Once synonymous with free music at your fingertips, Napster has evolved into a legit, music industry-supported download and subscription service. As Napster's chief technology officer, Bill Pence has steered the service's technical evolution.

The service initially launched as Pressplay, a joint venture between Sony and Vivendi Universal. That service failed quickly, and was acquired in 2002 by Roxio, maker of CD-burning software. Roxio had also bought the prized Napster name and rebranded Pressplay as Napster.

Napster was then relaunched as a legitimate service in October 2003, and it has been facing an uphill battle ever since, as popularity of the iPod has skyrocketed and brought Apple the lion's share of the digital music market.

But Pence says he likes Napster's chances at winning the war, despite losing the early battles. He says Apple is playing a dangerous game and that the eventual commoditization of music players will move the fight to services--a fight he says Napster will win.

MP3.com: Let's start with an easy one. Describe Napster's place in the digital music space right now in relation to its competitors like Apple and Real.

Bill Pence: Well, we're trying to create what we call an immersive music experience, so we do offer a traditional a la carte store like iTunes, but we're really trying to provide an immersive experience where you can discover music, and you can consume the music in whatever way you see fit.

So, in addition to the store model we offer a full subscription model. We've recently made that portable with Napster To Go. The subscription model enables you to listen to your music at home and on your stereo. And we've got a lot of features that we've had in the Napster service for some time that are all about community, being able to look at other people's collections, being able to look at their playlists, use them for recommendations.

MP3: So the underlying foundation at Napster...

BP: ...is about discovery and choice.

MP3: Let's talk about the market share issue. Apple is said to have about 75 percent of the market share right now. What does Napster need to do to eat into that?

BP: There are a couple of things. Clearly Apple's success primarily derives from the popularity of the iPod. And not to denigrate the iTunes store at all, it's a tremendously nice application, but really, it all starts from the device. There are a lot of other great devices out there, but none has captured the imagination yet of the iPod.

But we've long felt, and I've been in this business a long time, that to maintain that kind of dominance in the consumer electronics world is very, very difficult. Eventually we get into pretty significant commodification and price pressure, and you just have a proliferation of different price points.

It always seems like in the beginning, you can't see the light at the end of the tunnel, but eventually, the consumer electronics market tends to really be cost driven, and [the consumer is] going to have plenty of choices.

MP3: Besides the iPod, you have an iTunes phone to contend with.

BP: We also have a very significant position in the cell phone side. There's a lot of noise made about the deal that Apple did with Motorola, but we actually have over a dozen cell phones in the market that are music-enabled that'll work with Napster To Go.

MP3: Apple isn't your only formidable competitor, though. How do the other guys stack up?

BP: Besides the iPod you've still got other major players--making major mistakes. Sony is a great example. Connect has not been a success at all. They're not even on the radar screen. You know, a little company like Napster outsells Connect, and yet they're still going down this path of trying to replicate the Apple success with a series of players that all use proprietary code, proprietary gear, and [are] locked into their own software.

It is a foolish, foolish mistake.

MP3: Outside of the music-player market, what else is Napster doing to gain market share?

BP: The second element is one of just gradual education in the market around the benefits of subscription, and it's a bit challenging because it's one of those things where you know, I think you've probably heard people make this analogy before: you couldn't explain TiVo to somebody until they tried it. I think that's very similar with subscription music.

And then there's just the service piece itself, and we're continuing to make that even more compelling--making that discovery piece even more immersive. When you come into the service, for example, we want to make it feel like it's an environment that is not just unlimited but also that it's tailored for you, with personalized playlists that allow the user to dig deeper.

MP3: So it's a question of keeping that ball moving, whether it's education, marketing, more personalization in the service ... and that kind of thing.

BP: Yes. We're not going to shut down a la carte, but for some people, we are all about choice. We think that over time, the thing that really leverages the digital nature of this phenomenon is the subscription: being able to take your music from your desktop to your cell phone to your car. It's going to take some time but I think that's where we're going.

MP3: You mentioned cell phones. What was your reaction to Warner Music CEO Edgar Bronfman saying last week that selling music over mobile phones was "the single greatest opportunity the music industry has ever had."

BP: I'm certainly not surprised that he said it, and we agree with him in principal. Of course, the devil is always in the details. If you look at what we're doing in the mobile space, we're very heavily invested in it. But we have a very pragmatic approach, and we don't think that one approach is going to fit everybody.

MP3: You see things differently than Bronfman?

BP: Our approach boils down to, yes, we want the subscription experience to be brought to the handset. And there's two ways to get there. One way is this crazy industry term called 'side loading.' We're all over that, and we think that's a very, very good first step, because an MP3 player and a phone may turn out to be as compelling, if not more compelling, of a combination than a camera phone.

