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1.0Brief history, developments, and growth of Napster
Having witnessed his college room mate's frustration in trading MP audio files over the internet, Shawn Fanning had a vision where people could share their music with one another over the internet by using a peer to peer network coordinated by a central server. This was the central idea in the development of a service that became known as Napster. Fanning's uncle incorporated the company in May 1 and began to secure capital investment. After initial development and testing the program was launched and the service's use grew exponentially, particularly among university students with access to high speed internet connections. In a short period of time Napster grew to over thirty million users' world wide.
Initially Napster needed to secure sufficient capital, develop a profitable business model and prepare for challenges from the RIAA. Napster was able to secure successive injections of capital from high profile investors and establish operations in 'Silicone Valley'. It also sought legal counsel that provided encouraging feedback should the company be sued. In September 1 Eileen Richardson was appointed as CEO, the first in a number of managerial changes made in the short history of Napster.
Napster faced challenges from a number of fronts. Firstly the universities, whose network capacities were increasingly be utilised by Napster users, began to ban the service. Secondly, after discussions broke down, the RIAA and several artists commenced legal proceedings claiming copyright infringements, and in July 000 the service was order to shut down by the courts (a decision later upheld by the Supreme Court). Napster then began to look to modify it strategic business plan and establish cooperative alliances and revenue sharing arrangements with the music labels.
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.0 Strategic Problem(s)/Issue(s)
After evaluating the case information it is evident that the underlying strategic problems are apparent on a number of fronts. stem from Napster's failure to clearly define its mission, values and goals in order to maximise shareholders' returns.
a weak analysis of Napster's internal and external environment. As a result, Napster's business model lacked certain factors and strategies, which ultimately led to the organisation's demise.(STRATEGIC PLAN)
More specifically, the organisation did not take into consideration internal factors such as selecting appropriate personnel, developing strong corporate and business level strategies, and designing an organisational structure and control systems. Additionally Napster failed to examine the external forces, such as legal and ethical factors. These factors will be considered and evaluated in further depth in the subsequent sections.
.0Internal Strengths and Weaknesses
.1Strengths
Tangible Resources
„XFinancial resources substantial funding from investors
„XPhysical resources workspace in 'Silicon Valley' and computer systems and software
„XHuman resources high-calibre employees and founders (e.g. Shawn Fanning; Jordan Ritter; Sean Parker; John Fanning)
„XOrganisational resources flat hierarchical structure, customer projections (i.e. pilot program distributed to small number of people)
Intangible resources
„XTechnology the human capital of the organisation possessed significant technological skills and knowledge
„XInnovation Napster was the first organisation to use a central server, whereby individual users had the opportunity to switch MP files
„XBrand Name the organisation's name spread due to word-of-mouth
„XCorporate Culture the organisation's corporate culture induced innovation and placed an emphasis on developing employee relations
.Weaknesses
Napster's main weaknesses include
„XLack of financial plan to adequately use financial resources
„XNo income from users of the program; revenue was acquired via site sponsors
„XChanging leadership
„XLack of policies (i.e. ethical and conduct codes)
4.0External Opportunities and Threats
4.1 Opportunities
Using the PEST (Political/Legal, Economic, Social, Technological) the following opportunities can be identified
„XPolitical/Legal the Copyright Act 176, had a provision for 'fair-use' which allowed the reproduction of copyrighted materials for personal and other uses
„XEconomic Average price of CD's fell by more than 40% while the Consumer Price Index (CPI) rose by nearly 60%
„XSocial
-Target market was university students as they were comfortable and educated in using this type of technology
-Ability to expand target market to other cultures/countries, due to a variety of music from various artists/languages
„XTechnological
- Faster Internet connections ¡V especially on university campuses
- Growth of websites such as MP.com
-Introduction of Portable MP players
4. Threats
Using the PEST analysis the following threats can be identified
„XPolitical/Legal the Copyright Act 176, the Racketeering Influence and Corrupt Organisations Act
„XEconomic
„XSocial ethical implications of stealing an artists legitimate income
„XTechnological due to Napster already developing the idea of using a central server to switch music, potential competitors can utilise this knowledge without the cost of engineering the idea
5.0SWOT Analysis Evaluation
In order to survive in the dynamic business environment present today, organisations must strive to develop a sustainable competitive advantage, and thus stand apart from their competitors. To achieve this, organisations must concentrate on developing capabilities to exploit the resources they possess, in addition to pursuing the generic building blocks of competitive advantage (REFERENCE).
The case information clearly demonstrates that Napster did not concentrate on building a sustainable competitive advantage. Napster's foremost strategic problem was a weak understanding of the internal and external environment. More specifically, the organisation did not develop strategies or capabilities to use their strengths in overcoming weakness and their opportunities to overcome threats. This is evidenced by the following
„XNapster's inability to 'coordinate its resources' to effectively use the unthought-of idea to create file-sharing software, Napster's main resource, led to weakness such as lack of financial planning, to was Napster's essential resource and thus strength. However, Hill & Jones (004) suggests that 'unless an organisation has the capability to use resources effectively, it may not be able to create a distinctive competency'. Napster did not 'coordinate its resources' or it's strengths in order to capitalise its main resource and overcome apparent weaknesses (p.78).
