Well?
There are no ads on the application, or on the web site. There is no cost to use it. I don’t see any merchandise for sale (the shirt that I got was free at a concert).
Yet the company is able to pay employees and hire lawyers to defend them.
How in the hell?
From Napster’s web site:
Funding
“Napster, Inc. recently closed a $15 million Series C
venture capital funding round. The round was led by
Hummer Winblad Venture Partners, with additional
investments from Angel Investors LP and other existing
investors. As part of the investment in Napster, Hummer
Winblad partners Hank Barry and John Hummer joined
the Board of Directors and Hank Barry assumed the
role of interim CEO.”
To me, it almost sounds like either a scientific venture (for what purpose, I don’t know) or like these people and companies are making investments now with the hope of making money in the future. Maybe another doper can throw some light on what a “round” is. I’m not exactly sure about some of the legal wording here. Oh, and they apparently only have 30 employees at present. Hope this helps. Later all.
They’re waiting for the perfect time for their stock to go public and presumably cash in.
Well, Horselover, before they go public, don’t they at least need a plan for how to make money? Were you just going along with the “we’ll figure something out later” philosophy? Just wondering.
Maybe it’s like all the other free sites that make you need them and then lower the boom.
Just this week I got two such shocks.
Efax had free personal incoming fax numbers. I got one and put it on all my company mail.
I seldom get faxes, and don’t have a machine, but it made me look like I did.
Now they want $10/month.
Also, WorldSpy just dropped me by selling their customer base, email system, and local phone numbers to Juno.
Juno is free, but adds a ton of ads in a floating bar, and is dunning me at every logon to pay $10/ month to get back where I was with Worldspy.
So, the answer is bait and switch.
Well, they’ll never be able to go public, much less get any more financing unless they have some idea of how they will earn money.
I’d imagine that they could earn money in the following ways:
Advertising: Lots of people use their service, they’d be able to make at least a bit of money from this. Probably not too much though.
Selling user information: They could sell user preferences/email addresses to record companies. Record companies could then use this information to hawk products to users based on this information.
Selling subscriptions: They’ll announce it’ll now cost 10 bucks a month to use napster. What are you going to do? There is a risk of napster knockoffs like gnutella taking off if they try this, but it could work.
They’ll be bought out by record companies: Record companies, if they are unable to crush napster, will just throw in the towel and buy them. This would be perhaps coupled with the subscription idea. Napster early investers and founders would make boatloads of money and move on. Record companies would move from a product-based revenue stream to a subscription-based stream.
Partnership with record companies: Napster does the subscription thing, but shares a percentage of income with record companies. Record companies agree to stop suing napster.
What do I think will ultimately become of napster? I’d say it’s 60% record companies are successful in crushing napster through lawsuits, putting off the inevitable for a couple more years, but in the end the game will start all over again with gnutella or another knock-off.
40% that record companies buy/partner with napster and realize that they’re now a service company, making their money off subscriptions, direct-email marketing, and a bit of money off advertising.
In any event, free napster with no ads will not last 
Early investors in napster will most likely lose their asses, but in exchange for that risk, they could become incredibly rich if they go the buyout/partnership route.
Napster can, without violating it’s customers privacy, give anyone an up to the minute report on the popularity of a particular song, artist, genre, or combination on its database, including search, and download frequencies. This is as close as you get to a pulse check on a customer base which is guaranteed to already own sound equipment, and have sufficient income and resources to own a computer and have an internet connection. Good saleable demographics information without compromising anyone’s privacy.
Tris
Trisk has an excellent point. They can sell that music industry information for quite a lot of money.
IM pretty sure they are trying to get themselves a lot of hits & a lot of coverage. Once they have that they can start selling. I don’t see how they can get an IPO because of the piracy nature of their business?
<NAMEDROP>
I actually know one of the founders (Eddie Kessler, Eng. VP). Haven’t talked to him since before Napster was founded. You’re reminding me - I ought to get in touch with him, if for no other reason than to find out what in the heck is going on over there.
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zuma did a pretty good summary. Since they are controlling a centralized database, my guess is that it eventually becomes a subscription service.
I guarantee there was SOMETHING in the business plan that they gave to Hummer Winblad, although for a while VC’s were throwing money at anybody that was mouthing the right buzzwords - some of the STOOPIDEST things were getting funded. That’s been tightening up lately.
If Napster’s gotten another round, I wonder how much of their company they’ve given to the vulture, er, venture capitalists at this point …
[ silent_rob - a “round” is simply an infusion of capital given to your company by a venture capital firm like Hummer Winblad, or by individual “angel” investors. In return, you give a substantial chunk of the company to the VC. A typical high tech startup will be 20-60% owned by VC’s by the time it succeeds. A few years ago, $15 million was a LOT of funding for a software company. These days, it’s about par for the course. ]
Napster subscription is an excellent idea. But for it to work, it needs reliable RAID servers that holds MP3s. They can also sell record companies ad space so that they can hawk new CDs or concert schedules of your favorite stars. There are some sites and programs that I don’t mind seeing ads. Napster is one of them.
There was a musician who started http://antinapster.com/
but that seems to be for sale now. Guess he didn’t take too lightly to the threats he got.
Napster could presumably charge for access to their own servers, but if you download Napigator you’ll see that there are several other networks of servers, which can be used with the Napster client. And the protocol is known well enough that new clients can be written if they change the official one to only work with their own servers.
Hmmm. I don’t use Napster, so I’ve never decompiled it, but…
Isn’t the engine itself worth something? I’m sure people might want to share something other than MP3s…
How does it work?
It’s also important to note that Hummer Winblad, the company that gave Napster $15 million, also is invested in another company that deals with providing a secure way to sell ditigal content online. If Napster cuts a deal with music companies they could get a cut of each download sold, all using the Hummer Winbland financed security scheme.