Before I continue talking about some of the TechCrunch50 companies, I figure I needed to address the Napster acquisition by Best Buy. There seems to be a lot of people in the blogosphere scratching their head about this move, so I figured I should explain why this is such a great move. This can actually be summed up in one name, Wal-Mart.
Like many of you, I woke up to the news this morning that Best Buy purchased Napster for $121 million in cash. I also noticed that the blogosphere seems to be at a complete loss as to the reason for this move. While I generally enjoy any opportunity to bash the company I refer to as “Worst Buy,” I think they made a great business move with this purchase.
Wal-mart has been in the digital music distribution game for a while now, becoming the #2 company for selling downloadable music online behind only iTunes. Best Buy on the other hand is a bit late to the game when it comes to moving towards digital downloads. By Best Buy purchasing an established name with a large customer base (approx. 700,000 subscribers), they can quickly jump into the digital downloads game with minimal time and effort spent to develop their own solution to compete with the company that is essentially their largest competitor in many areas. Clearly realizing this is where the market is going, Best Buy needed to jump into digital downloads as soon as possible, and purchasing a company that has been synonymous with downloading music for over a decade is exactly what they needed to do before its too late and it becomes very difficult to gain any traction in the market. Creating their own service, working out distribution deals and many other things that come along with starting your own digital download service would have put Best Buy even further behind and would have likely lead to a number of logistical issues rather than allowing them to hit the ground running.
Not only is this the perfect business decision for Best Buy, who does not want to be left in the dust, it is also a big thing for Napster. Not only are they getting a nice sum of money, but the business they have can now be re-branded and taken to the next level. Napster has had a problem for years now in that it can’t seem to shake off the bad image it received when it was taken down by the music industry. Many people are still unsure of the site because of its past, even though it has now become a legitimate place to get music. By having a huge company such as Best Buy purchase them, it basically validates what they are doing and gives them the image that now they are a legitimate music destination rather than a haven for pirates. It seems as though a major acquisition was the only way this image shift was going to occur. And being paid twice what the company is worth for that to happen, isn’t a bad deal either.
This is essentially a win/win for everybody involved. Best Buy can jump into the market of music downloads with a large existing user base and can hit the ground running while Napster gets a big boost in their public image and paid twice what they company is worth. The only people that should be concerned about this union are other companies involved in the market such as Amazon and MySpace who is about to launch their own music service this month. Of course Wal-mart should be watching their back as well as this is a direct shot at them to send the signal that they aren’t the only big company outside of Apple that can play the digital downloads game. It is only a matter of time until the two get into a heated battle in this space, which im sure will get ugly and allow Apple to run off with all the money while the two giants fight it out. This will be very exciting to watch no matter what and I look forward to seeing how the consumer benefits from this move.
That is all I have to say about this, but I do have more posts coming about several TechCrunch50 companies coming up over the next couple of days, so stay tuned for those! Don’t forget to check out my daily podcast for more top technology stories such as this one at GeekNewsDaily.com!