„XDue to lack of capabilities, Napster's other resources including financial; physical; human; organisational; technological; brand image; and cultural resources; were not utilised. For example, Napster was able to attract a number of high-profile investors, yet there is no evidence in the case relating to the efficient use of this capital resource.
„XThe lack of financial strategy (capability) meant that their financial strengths was overcome by their weakness of lack of capability
„X
After evaluating the case information it is evident that the underlying strategic problem stems from a weak analysis of Napster's internal and external environment. As a result, Napster's business model lacked certain factors and strategies, which ultimately led to the organisation's demise.(STRATEGIC PLAN)
Put something in somewhere about Napster not developing the General Business Competencies that they needed. 1) Entrepreneurial Capabilities. ) Capabilities of developing effective organisational structure and control systems. ) Superior strategic capabilities
Secondly, although a number of opportunities were identified in the previous section, Napster's poor analysis of threats led to their inability to take advantage of opportunities. For example, the poor analysis of the a poor analysis of the external opportunities and threats as well as lack of strategies, led Napster
6.0 Corporate-level Strategy
Napster failed to observe a number of critical steps in the formal strategic planning process where its mission, values and goals were concerned.
Napster's mission fell out of Shawn Fanning's 'epiphany' of a world in which people could share their music with each other over the internet. Fanning's vision extended on the application of 'peer to peer' (PP) networks such as the World Wide Web and SETI@home.
No clear company values have been identified in the case. Values are seen as the corner stone of a company's organisational culture. This could manifest itself as degenerative moral and/or ethical behaviour by company management and employees. This is evidenced through the 'morally deplorable distribution of equity' when John Fanning incorporated Napster without Shawn Fanning's knowledge. Additionally there is little evidence of Napster's respect for its stakeholders interests insofar as inputs are concerned. Napster clearly disregarded the interests of the musicians whose songs would be distributed on the service.
The case does not identify any of Napster's goals or objectives which are paramount if the company is to move towards its stated mission/vision. Without such goals the company had no means of quantifying its success or the performance of the managerial team. While it was capable of attracting significant capital input, the company did not appear to have devised the means to provide a profitable return on this investment.
Napster found itself in an embryonic market niche with no significant competition. This resulted in the company pursuing an 'Internal New Venturing' corporate strategy as there was no option to acquire an established business already in possession of the distinctive competency that Shawn Fanning had produced.
5.0Business-level Strategy
Napster had very little clear business level strategies, however from the evidence it can be said that the business followed a strategy of Focused differentiation. Napster was a hard case to apply business level strategies because they did not directly sell a product to a consumer. The only revenue earned was from advertising upon the sites, their real customer then was the marketing teams of those firms that brought advertising space upon their sites; however for the purpose of this case we will ignore this fact from outside the case study.
There is evidence that Napster did create a product which was perceived by the ¡§customers¡¨ to be unique. Innovation was the major competitive advantage that Napster benefited from. The product was unique and originally developed to meet customers needs (responsiveness). It is evident that the company was following a strategy of Differentiation. It is noted however that Napster did not charge a premium price and actually did not charge a price at all. Napster did strive to achieve a unique highly desired product that is constituent with the differentiation strategy but simply chose not to pursue financial gain through this strategy.
There was also another strategy being followed by the company, even if it was not deliberate. It was one of Focus. The strategy was not pushed from the company but actually pulled by the product itself. The company would have liked to say that there product was used by a wide variety of customers across a wide cross section of demographics. The product inevitably found its way into a small market segment of e-customers that were 'comfortable' in the use of MP technology, had the time to search for them and the means to download them with relative ease. The Market was focused, mainly upon university students and the statement that 60% of the customer pool dried up when Universities banned the service is evidence of this. Napster also served a part of the Market that no other competitor could serve adequately. Shawn Fanning had originally designed the product for a friend that had trouble finding the music he wanted off of the internet. No other music or MP provider who worked through the internet had ever thought of Shawn Fanning's idea and as he decided to develop this product for his friend he also, unknowingly, decided to peruse a Focused differentiation strategy.
6.0Organisation Structure and Control Systems
Very little is known about Napster's Organisational Structure. From the case we know that there was a CEO, a Board of Directors and 50 employees in total.
The type of structure and control system that would have been to the advantage of Napster would have been one that helped promote their need for innovation and flexibility. We recommend a Flat, non hierarchical organisational structure. There is a need for communication and feedback to support the innovation process through out the organisation. We need to put in a section about what kind of control systems to use here.
Recommendations/Conclusions
In the possibility that another company like Napster was ever to begin operation, we give the following recommendations. Give due analysis to the internal and external weaknesses and treats. Create a corporate and business level strategy that allows and promotes continual organisational growth and prosperity. Consider the network and industry that you must operate within and make sure that the activity of the firm do not disrupt or destroy the activities of the other members within the industry you rely upon.
Develop all of the general Organisational competencies instead of focusing upon one.
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