InformationWeek

June 21, 1999

The Lessons Of MP3

By Sean Gallagher

he controversy over the MP3 computer audio-file format--and how it is being used--is just another reminder of how Internet technology is turning old business models on their heads. And it's proof that regardless of what your company produces, Internet instant karma can get you, too.

Recording companies are up in arms over the MP3 audio format for a number of reasons, but mostly because the technology allows distribution of audio at a quality level similar to that of "traditional" recording media--i.e. the ones that they know how to sell. And since it's essentially an open format, developed independently from any major player with a financial interest, there's no way for the industry to directly control how it's used.

One of the ways it's being deployed is to get around the traditional distribution channels that the industry controls--either by bands that want to reach their fans directly, or by "pirates" who want to become distributors themselves--for fun or profit.

Piracy may be a big part of the recording industry's concern, but it's the distribution part of the technology that clearly threatens them the most. In a way, MP3 is just the latest technological innovation in a string of advances that have lowered the barriers to the recording industry and created a "do-it-yourself" movement within the music business.

The recording industry and the software industry are a lot alike--they both sell products that are essentially information services masquerading as manufactured products. The recording industry is really a marketing and distribution service for musicians, and the software industry is really in the business of shrink-wrapping the talents of programmers. Both have a problem with piracy, and both can be relatively easily copied and redistributed. Both also are threatened by open-source technologies that offer opportunities to bypass their distribution channels.

The impact of MP3 is similar to that which open-source technologies like Linux and FreeBSD can potentially have on the software market--if they become more user-friendly. Developed by knowledgeable people without a direct financial stake in the final result, available free off the Internet, and compatible with a majority of the computer hardware available today, Linux is MP3 taken several leaps further--and the Internet is helping it get to places where conventional software distribution channels have either neglected or never exploited.

Just like Linux, MP3 is only reaching a specific niche audience right now--Internet-connected music fans with download time to kill, mostly college students and teenagers. But (again just like Linux) that's a pretty big niche, especially when you look at where most of the music industry is focused these days.

In the end, the problems faced by both the recording and software industries are ones that could be faced by just about any industry over the next few years. Internet technology and open-source software are like forces of nature--they can't be controlled, but they can be used as a power source to drive business. Eventually, both software vendors and recording companies will have to bend in the wind or be snapped in half by it. The successful ones will essentially become brands for electronic-media services, delivering product in whatever form customers want it; the less flexible ones will become rapidly irrelevant.

What's the MP3-like technology in your industry going to be? And are you ready to bend with it?

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