First-mover disadvantage

Amazon has just unveiled a feature that were sued on copyright breaches for introducing in 2000. Wendy M Grossman asks why some companies have success with new technologies and others fail.

Fish wearing earphones

Image: CC BY-NC-ND 2.0 Flickr: IIIIII

News stories alerted me this week to a new feature of my 17-year-old account: the site will load up a cloud music area with MP3s of all the CDs it knows you've bought so you can play them wherever and whenever. I went and looked. Sure enough, Amazon knows, or thinks it knows, that I own, or at least have bought, 161 CDs, and it rapidly populated my account with the MP3s from those discs. All I have to do is push buttons to listen to them any place, any time.

How 1999.

Those with long memories may remember Michael Robertson's, one of the earliest sites to do retail digital music (not first - that was the Internet Underground Music Archive). Founded in 1997, the site focused on indie bands and artists - people who didn't have hostile record labels to make trouble. The company went public in 1999 with, a trendy dot-com-boom triple first-day pop. In January 2000, the company announced It worked like this: you put a CD in your computer's drive to confirm you owned the disc, and thereafter the service would allow you to play MP3s from that CD any time you liked.

Instant lawsuit!'s argument - which it subsequently made in court - was that there was no copyright infringement since you could only play the MP3s if you had a physical CD to unlock access (glossing over, I suppose, the possibility that you had borrowed or copied one). The record companies, however, focused on the fact that in order to provide this service had to create its own database of MP3s by ripping all those thousands of CDs. Ultimately, they were successful in arguing that creating that database was not fair use. The resulting settlements crippled the company and it was finally taken over by Vivendi (and then the domain name was sold to CNet, which means it now belongs to CBS, but that's a whole 'nother story).

It's patently obvious that Amazon is not going to be taken down over what is essentially the same service (for one thing, the company already has MP3 copies of most CDs under license, since it is already a significant digital music retailer in its own right). During the dot-com boom people used to talk a lot about "first-mover advantage", the notion that the first into a market could run the table and get so far ahead of later entrants that they will never catch up. It worked for, eBay, and Paypal, for different reasons. all services where contractual agreements with suppliers and client servers or creating a pooled mass audience were difficult to duplicate for later entrants, just as a new entrant into car-sharing would find it hard to get enough parking spaces in urban areas to compete with Zipcar. The strategy even worked for Yahoo! only until something way better came along. But if you're too far ahead of your time - especially if you're small - you run into the problem: other people may not understand.

There are lots of examples of technologies and services that failed because the inventors were too far ahead of their time: the many early 1990s efforts at digital cash, Go's 1987 pre-tablet effort at pen-based computing. Usually, these efforts are defeated by either the state of the technology (for example, they function poorly because there isn't enough processing power or cheap storage space) or the state of the market (not enough people online, or too few people understand the technology you're asking them to use). But was an example of something that failed because of the state of the law. At its launch at the beginning of 2000, the original Napster was perhaps a month old (and already being sued by the Record Industry Association of America (RIAA)), and iTunes was more than a year from its first outing. It was a time when the record companies had yet to accept the Internet as a medium that, like cassette tapes before it, could provide them with a new marketplace.

Now, of course, everybody knows that. According to the International Federation of the Phonographic Industry (IFPI)'s own figures from its 2012 report, in 2011 the number of countries with major international music services nearly doubled. Global record company revenues grew by about 8 percent to $5.2 billion, and the number of paying subscribers rose 65 percent to 13.4 million worldwide. You have to wonder: what if they had made deals with Napster, and let go ahead instead of suing them out of existence? They might be years further ahead in terms of revenues, and be spending far less time and money pursuing file-sharers - not that there would be no illegal file-sharing, but there would almost certainly be much less of it, and there'd certainly be much less residual anger among the recording industry's best customers.

It's also clear that size matters as well as timing: Amazon, like Google Books, is too big to kill. Little guys you can prosecute or sue. Big guys, you have to make deals. Although: the biggest price consumers paid for the loss of wasn't really that service but the rest of the site's function as a hub for independent artists.

I don't know Michael Robertson. But if I were in his shoes, I imagine I'd be shaking my head and going, "Damn. We did that 13 years ago. Why didn't they let us?"

Wendy M. Grossman’s Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series.

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Comments (2)

  1. David Harris:
    Jan 21, 2013 at 01:01 PM

    .."what if they had made deals with Napster, and let go ahead instead of suing them out of existence? " For one thing, they wouldn't be stuck in an abusive marriage with Apple and being beaten every day.

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By Wendy M Grossman on Jan 21, 2013

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