Napster: Nothing Wrong With a Little Brouhaha

M&A activity could use a little mouth-to-mouth right now, after limping
into the holiday weekend last Friday. But Softie’s bearish antitrust ruling
and an overheated CPI number are still a drag on the broader market,
keeping a lid on rampant consolidation. Rather than pick through the bones,
I’ll kick off the week with something light and return to the regularly
scheduled meat and potatoes merger activity manana.


The little engine that could


Unless you’ve been hiding out underneath a rock, you’ve probably caught
wind of the big bad Napster saga. For
those of you bandwidth challenged, Napster’s a free file sharing program
cooked up by a 19-year-old college student, most commonly used to swap MP3
music files. The software is more controversial than a four-alarm fire but
boasts a fistful of vertical growth potential.


Nothing’s swept college campuses like this since dollar shots and keg
stands. Now, the fledgling company’s in a dogfight with the record industry
and music artists over copyright violations. Napster’s been slapped silly
with lawsuits from the likes of metal-heads to gangsta rappers. But Napster
claims its nothing more than a middleman and plans to stick to its guns.


Despite the heat, Napster will find itself saddled with more venture
capital than it knows what to do with, and tales of the infamous software
will wind its way onto Main Street.


The brick-and-mortar record industry is in a scrap it can’t possibly hope
to win; and with every blow, the situation is only exacerbated. It’s a
cruel course in Internet 101, and before the fat lady sings, the little
engine that could is going to take the mighty-mighty record industry to
school.


Nothing wrong with a little brouhaha


Struggling start-ups throw bucket-loads of cash toward marketing themselves
in a sea full of me-too competitors. Before you start thinking about that
brass ring, you’d better move your product from concept to market in
Internet time or another newcomer will gladly eat your lunch.


And one thing’s for certain in the breakneck speed of the new Net ecomony –
a good ol’ fashioned brouhaha never hurt no one, as long as the press
spells your company’s name right.


Take eBay’s (EBAY)
rowdy high-noon showdown with auction portals late last year. The online
auctioneer looked to muscle a bevy of cyberspace cowboys who were busy
aggregating auction listings from around the Web using a nifty meta-search.


Companies like AuctionRover.com
and AuctionWatch.com found
themselves smack dab in the middle of controversy and threats of legal
action, but more importantly, headlining front page news.


Whatever hopes the auction giant had of stuffing the genie back in the
bottle quickly fell by the wayside. Millions of dollars in free press did
little else but put the upstarts on the map. In a goofy twist of irony,
eBay found itself stuffed under the Justice Department’s antitrust
microscope as a direct result of all the commotion.


After the dust settled and visions of David and Goliath faded, two
companies who were simply minding their own business ended up with a king’s
ransom. AuctionWatch found its traffic boosted seven-fold since the
incident. And before long, pay-for-play portal site, GoTo.com (GOTO)
scooped up internet.com (INTM)
-backed AuctionRover for a cool $175 million.


Auction portals to eBay – keep the change.

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