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Discussion Starter · #1 ·
I just saw on the news ticker in the bank that Napster filed for bankruptcy...:(


So I have been wondering for a while: How does a company like this survive in the first place? Last I heard, they had 45 employees. This company offered a free service that wanted no money. They had no banner ads, nor did I get any spam emails (that I know of) from them. They managed to pay legal beagles to defend them in a lengthy trial, and were in business for how long, 4 years?


So how does a company like this survive? Where does their revenue come from?


Just wondering...


Curt
 

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Curt,

Its like the old Saturday Nigh Live skit about the bank that did nothing but make change for free, they said when asked how they made money that it was the quantity not the amount they charged :)



Dave
 

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OK, but wait, investors? If I am an investor, what's my return? Investors want return on investment, and usually they do not throw money away. If they do, turn them onto me!


Let's face it, college kids that were using Napster do not have money. Now if it was a front for drug money laundering, I could understand..;-)


45 employees at, say, $2K a month is $90K. Not chump change (for me anyways)


Dave, don't ya miss the old Sat Night Live?


Curt
 

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Curt,

Yes I do miss the old SNL..... has never been the same since...


Maybe with Napster they always planned on going to a pay per month subscription service once they had a good customer base and everything ironed out. Then the investors might have seen a return....



Dave
 

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Discussion Starter · #6 ·
Except for Ana Gasteyer's imitation of Celine Dion. That was priceless. We Canadians as a rule HATE Celine Dion. It's the middle aged American women that buy that tripe and keep her at the top of the charts...;-)


Curt
 

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Yes that was priceless, I haven't a clue who'd by her stuff as I don't know a single person that admits to liking her music.....



Dave
 

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"... I haven't a clue who'd by her stuff as I don't know a single person that admits to liking her music....."


This is another mystery, how does Celine Dion make money...
 

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"This is another mystery, how does Celine Dion make money...

"



Must be all the royalties from Titanic..........



Dave
 

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A third mystery... how will they make Titanic II?


Mike
 

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Quote:
So how does a company like this survive? Where does their revenue come from?
Three letters:


I P O


Most of these companies got millions (usually hundreds of millions) of $$ in IPOs in 1998-9. They probably had plans to someday, somehow actually make money but most were not realistic and many really never had a good plan. But, all that IPO (and many secondary offerings as well) money lasts for a while.


Almost all of them are gone now though, because they were all pretty good at spending that money as well.
 

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Curt,


The main way that dot com co's make money when they don't actually sell a tangible product (like offering only a service), is to sell ad space on their site, or sell links, or sell "bird dog" type services. Their selling point, obviously, is that people will want to come to their web site for the "service" they offer, and therefore those companies that invest, or buy ad space, etc will get exposure and more biz. Un fortunately for the dot commers, it hasn't worked out too well for most, and the ad space hasn't been very worthwhile.
 

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Curt,


The investors that backed Napster were not interested in income distribution, but rather capital appreciation. Sort of like stocks vs bonds. Many stocks do not issue a dividend, but rather the value of the stock goes up, and people make money when they sell the stock. Whereas a bond will issue a posted yearly return, and people buy them for a return. In the "internet age", the theory was that the value of the stock would rise when the market penetration levels would increase. The company would either make money by advertising or by charging a user fee after everybody was hooked. Of course it did not work out that way...


Karim
 

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kkabji .... Exactly. Capital appreciation.


I've been in the markets since '96 ever since I added stocks to my RRSP investments. So I've been through the dotcom boom-and-bust. Before March 2000, it was a pretty liberal climate -- lots of dotcoms got free money, no matter how terrible the dotcom business model was. Big investors were just willing to gamble on capital appreciation, because the Internet stocks often really went BOOM upwards in those days especially during an IPO!


These days, the venture capital investors are paying attention to whether they will get a good return on the business models..... rather than simply gambling like they used to! (easy money for bad dotcoms.)


I did get some good deals out of it -- The dotcom companies started my massive DVD collection. There were so many $15-off-$30 discount coupons in those days, to lop half the price off your DVD purchases! And there were those few 70-80%-off-MSRP opening day DVD sales on some dotcom online stores. It used to be easy to load up on many titles like Criterion Brazil for $16 and Nightmare On Elm Street Box Set for $45, to Robocop Criterion for $9.80. Some of them really got overloaded, but it did get me about 300 of my DVD's at less than $10 US apiece on average! Most of these dotcom stores are now out of business now....


See... The venture capital investors were a lot more greedy only a few years ago giving free money to poor dotcom business models! For a really long while, consumers really benefited.... but when the bubble burst around March 2000, it was watch out below! And my RRSP is still reeling even today. :-/ (Thankfully, not even nearly as bad as the NASDAQ index...)
 

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Imagine if you will, that you had $5,000 to invest and you turned to a broker or some other financial advisor to suggest certain equities to buy into. If the economy is such that there is nothing but positive press (emergence of MSNBC) about an emerging technology that will revolutionize or replace all together a mature and staid method of commerce or communication or whatever, it becomes very tempting to ride the wave of this new way of delivering services and products. So it was with the internet boom and all the dot coms that came along with it.


Many financial experts warned the public repeatedly about a coming realization that these tech stocks were overvalued and that an adjustment was inevitable. This was backed up by the fact that many of these start-ups posted almost perpetual quarterly losses while their price to earnings ratios were astronomical. Yet, the frenzy had already begun and the "I want to be a tech millionaire, too" mentality was already deeply rooted in the minds of many trying to build their 401Ks for early retirement.


(Now donning flame suit) Couple this with the propped up economy of the Clinton years and you have a recipe for big time adjustment (remember the refusal by Alan Greenspan to cut rates amid howls from the economists?). We are now entering the third year of a bear market and the economy is very fragile with interest rates at record lows. We have gone through the great shake out in the technology sector and investors are now looking back to the blue chip companies (traditional manufacturers of hard goods) for a few winners. Well, with rates so low it makes better business sense to finance expansion (the little that is going on) with bank loans and bond issues than increasing equity (stock issues).
 
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