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Napster's back – what did Silicon Valley learn?

A secret history

Review Doerr predicts, the Segway Co. will be the fastest outfit in history to reach $1 billion in sales - 'Reinventing the Wheel' - Time.

Napster is about to reborn on Thursday as a pay-for music service. Roxio spent $5 million for the privilege, due any day to go into beta. And today a venture capitalist called Ann Winblad will be standing up to speak at an event here called 'Silicon 4.0', which bills itself as "a conference with a new attitude: optimistic and confident in the Valley's future."

Don't worry if you don't know the name. The missing link between these two is explained in great detail by Joe Menn, in his All The Rave - an engrossing and utterly coruscating history of the original Napster that deserves to be ranked as one of the two great books written about the bubble, alongside Michael Wolf's Burn Rate.

Hummer Winblad Ventures missed getting rich on the century's greatest get-rich-quick scheme. While other VCs cashed in their investments, Hummer Winblad either arrived late or plumped for a series of turkeys, such as what Menn describes as a "me-too allergy-drug seller" called That cost $15m, and was typical of investments which overall earned Hummer Winblad's investors a mere trickle, and themselves the lead role in a contemporary eCompany feature entitled "Bonehead Safari: My Hunt For America's Dumbest VC". No matter. Winblad once dated Bill Gates, giving her a "name" in the Valley. But having missed the Internet, over-compensated. When was down on its luck, Hummer Winblad took up the cause.

HWV's involvement in the Napster story is typical of a question that Menn's secret history tacitly poses - What makes people in proximity to power or money lose their minds?

"I identified five chances for Napster to go straight," Menn told us shortly after publication this summer. "These were opportunities that would have enabled the technology to spread, and which would have made Shawn [Fanning] wealthy. But it's a tragedy that bounded by greed and ego it didn't happen," Menn told us.

Started by smart kids who lost control of the company's right from inception, Napster never had a prayer of being legitimate. And the executives knew it. Menn characterizes Napster's business model as "an extortion racket", with the company hoping they could buy enough to time to sell out to the record industry, waving some asset (aggregated user data, or P2P technology) as the basis for a legitimate deal. So with each successive investor, Napster's management played a strange game of don't ask, don't tell. Right from the start, the moral issues over copyright were acknowledged, then with a shrug handed over to the VCs who consistently failed to due diligence. Or put another way, the VCs were too blinded by greed to give the implications a second thought.

Most emblematic of all these was the first investor in Napster, Yosi Amram: a huge, overgrown hyperactive child of a trader, who needed not so much Ritalin as horse tranquilizer to bring him to his senses. Amram's abiding hobby was blitz-chess: a game in which you walk away from your mistakes in record time.

"You have to make quick decisions. To me it's like the real world. Time is a fundamental part of life - you can't take timte off to go and think about it." So it's no wonder Amram failed to do due diligence on the copyright issues when he invested in Napster. As Chomsky said of Reagan: you can't say he's lying because he 's not present enough to know himself whether he's telling the truth or not.

Menn asks, is it any wonder that such destructive characters - who if they had never met a chequebook, would simply be harmless village bores in another era - were allowed to do such harm, when the opportunity of a bubble presented itself? In the book Menn writes, "If there is a more exact metaphor than blitz chess for Silicon Valley in 1999, it hasn't been made public."

"Due diligence fell out of favor because it almost didn't matter," Menn told us. "The rational thing to do was to take advantage of everyone else's irrationality." Even if a VC firm only got one or two hits out of a hundred to work, it was still feted.

He casts an equally unforgiving eye over the music lobby. "The recording industry is responsible for the fact that the airwaves are saturated with crap - it costs $1m to break a new band now" he says, and the payola and cynical exploitation of the artists are neatly described in All The Rave. At the same time, Menn blames Napster "and the reckless way it conducted business" for conditioning people to get stuff for free: and damn the consequences (and necessary social obligations).

There are no shortage of other larger than life characters along the way. Meet Bill Bales, Napster's veepee of BizDev (and how many of them you must have met in 1999?) who here is aptly snapped in a characteristic bug-eyed state of excitement. Bales it was who found himself described in a court filing by an ex-girlfriend as "not mentally balanced and coupled with his abuse of alcohol, I believe he is extremely capable of violent acts" and of whom a colleagued said, "Bill does not understand the concept of the 'no'. If he wants to get into a room and there's o door, he will go through the wall."

