Don Dodge, who now works on the Microsoft Emerging Business team, used to be VP of product development for the original Napster. In "Napster – the inside story and lessons for entrepreneurs" he gives a fascinating account of his time there, and some great tips for dealing with large businesses if you’re a start up.
One of the most salient points he makes is this:
We told the record labels that we (Napster) had a loyal audience of
over 50M users. We had servers that could control distribution. If they
didn’t do a deal with us and put us out of business then Gnutella and
its derivatives would become unstoppable. There would be no company to
sue and no server to shut down. If we worked together now we could
convert the market to a paying subscription or per download model. If
we didn’t do a deal chaos would ensue. They didn’t believe us and
didn’t really understand what this Gnutella threat was. The record
labels lost billions of dollars in lost revenue over the next several
years, and may never squash the free file trading movement.
How true. There are now many legal download services, and services that meet the needs of pretty much every kind of market (except the "I have no money at all" children’s market – and even there, parents, just lay out the cash for a monthly Napster sub!) yet illegal file sharing persists. Why? Because, in part, the record industry missed its one golden chance to convert Napster users into paying customers before the culture of "I’ll download it for free, thanks" took root.