Back in August 1995, Microsoft launched its long-awaited, new at that time, operating system, Windows 95, to much industry anticipation. The company had delayed all year long, and eventually Bill Gates announced it to the world at Windows World 95 to the tune of the Rolling Stones’ “Start Me Up”. Media coverage cemented Microsoft’s total grab of all that once differentiated the Apple Mac.

Meanwhile, Netscape had been formed the year before, and was creating a market storm. No sooner had Windows 95 launched, than Gates realised the real war was going to be waged elsewhere – not on the desktop, but on the internet.   

What I witnessed between August 1995 when Microsoft, based significantly in Seattle, not Silicon Valley, and 7 December 1995, only four months later, was a complete repositioning in the market of a company which dominated the desktop - a repositioning of that desktop software company to engage with, pursue, and eventually position itself to dominate the internet – a disruptive, new technology of unknown impact. By early December, only four short months later, when Microsoft announced its internet strategy, Windows 95 had been long forgotten, and Microsoft worked feverishly not to become obsolete as the industry move to the next curve, with or without Microsoft, leaping from the inflection point called the internet. Bill Gates released his book, The Road Ahead, which sought to outline what his company would need to do to say ahead of the curve.

The experience of seeing an industry giant such as Microsoft shift into overdrive mode, move all of the deck chairs from one side of the ship to another, in a very large organisation was an experience that has made a permanent impression in my mind.  It was the lack of proximity to the ideas brewing and exploding in Silicon Valley which many credited with Microsoft’s missing of the early signs that the internet was going to change our lives and businesses forever. Regardless, even if it was not the first to internalise the widespread change upon us in early 1994, the firm moved swiftly to reposition itself in the game. And due to the enormous advantages it had, Microsoft was able to catch up and lead.

Netscape  had come to symbolise the internet as the first browser surged through 1995, but then Microsoft Internet Explorer, a competing browser, dramatically usurped Netscape Navigator’s position as the de facto browser throughout the late 1990s until Netscape was swallowed up by AOL. Nobody talks about Netscape these days at all. Microsoft’s enemies took the battle to court with many lawsuits but Microsoft’s position was that it could not be stopped from innovating its own platform. 

Something eerily similar is happening in the music industry today. The gorillas of the old record empire have been smugly running their empires while a new music industry has grown up beside them barely giving them a glance. Can they wake up in time? Or are we witnessing the wholesale destruction of an industry with the emergence of its successor? Can the deck chairs be shifted or has the ship already started to dive?  Has Guy Hands’ Terra Firma bought a dinosaur in EMI?

If you were to build the music industry today from a clean sheet of paper, you would build an ecosystem of companies with single propositions and business models rather than a series of oligopoly record labels which dominate the industry. The artists who create music and how they are managed is a different discipline and skillset than what’s required to distribute their creations. 

The new power players in the music industry – such as Apple - are those companies who do one or the other, not both. Apple distributes to consumers because it had an insight into how people wanted to listen to music. The early bullseye gave market power – the ability to fix the price of a single as one example.

Companies such as IndependentIP out of Amsterdam are core to the new music industry. You could call them a software asset management company. Basically it connects in a “Linked In”-like fashion someone who creates music with someone who consumes music. In Web 1.0 it would have been called a supply chain company, but today it is a supply matrix company, enabling “many to many” combinations through the FUGA platform. It is agnostic to inputs and outputs, but is the essential “switch” through which music labels and music consumers will deal with each other. 

If I’m a new independent artist, I select all of the rules for distribution in the FUGA system, and IndependentIP automates and manages my song. The company offers an entire toolset to handle not just delivery, not just asset management, not just reporting, not just contract management – all of it.  And there can’t be incompatibility issues in working with FUGA. Whoever wins in terms of distributors or artists or labels, FUGA wins because of the network-orientation. We live in a world which is no longer an “or” market, but an “and and and” one.

Whereas the internet was the disruptive technology which caught Microsoft unawares, the ecosystem and its implicit network-orientation to business models is what is surprising many established businesses today, particularly in the music and content industries. Witness the following three examples:

Think of TheBizmo – an online store to sell digital and physical products. It just demonstrated the first case ever of a song reaching the charts by digital sales outside of iTunes. The key insight is to enable people to sell the music they love online, or sell on to their friends and other people who like the same music, enabling me to make money as a retailer of my music online. This network-orientation to music  - in this case, one to many - will continue grow. What is game-changing about it however, is that the economics shift around the circle for the distribution to include “me”.   

Think of Lickerish, which is changing the face of celebrity photography. Whereas a couple of giant media brands dominate celebrity content, publications around the world who can’t necessarily shoot the big stars want to shoot them. Lickerish creates a transaction around the ecosystem of players who come together for a photoshoot. By giving the celebrity a cut of future revenue which is new, or cutting them into the revenue line, they secure the buy-in of the celeb to the cost line in the P&L for that transaction. So he/she takes a cab rather demanding a Rolls Royce to get to the shoot.   Lickerish manages the vault of celebrity imagery as well, but what the insight is, is that if you align interests around the goal for everyone, you make the transaction the most profitable.

Think of Monitise, the mobile banking services firm, built out of the City of London, and run by Alastair Lukies, who had the epiphany that there was a problem with every other mobile banking proposition in the market because banks weren’t at the centre of the ecosystem; they were mobile carrier-centric. And yet banks were where people put their money. The clever part of Monitise’s “go to market” strategy was to not create parallel or alternative structures or to try to change banks, but rather to enable them.   