Or Tony Perkins, founder of the Red Herring publishing business (RIP), who here is portrayed as a kind of country club catamite. "Silicon Valley investors lived in a clubby world," Menn reminds us in the book. Angel Investors' Ron Conway bought into Red Herring; "Conway would give editorial director Chris Alden, who was an Angel Investors limited partner, an update on the fund's new investments. Then he would walk down the hall and pitch the magazine's news staff on his start ups." Conway invested $1.5 million in Napster. "With hundreds of firms getting Conway's money and only three other general partners running the fund, the whole thing would collapse if the mania stopped and the firm couldn't go public".

Uncle John

But most sinister of all was Shawn Fanning's uncle John. Not for nothing does All The Rave borrow a line from Hamlet "Observe my Uncle… speech, and in John Fanning the author finds a narrative thread that reader through most of the book. The relationship between Shawn and his uncle John was as complex as between Elvis and Colonel Tom Parker.

Fanning - described as a "surrogate father" to Shawn - came to the party with a track record for what in England is called GBH, and in the US is called assault and battery, and a turbulent and litigious history in online chess - taking software from the open Free Internet Chess Server project, turning it to his own use, then suing a rival. On seeing Shawn's bedroom idea, Fanning carved himself a 70 per cent chunk of Napster Inc. and his influence was only thwarted by the investment of the VC firm Hummer Winblad, at the death of the company. Not to spoil the page-turning plot - which is more bizarre than any fiction - Fanning returns to the scene to attempt a coup, by popular request.

So cynicism abounds: familial and opportunistic cynicism collide with the institutionalized cynicism of the music industry. But All The Rave is free of moralizing. Menn finds some light, for example. Eileen Richardson, Napster's first CEO is sympathetically drawn, even though she had never met John Fanning when she took the job - or taken her own legal advice on file sharing.

Menn unearths the hacker roots of Napster - the W00w00 circle - without sentimentalizing or sensationalism. He clear won the trust of Napster's engineers and gives them great credit. These hackers who discovered they had the skills to make large systems work: which is a challenge that always sorts the men from the boys.

Yahoo! and Google are justifiably cited as examples of great systems virtuosity, because they went from garage to global without service interruptions. But Ritter and his coherts created, in record time, the most-used cluster in the world without the participants even realizing it, and Napster's ramp was much steeper.

Menn's close relationship with the technical founders unearths some gems, not least a great email from Jordan Ritter (in charge of the cluster work we mention above), written from a non-descript Silicon Valley apartment at the height of the bubble (p.259 for impecunious browsers) to a girlfriend:-

Helping lead a revolution is hard on the body AND soul, and last I checked the revolution leaders were always killed and beheaded so who the fucks knows what's going to happen to us….

Did I mention how fucked up everyone's values are here? It's a requirement, I think on CA rental agreements or mortgage apps - Check if you are [ ] are heartless fuck, [ ] a moneygrubbing sadistic fuck [ ] a techno-geek loser with no life [ ] a wannabee of any discipline listed above. If you didn't check one of the above, please go the fuck away because you will be miserable here.

Obviously the Napster that return today has no semblance to the original: bar the logo and the name. "It's a sign of how far the labels have fallen, that even they now realize that the Napster brand not only has high recognition but that it's overwhelmingly positive too," Menn told The Register. "In some ways Andy Grove was right: technology has trumped content."

But has the Valley wisened up?

Perkins is back and up to his old tricks (subsequent to the claim we reported in this article, Perkins admitted he had only circumstantial evidence of KP's "investment" in Friendster).

And now Winblad makes her return to center stage, to tell everyone how it should have been done. Naturally you wouldn't expect a Silicon Valley conference to exude anything other than optimism and confidence: Silicon 4.0 is typical in that it's already hard-wired with several assumptions: that you need venture capital to help you build a successful business, and that if you want to come next, then ask a VC. ®

Related Link

All The Rave (The Rise and Fall of Shawn Fanning's Napster) [Amazon US - UK]

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