1995:

• In '95, the Internet began its explosive growth
• Over 95% of users online were American
• Over 95% of goods and services were paid with a credit card

Pay system: Credit cards

• Credit cards work for most medium to large businesses for online transactions ranging from $5.00+
• Typical fees: 25¢ + 1½ to 3% or more per transaction

ebay:

Small to medium-size merchants helped EBay grow. However, these mom-and-pop merchants had unique needs and traditional merchant (credit card) processing services were economically impractical. PayPal emerged to provide "master merchant services" to these occasional merchants on an as-needed (per transaction) basis.

Pay system: PayPal

• PayPal works for small to medium businesses for online transactions ranging from $2.00+
• Typical fees: 30¢ + 0.7% to 2.9% per transaction

The problem:

Consumers now want to purchase selected single items from traditionally bundled formats:

• CDs
• DVDs
• Magazines

But...

• Publishers and vendors have failed to meet and have even obstructed consumer expectations
• Litigation
• Outdated monthly subscription models

The target market:

Music Industry Facts

• Traditional music sales off 14% since 1998;
• 140 million+ users download songs from Internet;
• Industry claims $2.6 billion loss last year due to illegal downloads from Napster, KaZaA, Grokster and others;
• Apple iTunes responds with 99¢ legal songs and now sells 500,000+ per week;
• Apple's market share only represents 3% of PC users with remaining 97% of Windows users waiting to be served;
• Napster re-launches in 2004 with paid download model;
• Lower price points would increase volumes substantially;
• Lower transaction fees would represent higher margins;
• Minimum size of target market estimated to be 15 million Internet song purchases per week.

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