Today you can access your current account at HSBC, Royal Bank of Scotland, First Direct, Alliance & Leicester – 60 per cent of the UK banking market, via your mobile phone. In the US, Monitise works with 9,000 banks through Metavente, its US joint venture. You can check your balance, top up your Oyster card, and transfer funds to your daughter’s account. Soon you will be able to make payments from your phone. Monitise is winning because it takes care of all of the players in its ecosystem, and so everyone is aligned in wanting to grow the volume of mobile banking transactions. It sits in the middle taking a cut of everyone which goes through their switch.

In 2008, the network is the disruptive technology. And business models follow where technology wedges open a new battleground. The winners in this next phase will be those who take care of the ecosystem in which they operate. The world has become implicitly “win/win”. I can’t win at your expense. Rather, I have to anticipate your behaviour and align our objectives.

Microsoft jumped to the next curve in 1995, and “caught up”. The music industry is going through its “come to Jesus” moment now. To survive they must downsize and redefine what they are as an industry as they are being redefined by the entrepreneurs who are busting into their space – the IndependentIPs, the Bizmos, the Lickerishes – to name a few. 

Never has David and Goliath been such an even match.

For long enough widgets have been a cool, ‘nice-to-have’ way to get information to your desktop, publish your music and video interests or photos online or to get people to interact with you in the social networking sites, but TheBizmo now is set to change that by making its users money.

TheBizmo widget is brought to us by the developers behind Groove Mobile – the world’s largest digital download platform with the aim of making consumers and content owners into business partners. TheBizmo simply describe its widget as “the music industry in a box” because it turns the consumer into the retailer.

While existing social network widgets enable users to indicate their interests, they lack the financial opportunity their recommendations open up. TheBizmo is a fully functional media player which offers users the opportunity to discover and promote both user generated and mainstream media content, and in so doing, earn from their discovery and interests as they engage their friends and networks.

TheBizmo works because it offers artists a genuine (and free) marketing tool, putting their content in the hands of the people who use and promote their content the best – their fans. Unsigned bands benefit as much as the mainstream label-backed groups because TheBizmo puts them on a equal platform. As MySpace has become a quasi-search ground for talent, TheBizmo takes this phenomenon and puts the mechanics of a turnkey store behind it, delivering the content to your PC and mobile.

The “music industry in a box” analogy describes TheBizmo perfectly because as a one-stop shop TheBizmo enables users to buy the track(s) they like and the ticket(s) to see the band perform. Put into context, one of London’s leading independent music promoters FeedMe Music has just announced that they are now using TheBizmo’s pioneering new widget to sell ‘e-tickets’ for their events. Gig goers can instantly buy tickets to FeedMe events simply by inputting their ticket requirements into the widget and receiving a text message as an e-ticket to their mobile phone. In addition to this, users are also sent a bar-coded PDF ticket to their email address.

A unique function of the widget is that is can be easily implemented into any digital space – MySpace, FaceBook, personal blogs - and instantly empowers artists and promoters to start selling their own digital content and gig tickets directly to their fans. Implementing the widget requires no technical knowledge whatsoever. A simple cut and paste, and fans and artists have instant access to the music widget at all times.

At Ariadne, we get to see a lot of technology and services with no real focus or user benefit, but we were impressed with TheBizmo because it brings together all the stakeholders in the value chain with a simple yet powerful discovery and monetisation tool. Dave Grenfel, managing director at FeedMe Music agrees.

“The widget is amazing. So easy to use and implement, providing both bands and us as promoters with an instant and powerful viral marketing tool,” he said.

We see TheBizmo as the biggest step change in music since iTunes, which revolutionised music in the 21st century. As Last.fm and MySpace have proved, the power of music and content is best harnessed by the fans and TheBizmo now takes this power and adds monetisation – an industry win-win.

By David Scholtz, associate, Ariadne Capital

One of the interesting aspects of working at Ariadne is getting to see a staggeringly wide variety of ideas and innovation. But just occasionally something comes along that makes you stop and think about some of the very bedrock technology innovation.  This happened earlier in the week when a piece hit the news wires about the Japanese government initiating a project to replace the internet with a  new technology by 2020 (some of the headlines during the week put it more sensationally “Japanese government plans to scrap internet”).

Wow, replace the internet, that sounds an ambitious project. Why would anyone want to do that? Well, there are things wrong with the internet as it is: lack of effective quality-of-service, security bolted on at various layers, power consumption of the billions of components, to name a few.  But ripping it up and starting again as the headlines imply is not the  way to go about it. Having two separate parallel networks? No thanks. Having an alternative network architecture driven out of a single government’s initiative to get an edge economically? This is counter to the whole meaning of the internet.

The internet has survived and thrived today because its underlying TCP/IP architecture has be able to embrace change. One part can be replaced or added  without effecting everything else.  At the bottom of the internet stack, faster physical transports have been developed and deployed without affecting the overall network - your dial-up modem has been no doubt now replaced by ASDL broadband and will, in future, be replaced by another faster technology such as VSDL, but it is still the same universal internet you are connected to.

At the higher levels of the stack innovation has flourished at a staggering rate. Simple application protocols such as Gopher and Veronica of the early 1990s have been superseded by http, enabling the web as we now know it. The universal addressing and transport of the internet has built entire industries, and continues to spawn more new and previously uncontemplated businesses.

This is the wonderful thing about the internet: as a universal platform it has fostered unprecedented innovation. The pace of change is set to continue with the initiatives around the semantic web and new technologies allowing for the distribution of computing around the network and hence blurring the boundary between computer and network.

The future of the internet, the platform that has been the powerhouse behind growth and innovation for the last 25 years, depends on evolving it and reinventing from within to remain the single open, universal network, not on ripping it up and starting again or building a second network.

By Fraser Harding, Ariadne's CTO in residence