Napster absolutely must start making its profits now—regardless of what it does with its Success Formula. This will require that the company focus less on growth and more on efficiency and effectiveness so that it can make its profits now. But wait, you say. Isn’t market share the eventual pathway to profits and long-term success?
Well, no. That would be another aspect of the Myth of the Flats. There is little evidence to support that merely being big has any advantages at all for generating above average performance. It is well documented) that the company with the largest market share in an industry does not have a better likelihood than pure chance of having the highest performance in the industry. Companies must be distinctive in a way that matters in the market, and it’s becoming increasing difficult for big companies to do so.
Another basic tenet of the Phoenix Principle is Reap in the Rapids. There’s no evidence anyone is making profits in the online music industry during its current growth phase, which is a common mistake driven by The Myth of the Flats. According to the myth, companies should grab market share and not worry much about profits while growing. Then when the market slows, the dominant companies will be able to control margins and earn huge profits. Well, that’s a myth. In today’s copycat economy, there are no above-average profits in the Flats, you have to earn them on the way up—you must “Reap in the Rapids.”
So what should Napster do? One thing it could do is pursue any of the well-documented approaches to operational effectiveness available in the marketplace today. Another, less obvious but equally important action to take is to change its staffing mix.
People can be loosely grouped into two types, Explorers and Stabilizers. Explorers are hard-wired to be more comfortable with change and ambiguity and tend to be dominant in the early lifecycle stages, which is why efficiency takes a back seat. In contrast, Stabilizers are mentally wired to prefer making processes and practices consistent and dependable. Stabilizers are important in the early stages of the business—the Wellspring and the Rapids—to provide operational stability. Many companies in the Internet boom failed because they lacked the discipline and cautiousness that Stabilizers provide.
It is possible that Napster can make the changes needed to ensure enduring success. Whether they do or not depends on how locked in they are to historical methods for competing and seeking long-term success.
What are your thoughts: is Napster’s strategy solid or a setup for failure?
