Starting a sound business
MP3.com founder Michael Robertson discusses his revolutionary company
By Staff Writer Hope Hamashige
February 28, 2000: 7:04 a.m. ET

NEW YORK (CNNfn) - A successful Internet business, according to MP3.com founder Michael Robertson, only starts with a good idea and superb technology. It takes off when, as he put it, the stars align in your favor.

"Timing is important on the Internet," Robertson said.

Speaking from experience, the 32-year-old Robertson will tell you that Internet companies, even ones with sound technology, may flounder first and fail later if they come together at the wrong time. Robertson launched a digital photo production company that had only a short life because, as he put it, "not too many people had digital cameras back then."

For all same the reasons that company failed, MP3.com (MPPP: Research, Estimates) took off following its November 1997 launch. Using the MP3 audio compression technique, Robertson created an Internet site on which musical artists can put their music up for sale, take 50 percent of all revenue, promote their work and keep the rights to their repertoire. In doing so, MP3.com started a musical revolution that turned the music industry and its traditional power structure on its head.

There was no way to anticipate the reaction MP3.com was going to elicit graphicfrom the music industry, Robertson said. The Southern Californian said he got hooked on the idea of downloading digital music not because he wanted to take on the music industry, but because he thought it was "really, really cool."

Apparently, so did a lot of other people. Investors liked the concept, too, and sank millions into MP3.com when it was about a year old. Today, more than 400,000 unique visitors browse the more than 300,000 songs on MP3.com every day despite the fact that no big-shot talent is putting its tunes on the site.

The dearth of top acts has been little comfort to the music industry, which believes Robertson's company and digital music have illegally loosened its control over the distribution of music. In January, the Recording Industry Association of America filed a lawsuit alleging violation of copyright law against MP3.com after it launched its Instant Listening service that allows customers to store CD collections and listen to newly purchased CDs through a password-protected online account. (Time Warner Music, a related company to CNNfn.com, is a party to this lawsuit as a member of the RIAA.)

Although Robertson says he never set out to shake up the music business, now that the battle is on he has vowed to fight the RIAA, which he now refers to as "a bunch of bullies." He called the onset of a major legal battle with a powerful industry a huge disappointment.

"There are ways you can embrace the technology instead of resisting it," he said.
Robertson, CEO of MP3.com, spoke with CNNfn.com about starting a fun Internet company, the good fortune that comes with good timing, and taking on the Recording Industry Association of America.

How did you come up with the idea for MP3.com?

My third company was a company called Z Company and we were building search engines. I noticed that a lot of people were searching for something called MP3. I didn't know what it was or anything about it. But that's how I got started in it. It was just a collision. The stars were aligned. We bought the MP3.com domain name from a guy for $1,000. He had the domain because those were his initials. I went home after I had bought the name and my wife got really mad because we had no money at the time.

Did you know at the time you were on to something big?


With the Internet, until you actually do it, you're moving on instinct. All you can do is move and, when you're in it, you will know that you're on to something that's going to work. You have to make decisions very quickly.

If you took the time to research it and analyze it, you would miss the window of opportunity. If you're not in the water, you're going to miss the wave.
So, what did you know about music before you started MP3.com?

I knew nothing about music or the music industry. Initially, we had nothing to put up on the site. But here was my brilliant idea. I started aggregating all the news articles on MP3. We decided to write our own news articles, so I was learning about the music industry as I wrote about it. I figured out that the real opportunity is music and we had to be innovative about collecting music.

graphicLater, we started searching the Internet and found about nine bands that had put up a song on the Internet. We contacted them and asked if we could put them up on MP3.com. I realized we needed to house all the music on MP3.com because they were linked to bad technology. It was very unorganized and inconsistent.

That is how we came up with our model of letting artists sign up on the site and promote their music. They keep the rights to the music and they are non-exclusive so they have the right to leave any time. Artists never had those rights before.
In the last few years you have moved from a self-described techie starting a small company out of his home to managing a public company with more than 200 employees. Has it been difficult to make the transition from techie to manager?

It has been a challenge and I have liked it a lot. I have a great management team. They give me some direction. My president started his own company. Paul Ouyang, the CFO, had taken a company public before and that's how we went public so quickly.
How did go about recruiting them?