That's going to be easier in some geographies than others. The US is much more PC-centric, the networks are not as robust as they are perhaps in Europe and Asia, so there will be territorial differences in this evolution.

MP3: How do you win with those disadvantages?

BP: Our partnership with Ericsson, which we announced back in the spring, leverages our core strength, which is that we've been in digital media for a while and we have the scars to prove it. We have the licenses already. And we have a lot of the content management systems in place, and the royalty systems. And we know the PC inside and out.

What we don't have experience with is over-the-air delivery of applications. And Erickson has an entire services team that's been doing ringtones, wallpaper, SMS-type services. It's a very, very complex world.

MP3: So what will drive the portable subscription business's growth? What are the consumers looking for at this point from their devices?

BP: Auto-integration needs a lot of work, and there are a lot of solutions emerging now, primarily USB-based solutions that'll enable players--that, you know, you just plug right into your dash and you'll have your entire collection right in your car. That piece is still a bit clumsy now for all players.

Music players aren't exactly super well-integrated yet, but I expect we'll see standards emerge so that in a few years, it won't be surprising to see a USB port in the dash of your car, and it'll be pretty much a plug-and-play type of situation. Microsoft is working very hard on that problem, and they are the system that we work with.

MP3: Wi-Fi?

BP: Wi-Fi in the home is a big piece. There's just so many cool things you can do with Wi-Fi. You can carry around a player in your pocket and carry as much of the world's music as you want without worrying about individual piece pricing, and then plug it into your dash, and then power it up on your stereo and carry it with you to the park.

MP3: What do think about the whole ownership-rental model in the digital world?

BP: I heard somebody say once that Apple talks a lot about owning music, and the trick is you're actually renting it from them too, you just don't know it.

It's like, OK, great, so you own this music. Do you have it all backed up someplace so you can give it to your grandchildren? And by the way, you know, the compression standards I'm sure are not going to change in the next 10 years. The whole argument is just meant more to sow uncertainty in the consumer's mind about subscription.

And, you know, power to Apple. God bless them if that's the way they want to play the game, but they're not doing the consumer a service by trying to denigrate the subscription model, which is a model that is really forward-looking and takes advantage of the Net.

MP3: About Apple and its stance on DRM and interoperability: How big of an obstacle for Napster is Apple's refusal to license it's Fair Play DRM to anybody else to build a service on?

BP: No question it's an obstacle. It's an obstacle to everybody outside of Apple. The iPod family is the most popular player. But the [tech business] always seems like everything's all sewn up and then suddenly it changes. Now, suddenly Google is giving Microsoft the business. Just when you think everything's solidified, it changes.

MP3: You feel comfortable applying that "everything changes" to Apple's dominant position with iPod?

BP: While the iPod has certainly captured the lion's share of the traditional MP3 player market, we think we're just at the beginning of this. We haven't begun to scratch the surface of what it means to be able to consume television, movies, music, across a completely seamless home network. We haven't begun to really get into what cell phones are going to look like when they carry this stuff.

So you just can't afford to be complacent if you're Apple. Apple is playing the game as if they've already won, and that's a dangerous game to play. It tends to make you a little bit arrogant and complacent. And they're playing a great game of perfecting that piece of hardware. But they continue to have these sort of religious convictions about things.

And hey, they're right a lot of the time, but maybe they're not going to be right on some things. I just think it's dangerous to be so religious this early in the game.

MP3: Yet they have yet to fall on their face, or even scratch a knee...?

BP: They've been kind of tentative on the cell phone market and I'm not exactly sure what to make of the Motorola phone. I mean, I was honestly thinking that they were really going to make the best, most compelling integrated cell phone device they could, but they seem to have intentionally hobbled it.

MP3: Do you mean hobbled in the sense of song capacity?

BP: Well, yes. And clearly Motorola is not happy about this--and then announcing the Nano on the same day. I don't understand what's going on there. Are they trying to really lead the charge in the cell phones or is that really a threat and they're just trying to sort of poison the well there? I don't know what they're up to.

But these devices are going to proliferate at a rate--music players are going to be built into your sunglasses in a few years. They're going to be so commoditized and so ubiquitous and show up in so many different places that I just think it's dangerous to decide and be religious on these points--and then be so inflexible when it comes to really helping to facilitate a market that can evolve quickly.

MP3: You feel good about Napster's chances at winning the war even if it's losing an early battle or two?

BP: Yes.

[Part 2 of MP3.com News' interview with Bill Pence will appear on Thursday.]