Failures of 2007: Prediction #1

Posted on January 16, 2007. Filed under: Podcast Staff Blog Posts |

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I’ve decided to make a list of current internet companies which I believe will fail in 2007. Though it is not good to dwell on the failures of others, I want to analyze why I think a certain company will fail, and give my own personal opinion on how they can prevent it, and how you can learn from it.

My first prediction: Napster

Background:

Everyone knows who Napster is … the famous pioneer in peer-to-peer sharing, appeaing in cameos of several movies, and being the buzz word of the early 2000’s. Michael Arrington recently wrote a post about Napster’s newest acqusition of AOL Music.

He points out that the company (Napster) has been on a roller-coaster ride, going up and down financially throughout the decade. To me however, the most recent purchase of AOL Music shows that Napster is desperate for subscribers, and is doing everything they can to stay afloat. For a company that isn’t making any money, it’s suprising to see them make this absurd purchase.

The Analysis

The music industry has grown tremendously. Apple’s iTunes really made the act of downloading music for a fee the “in” thing. Competitors are popping up all over the place, and I’m afraid that it is growing much to fast for its own good. Though positive things are coming out of it (The death of DRM), it is becoming a cut-throat business, and many companies are struggling to stay afloat.

Competitors such as Urge, eMusic, and iTunes are all fighting for their dominance in the music industry. With Napster still trying to maintain it’s image of being the “father” of digital downloads. The profit margins for Napster are terrible. They are charging only $10.00 for unlimited downloads from their website, paying a lot of royalties to labels. This means that people (like me) who download a ton of songs a month hurt their business. They are trying the approach of “Let’s undercut the other companies, and hope we can make up for it in volume“. And obviously, this is not working.

I predict that in 2007, Napster will finally fail. They will lose so much money that their funding will eventually dry up. Furthermore, their acquiring un-needed assets will backfire. They need to spend the money on focusing on their own image. They need to worry about their own company first, before trying to expand and grow at an unreasonable rate.

What can they do?

Instead of shelling out nearly $90 million for a AOL Music, the could’ve simply halved that amount, saving $45 million, and using the other to improve their own infrastructure.

They need to start a new marketing direction. They need to hit on the fact that they are basically the Godfather of music downloads. Similar to how Coke presents themselves as the “Classic” drink, Napster can pull off a similar aspect saying that they were here when it all started.

This image will give Napster class. What Napster is lacking right now is good targeting. It doesn’t seem like they are trying to get anyone in particular, instead, trying to go for the whole pie. Companies such as Urge as targeting the young adult crowd, sponsoring and getting TV time on MTV. What Napster needs to do is make up their mind on who they want to target. They are fighting a 2 front war. You either target young adults, or you target professionals. The choice is theirs.

Napster needs to improve their own image by proving to the world that they should be the only choice there is. Let everyone know that every company now, was spawned from their success. Let us remember when everyone used Napster. Remind us how famous Napster was, and how much passion you have to become the best again. Rather then buying companies while you are in debt, screaming “help” as you drown, show that you are still trying to make it big.

Napster needs to make the right associations and partnerships. Spend money on sponsoring concert events. Partner up with certain artists to get exclusive downloads and offers…Rather then spending $90 million for something that they didn’t necessarily need, they could’ve simply partnered up with a different company. I know this is easier then it sounds, but I am sure that they could’ve found someone…or something.

Napster needs to come out with some new features. Everyone is offering the same thing. How about offering different methods of delivery? How about teaming up with FYE to allow “In store pick-up”? Sometimes I like to have the real version of the CD. Who knows, anything is possible. Make a user friendly website (I hate when I go to a website, and the first thing you see is an offer, with no logical way of getting to the main website). Even something as small as, “Straight to MP3 player” or maybe some social networking aspects. What are my friends listening to? What are other people listening to? If they can improve the interaction of their user base, they will win the war of staying alive.

What can we learn?

Well the obvious moral here is that you need to worry about you, and your company first, before trying to expand. If you are not profitting, there is no reason to make the wrong moves. If you are not profitting, the chances are its because you don’t have enough sales.

Why don’t you have enough sales? The problem is probably with marketing. It most likely has something to do with your image, with who you are targeting. You need to reanalyze your own situation. Simply buying a company, or trying to expand doesn’t mean that it will always work (which also means it may also work). You need to find the problem where it started to stop it – you can’t keep creating more problems for yourself, or your company.

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Bryan