Napster grew to 80M users in 18 months — then the music industry sued it into bankruptcy

Napster was founded by Shawn Fanning and Sean Parker and launched on June 1, 1999. It was a peer-to-peer file sharing application that used a centralized database indexing all MP3 files being shared by connected users. Its user-friendly interface made it trivially easy for anyone to find and download copies of virtually any recorded song for free. The service grew explosively — it reached about 80 million registered users at its peak, with verified usage peaking at 26.4 million users worldwide in February 2001. No technology had ever been adopted faster.

The music industry responded with lawsuits. The RIAA sued Napster on December 6, 1999 for contributory and vicarious copyright infringement. Metallica and Dr. Dre filed their own suits. Napster lost in District Court, the Ninth Circuit upheld the decision, and in March 2001 an injunction ordered Napster to prevent all copyright-infringing trades on its network. In July 2001 Napster shut down its entire network to comply. The court rejected a 99.4% block rate as insufficient — Napster had to stop everything.

Napster filed for Chapter 11 bankruptcy on June 3, 2002. Bertelsmann had offered $85 million for its assets, but a bankruptcy judge blocked the sale and ordered liquidation on September 3. Napster's centralized architecture was its fatal flaw — it could not function without its central database, and it could not comply with the court order to block infringing material without shutting down completely. Decentralized successors like Gnutella and BitTorrent learned the lesson and never had a single point of control that could be shut down.