The first senior executive I brought in was from Tickets.com (TIXX: Research, Estimates). I was there giving them a sales pitch, telling them this would be a great place to advertise. We spoke later and he said he wanted to come work with me. That was Robin Richards. He was instrumental in getting the management team because he brought the CEO from Tickets.com. That is how we got Paul (Ouyang).

What was it like shopping around for venture capital?

VC was a very unusual experience because we weren't looking for money. We were really operating on a shoestring. We were paying for everything with credit cards. We didn't have a phone system. We couldn't afford a digital phone system. We were just trying to focus on growing the business. Sequoia Capital called us and we ended up taking $11 million at a $50 million valuation.
What do you tell people who want to start a technology company?

I have been talking to a lot of business students. The first thing I say is (that) times are changing. I always tell them to forget about writing a business plan. In the time you take writing a plan you can launch a business. It is more important to go build it. You can start a business, especially an Internet company, on a very small amount of capital. Our entire business plan was three pieces of paper. We didn't have any final projections. It just said here is what we are doing.

Forget about everything you learn in business school. It's true. The rules of business are different on the Internet. The classic thinking is too restrictive.

Also, don't take anyone's money. When you take someone's money you can become arrogant. If I have $5 million of someone's money I don't have to listen to the consumer. But if you don't have money it keeps you in tune with where there is demand on the Internet. We took money only late in the process. You save a lot more of the company for the founders. Because of that, I have the largest stake in the company.
Tell me about the early days. You said you had almost no money.

We cut corners wherever we could. There were three of us and we started working out of our bedrooms. We each had a speakerphone and cable modem, so it was a virtual office.
We bought almost everything with credit cards, but we used to buy things really late in the month so we could miss a billing cycle.

We used to go to Fry's (a discount electronics store) and get cheap parts and we made our machines, one at a time. We would torment the Fry's salesmen because we brought all the catalogs with us to get the best prices. We bought computer parts really inexpensively. We still build our own machines.

When we got a fourth employee, we moved to a small office. All new employees had to buy their own cell phone. We would pay the bill, but we used cell phones because we couldn't afford a digital phone network. New employees also had to order their own chair and desk from Office Depot, get their own electric screwdriver and build it themselves.

It was kind of fun.

Are you concerned about the lawsuit that the RIAA filed against MP3?

There is a lot at stake for our company and our consumers. Our technology allows consumers to take all the CDs they have bought and store them on the Internet. That means I can play all my music anywhere I go. They (the RIAA) think it violates copyright law. We disagree.

We don't make any money from this service, so there's no immediate impact there. It will be interesting to watch. They want to sue for up to $60 billion.

Our contention is they are trying to bully us. They are aggressive big bullies and they are throwing every attorney they can find at us. I think they'll find out we're pretty tough down here in San Diego. We are on the right side of the law.

The music industry has a history of suing every new thing that comes along. The only way they confront new technologies is to sue. It disappointed us because there are enormous ways for people to make money using this. Back to top

I miss that site. This must be an old Article.

Back in the Summer of 97, I worked for MP3.COM believe it or not. Once they got big, they hired a crew of people, to help with the packing and shiping of thier disks for minimum wage. One day I took a disk home with me and decided to check it out. That's how I got into MP3s. From there I discovered Music Match, from there, MP3.COM (funny how at the time I was working for them I hardly knew anything about them until I took one of their disks), From there, Acid Pro and Caferpess.

That guy came to our warehouse one day to talk to us. He was basicly saying that we were toing a good job and to keep it up. Nice guy.

Thank God for sites like DM who fill the void for what was once such a good company.

This article is from way back when Mp3.com was still "cool" ...from a time before they were sued into submission, then bought out by Vivendi Universal and ultimately dismantled. Back then, Mp3.com was almost on "par" with what Dmusic has become. It is a shame that Michael Robertson ultimately was really only in it for the money. Had he simply given-up on the ill-fated My Mp3 "locker" (or changed it to where you had to upload the tracks yourself) --and had he not simply "taken the money" and abandoning Mp3.com to the wolves, the digital music landscape would have been a lot different today.

I still suspect it was his plan all along to push the RIAA buttons with the "locker" to the point where they felt threatend enough to take action and to where he was "forced" to sell Mp3.com to Vivendi for a quick bundle, leaving all the artists in the dust.

