The Music Industry Ignored an Obvious Trend. Apple Didn't

A similar misstep was made by formerly dominant music companies like Sony, Universal, Columbia, DreamWorks, A&M records, and others. The big dogs of music were partying like it was 1999—especially in 1999. Traditional CD producers and manufacturers owned the best artists, the most comprehensive distribution channels, and the best promotional vehicles. Artists like Mariah Carey, Robbie Robertson, and Whitney Houston were signing record deals worth $80 million to $125 million dollars.

In June of that same year, 20-year-olds Shawn Fanning and Sean Parker were developing a file sharing software program that would allow college students to freely trade MP3 music files. They called it Napster. Fanning and Parker knew all too well that there is nothing more appealing than free music to a college student (unless it's free beer coupled with free music).

Napster, of course, went viral. At its peak, the tool had 25 million users sharing 80,000 million songs. Of course, the artists who wrote the music considered this so-called sharing to be stealing. Lawsuits were numerous and usually successful, since copyright violations had taken place. Despite appeals, the Ninth Circuit court shut Napster down in July 2001.

While Napster had lost the fight, it had unequivocally derailed—and therefore transformed—the music industry. Listening to music via an MP3 sounded just as good as the CD. Even better, it meant that listeners could arrange their music in the order they preferred to hear it. Plus, they didn't have to buy an artist's entire album if what they really wanted was just one or two songs.

Today, the iPod is ubiquitous. You might even have three of four of them yourself. But the idea of a portable music player wasn't new. Remember the Walkman? Sony launched that portable tape player back in 1979. Given the obvious global success of the MP3 file, one would assume that Sony would be waiting in the wings with its superior version of an MP3 player once the Napster dust cleared.

But it wasn't. Seduced by the investment in its aging paradigm, Sony waited too long to change gears.

On the other hand, Apple was in the computer business, and while it didn't know anything about how the music business worked, it did know that the culture—our collective consciousness—had spoken. The direction in which we wanted to head was clear. Apple just had to create a device and way for artists to be paid.

While the record companies were fumbling about, trying to figure out how to save their CD businesses, Apple was experimenting with a new kind of MP3 player. Apple knew there had to be a store (virtual or otherwise) that would eventually pay an appropriate amount of money to the recording artist. The company also knew that consumers wanted to listen to music in a user-determined fashion.

The first iPod debuted in October 2001. It held 1,000 songs and had a scroll wheel so users could find and play the exact song they wanted. The price tag was an outrageous $400. Yet an eager public stood in long lines to purchase one.

Apple had revolutionized the music industry forever, leaving the traditional music companies glassy-eyed, overstaffed, and lost.

Was this a head-snapping trend that took the music industry completely by surprise? How could it? Isn't Sony one of the world's technology leaders? Napster shared millions of MP3s beginning in 1999, and the first iPod wasn't introduced until October 2001. Seriously, the iPod didn't arrive until two years after the shared MP3 file had already announced itself as the future.

C'mon. Two years?

The music industry should have been nimble enough to recognize that the tide was turning. It should have noticed a sea change like this. I mean, you would have noticed something like that in your industry, right? (Nod your head up and down.)