Archive for the ‘Music’ Category

My Thoughts on “Freemium” Business Models

A few days ago, I read an interesting post from Andrew Parker on why freemium business models (users can pay a monthly fee to remove ads from a service) are bad for advertisiers. Here is the money quote:

Advertisers pay a premium in order to reach people in their specific demographic with disposable income. This idea of people paying to remove ads ensures that the audience for your ads are actually CHEAPER than the average internet audience.

I’d never thought about this before, but Andrew is right. Why would an advertiser pay high CPM to reach a customer who can’t (or won’t) pay to remove ads? This is a bit of a catch 22.

That said, I wouldn’t totally discount freemium (no pun intended). I still like the “upgrade to a premium version with more features or unlimited access” business model, as long as you create a premium version that is compelling enough to the customer.

In fact, Rhapsody’s freemium strategy converted me into a customer. Like most people my age, I was used to downloading music for free… Napster was hitting its peak in popularity during my freshman year of college. However, I hated Napster for two reasons: 1) the songs were of suspect quality, and 2) I couldn’t always find what I wanted. So, I decided to try Rhapsody on a recommendation from a friend. I started with the free service, which gave me 25 free on-demand streams and unlimited access to a handful of radio stations. After I used the 25 streams up in 2 days, I decided I was willing to part with $14 a month to listen to all the music I wanted, whenever I wanted it.

Even though there are many flaws to Rhapsody (no user-generated recommendations, no playlist search, nothing from Tool’s catalog…), I am now addicted. I can honestly say I would have never bought Rhapsody if it weren’t for freemium.

NIN gets (even more) creative…

Yesterday, I saw on Digg that Nine Inch Nails had released a digital album called “Ghosts I-IV” for $5. So, I bought it.

However, I don’t think anyone realized how popular this album was going to be…

When I got home to download the tracks, the site had crashed from too many users. So, I had to wait until the morning to download the music (which took 45 minutes… ugh). Short story… the album is still not on my iPod.

As I was waiting for the album to download, I got a chance to look around the Nine Inch Nails web site, and I was impressed. Trent Reznor released this album with a Creative Commons license and encouraged people to remix the music. And, he created an area on the site for users to post the remixes.

This is a great strategy… not only any I spending more time on the NIN web site to hear these remixes, but I’m more engaged with the product (I hate to equate anything Trent creates to “product”, and I apologize profusely).

If I love a product and stay engaged with it, you can be pretty sure I’ll continue to spend money… not because I am forced to, but because I WANT to. Every company should hope they can find customers that enjoy giving them money.

P.S. – Here’s a great New York Times article on NIN’s innovative business model for “Ghost I-IV”.

"Cool" Just Isn’t Enough…

I recently read the following quote from a Washington Post blog about the Digital Music Forum in New York City:

“A member of the audience then posed an pointed question: Isn’t simply being cool the secret to success? Consider Apple, for example. Napster became popular because it was considered “cool.” Now iMeem is benefiting from its cool factor.”

My answer to this questions is no… in the digital world, you should focus on utility, and cool should be the outcome. What makes technology “cool” is getting cool people to use it. And, if the service has no utility, then cool won’t help you for very long.

Now, mind you, “cool people” in the technology world that use products like Apple/Napster/iMeem aren’t the same “cool people” that spend hundreds of dollars on vintage Nikes. Even though they aren’t the same, they do share a similar quality… they are leaders in their respective groups.

So, to make you product “cool”, you need to find what motives the leaders and develop products they want to use.

Watch out Apple…

Amazon is planning to sell mp3’s (not aac’s, wmv’s, etc) without DRM or player restrictions. See the press release here. Even more interesting… the Universal Music Group is on board!

In the long term, this should revolutionize the music business. Now, Apple must continue to make the best player on the market in order to stay competitive (which I think they can), not just rely on people needing an iPod to play the music they bought.

The one downfall I see for Amazon is that their service will not directly sync to an mp3 player, so it will not be as user-friendly (i.e. idiot-proof) as the iPod and iTunes.

I hope this means Apple starts to make its product less restrictive… one can only hope.

Have you ever wondered why you hear so many crappy songs on the radio?

This is an interesting article on social effects increasing the popularity of songs. It shows why “better” songs are not neccessarily the most popular.

More broadly, the article is about the “network effect”, and how it can affect products that do not need networks in order to function.

I have always thought that if membership-based music models, such as Rhapsody and Napster, built up their social networking capabilities, they would be a real force in the music business… besides being a really fun place to spend your time online.

Is Apple freeing up iTunes…

I read an article yesterday about the E.U. suit of iTunes in Europe for anti-competition laws, and I read this quote:

“Apple has said it is willing to open iTunes to players other than iPods if the world’s major record labels move to change their anti-piracy technology.”

If this is true, Apple will have much more power in the music business. In the end, this will lead to better Apple products… they will be able to selling more songs, as the 30% of mp3 player owners without iPods can buy their products. This will force interesting product innovations, not restrictive technologies, to keep their iPod the market leader in personal entertainment devices. I hope this comes to fruition, as I would love to own a player from the most consumer-centric and innovative CPG in the world.

EMI and Apple Make Some Good Progress… but I’m Still Not Satisfied (as if Steve Jobs needs my support)

As (I think) many of you know, EMI Music and Apple reached an agreement today to sell DRM-free music via iTunes.

EMI Dropping Copy Limits on Online Music

Alright, for those of you who do not know what “DRM”, I am going to give you a little bit of digital music 101:

DRM stand for “digital rights management”, and it is a term that applies to a type of software or technology that prohibits users from sharing files without the permission of the publisher. In the digital music business, services likes iTunes used DRM software to ensure their music could not be shared with others or posted over the Internet via systems like peer-to-peer networks.

I am glad Apple has gotten rid of their DRM restrictions. I am not a big fan of restricting one’s ability to listen to music, as I think it deteriorates the user’s experience with the product and hurts the brand.

This leads me to the actual reason for my post…

Apple is still using their .AAC format for music downloaded from iTunes. What does this mean? It means that when I buy music iTunes, I can only play it on a iPod. On the surface, this makes a lot of sense for Apple, since you have to buy an iPod in order to play the music you have purchased from iTunes. Two revenue streams from one business model.

I don’t like this strategy because song sales on iTunes are predicated on people owning iPods. What happen when the iPod is not the top-selling player on the market? If a restricted song collection, not innovation, is the main driver for people buying an IPod, Apple will not lead the market forever.

I believe this will hurt Apple’s long-term brand equity, since Apple’s progressive, trend-setting customers will not want to be locked into an inferior product. Also, Apple will have trouble acquiring new customers, as they will want the freedom promised by competitors. The only way Apple can avoid this future is to consistently give its customers the best products on the market. I am not convinced Apple will continue to lead the market in 10 years (remember Sony).

I like where the digital music business is going with DRM-free music, but I think Apple may only be a short-term leader…

P.S. – I could writie a whole article on why I don’t like Apple’s product strategy, but I believe blogs should be pithy 🙂