyed
by both consumer and business-to-business marketplaces could come under
pressure. Investors may begin to fret that they too will feel the powerful,
distributed sting of Napster.

Whatever happens, one thing is clear. The impact of Napster will be felt
far beyond the confines of the record industry's executive suites. Indeed,
Napster and its offspring are only in the early stages of a revolution that
will likely impact boardrooms and stock markets across America.

Les faits sont faits.

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