Michael Robertson betrayed the indie music community (perhaps deliberately IMHO.) I still have never completely forgiven him for it.

That's a good point, but from the article it also sounded like he dove into the whole thing blindfolded, and if you're a first time business man, and your business gets big and all of a sudden someone wants to sue you for up to 60 billion, it would scare almost anybody enough to sell the company. But I know what you're saying. I used to have a lot of respect for MP3.com up until about 6 months before it's "undoing" and left. This was my last journal that I kept...

10/03/2003 12:52 PM - how's it going? Something has come to my attention that I hadn't noticed before and needs to be addressed right now:



I joined mp3.com about four years ago, back then it was new, and pure. over the years I've noticed small changes here and there, yet they were subtle enough for me to not notice. it took me going to bootcamp and leaving my computer for three months to see that mp3.com was going down the shitter, but why it was didn't come to my attention until yesterday.

Go to http://www.boycott-riaa.com/artists/

I have been opposing the riaa ever since the beginning, I hate how they attempt to monopolize everything. thus in light of this new info, I'm perminently leaving MP3.COM although I know this really doesn't matter, it's the least I can do. I have a new website www.aflunky.com Goodbye.

-Flunky

I find this a fascinating thread. I don't participate in forums much here, because of the experience Michael Robertson had having his emails and listerv posts shoved in his face under oath in the Mp3.com litigation. I am a lawyer, and I learned to shut yer face on the internet if you plan to be in court.

So for the last 5 years, I have more or less kept my mouth shut. Aflunky's post got me thinking though.

Sometime you don't see the forest for the trees. Robertson was not focused on the music industry, he was focused on an ipo. I knew it at the time and from the get-go. Why? Because of the times, the huge mid 90's stock market surge post Oct 11, 1987 crash, the dotcom bullshit cavalcade of non-businesses going public every day, and I was a middle aged lawyer who had litigated plenty of securities class actions to know a line when I saw one. Hell, I had a relative who got home confinement and SEC suspension. But the idea of moving sound files around in 1995 was obvious to even me, and it was obvious by 1995 that the internet music thing would change the music industry quickly and forever, and the powers that be would fight it like hell.

I now know that the first Internet album was put up for sale in 1995, and the patent upon which it rests (the sightsound.com patent), is still being asserted and litigated. But in 1995, and I was just getting into the internet. For some reason, I always lagged behind in the technology. I was advanced for a lawyer and a musician, but I was still dialing into bbs's like compuserve and prodigy and Lexis.

Then I stumbled upon Mp3.com in 1997 and I realized that I was behind the curve big time. I had no idea of the amount of interest in that friggin format. I assumed the format was transitory. But I wasn't into the "computer business" or the "internet business". I didn't know what that was. But I was getting a bit into it.

Then I stumbled into fenphen. 1997 Was the start of the largest mass tort yet, and I usewd my internet skills to make some serious money on fenphen. Wound up being on the class action trial team, ran the Philadelphia Common Please fenphen web site, etc. The Mp3 revolution had to wait.

I didn't come back to it until 1999, when I see that Mp3.com had gone public and had a market cap at its peak of one billion dollars, more than EMI.

And then it all went away. The whole fuckin revolution got bought out. Litigated and bought out for 375 Million. Robertson got 100 Million dollars.

FUCK!

stay tuned for chapter 2 of THE DMUSIC REVOLUTION

He got scared. I mean when I talked to the guy a long time ago, he was a fresh millionaire, he was completely stoked about the business and probably never thought 'what if' he just up and did it, and as fast as he started it, he ended it, probably afraid of losing everything.

Since MP3.com's downfall, I have been searching on and off for another community website. I feel like an idiot cuz the whole time it was right under my nose. My wife was all into Devart and Dmusic, though a separate thing, is almost like a sister site to it. I am so glad I have finally found a place to fill that void that was missing. (Not to sound all cheesy, but I am grateful I found this site) I prey it never goes down the same path as MP3.com.

Long Live DMusic!

I met Robertson several times. I know what you mean. We even hired his sister to run Dmusic for 8 months.

But I am gratified that at least one person realizes the simplicity of the Dmusic mission.

We are completing the Mp3 revolution, one way or the other.