Chapter 1 the Entrepreneur: Concepts and Evidence

24 Chapter 1 The Entrepreneur: Concepts and Evidence The following case material is extracted frem a case study written by Professor Hans Bent Martinsen at Aarhus " Business Scheoj, Denmark and we aTle grateful f0F the permission to lise it Source: Martinsen (2006) Why were Janus Friis and Niklas Zennström successful with Kazaa and Skype?, Aarhus Business School, Denmark. Three important technological trends occurred in the 1990s: • The growth of digital recordings via CDs and move away from analogue recordings • 'flue growth of home PC use • The growth and availability of the Internet allowing the possibility of sharing digital files with other users During the 1990s the music industry had seen th€ introduction of digital CDs, and with the advent and take• up of home pes copying CDs and retaining qualify of sound became viable. The I!flternet brought the pos• sibility of sharing and exchanging files. In 1999 Napster was created by American student Shawn Fanning: This was a software program that made MP3 files available for all other Napster users via the Internet. In this way Napster turned thousands of computers into one huge server. However, the Recording Industry Association of America (RIAA) took Napster to court and Napster was forced to close its server in August 2000. But Napster had shown the way and soon there were a whole swarm of peer-to-peer file servers on the Internet. The result was that companies could try to get court injunctions, but because servers could be ænywhere in the world, the growth of downloading digital recordings via the Internet continued unabated. Tele2 is a Swedish telecom company operating in 23 European countries. In 1993, Tele2 launched fixed telephony as a virtual operator and across several European countries by 1998. In 1997 Niklas Zennström, a 32-y.ear-old MSc Computer Science graduate was working for 1Iele2 and was tasked with building an ISP for Tele2 in Denmark. Janus Friis was :22 years old, had left school with• out formal qualifications and was working at an Internet service provider (ISP) in Denmark, called Cybercity. During 1997 , Janus Friis was hired by Niklas Zennström to work on the establishment of the Tele2 ISP and by 1998 they had forged a working partnership with Friis providing the creative ideas and Zennström the business and strategic leadership. They worked on setting up ISP centres im other nations in Europe, including Luxembourg and Amsterdam. The nature of the partnership has been illustrated by the following extract: In October 2004, Søren Krogsgaard from Beringske Nyhedsmagasin described Janus Friis as the visionary generator of ideas, while Niklas Zennström seemed to be the erganiser bringing ideas into being. (Politiken, 14 August 2005) Socio-Behavioural Approaches Chapter 1 25 .... Krogsgaard goes em to say: The differences are clear to everyone. Friis is ten yeass younger than his Swedish counterpart. He wears T-shirts and a rucksack, while Zennström seems to prefer a pin-striped suit and an attache case-Friis wants to develop ideas that generate popular movements, Zennström speaks about ideas . that will be big business. The development of the ISP business across Europe had led to some issues regarding capacity and band• width. This effectively determined the extent of traffie that cøuid be handled by an ISP, obvi0usly in mm limiting capacity for business and income generation from subscribers. Peer-to-peer (P2P) distributed computing offered an alternative. This technology uses the Internet but avoids central servers by using each other's PC for storage while online: the Internet is purefy the connection. This develiIy solves the problem of mass distribution on the Internet; it avoids situations where systems can crash because thousands of subscribers try to download files simultaneously. The P2:P principle works well with very popular files, which use the principle te create greater accessibility. It side-steps neatly the need for server provision and is impossible to control by the major recording companies and the movie-industry. These developments coincided with the dotcom boom (see earlier eomment in this chapter), when venture capital money was chasing new start-up ideas. By now Friis and Zennström had experience of Internet business dsvelepment, saw the potential for P2]? and decided to launch their own j oint venture, burt witheue any clear idea af exactly which service they would provide. They based themselves in Amsterdam at Zennström's apartment with Friis in the guest room and the office in the kitchen. Zennström told Politiken that at the time: We knew we'd come up with something, ar, at least, we hoped we would. Neither Zennström nor Friis were programmers, but they could see the potential for P2P on the Internet especially as the legal cases against Napster in the USA had shown that an alternative solution needed to be found. Kazaa uses a P2P principle developed by Estonian software engineers working in a garage. Three Estonian programmers were led by Jaan Tallinn who had meet Zennström and Friis while working for Tele2. Zennström commented: These are the best software developers I 'have ever seen in my life-and'-they are very skilful at problem-solving. The software developers came up with a program called Kazaa, which outsourced its server needs to its users; it became a self-organizing network with.supernodes which were represented by people's pes with fast broadband eonneetions. After four months of development, Zennström and Friis launched their new start-up company which they called FastTrack with the Kazaa file-sharing service. Zennström founded 1lhe company with his savings, there was pö borrowing and no venture capital and zero expenditure en marketing and advertising. Friis: We uploaded the programs to a web server and entered links on http://download.com and other shareware sites. Then we just sat down and waited for something to happen. .

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