In 1999, the record industry raked in $14.6 billion in revenue and was growing 6 percent annually. Then, Napster appeared on the scene and forever changed the record industry. Napster’s innovative disruptive technology—file sharing via peer-to-peer technology—appealed to the growing “pay-per-tune” generation, seeking only a particular song instead of the entire album.

Of course, you probably know that the federal government eventually deemed Napster’s activities illegal and put it out of business. But the pay-per-tune notion of purchasing music never went away. Apple’s iTunes provides a catalog of over 400,000 songs, each of which can be purchased without buying the whole album. Paid downloads of individual songs is expected to reach $3.2 billion in 2008.

Unfortunately, this isn’t good for the record industry. Album sales, which account for the majority of revenue, ended at about $600 million in 2003, down from $711 million in 1999. That decrease is greater than the projected increase of pay-per-tune revenue by a wide margin.

But pay-per-tune isn’t the only culprit. It’s estimated worldwide that the illegal downloading, piracy, and file-sharing of music accounts for 40 percent of the decline in record sales. In these areas without a doubt we confront the illegal and unethical use of technology. The technology involved itself obviously isn’t illegal or unethical. The use of the technology is.

So, what is the record industry supposed to do? Accept its fate as a dinosaur doomed to extinction? We believe not, along with many other people.

As Dave Allison, owner of Times Beach Records, explains, “The entire industry has to redefine itself and change . . . We’re all in this together, and we have to move forward together . . .” Indeed, the record industry must undergo dramatic transformation if it is to survive and thrive.

This story of the record industry isn’t really about the disruptive technologies of the Internet, file-sharing peer-to-peer systems, and MP3 players. It is about the challenge of those technologies and the willingness of organizations—or, in this case, an industry—to embrace those disruptive technologies and determine how to use them instead to create a competitive advantage.