The Rise of MP3 as the Market Standard: How Compressed Audio Files Became the Dominant Music Format

Previous research has shown how various technologies became the market standard. This paper presents some refined models and applies them to the case of compressed audio formats. The authors analyze the rise of MP3 as the market standard and identify several key factors that contributed to its success. First, a process of formal standardization reduced the number of competing compressed audio formats. Secondly, enabling technologies, in particular the rise of the Internet, contributed significantly to the success of compressed audio formats. The timing of market entry was important in the sense that when the rise of the Internet took place, MP3 was one of the few fully developed compressed audio formats. MP3 offered technological superiority (high fidelity at low data rate) versus its initial competitors. The technology also benefitted from dedicated sponsors that promoted market adoption. Due to the weak regime of appropriability, audio files in the MP3 format managed to spread quickly over the Internet. Lastly, the availability of complementary assets for MP3 fuelled its market adoption and strengthened network externalities on both sides of the platform-mediated network.