A Fungible Service
Spotify has created a lot of buzz with its US launch. Even though Rhapsody has been around for some time already, it looks like streaming is finally primed for mass adoption. I’m unconvinced whether Spotify’s freemuim model should really be credited as the catalyst or if social trends have just progressed far enough for people to embrace the idea of consuming music as a service rather than a product.
Regardless, the freemium model is a smart move for MOG, Rdio, Spotify and the rest because streaming is destined to become a commodity service. Whoever can drive adoption the fastest and furthest, building the largest user base along the way, will come out in first in terms of revenues. Update: Spotify seems to be excelling in the marketing department in general, and it’s paying off. It’s not just their freemium model either, since that’s already been imitated; they’ve just been very successful at building buzz and they are forging valuable partnerships to promote their platform (I recently heard Radiolab podcast will have a playlist with music from their show).
In time, the music library will cease to be a differentiator since it is not in a label’s best interest to be exclusive to any one streaming service. Technology bugs will be worked out across all the platforms. Last.fm will erode the perks of building a “walled garden” as it scrobbles its way to a consolidated data set of individual music preferences across devices and services, and Google+ is already pointing the way to more open social networks, in which network effects do not offer the same competitive advantage as before. (Update: Now Facebook Music has jumped into the game with its partnership promiscuity.) Stickiness will come only from the “collections” and playlists that users build up over time (perhaps some will show a preference for one UI over another), not something I would consider a defensible advantage.
Streaming music service providers will have to compete primarily on price or find another way to differentiate themselves. You are already seeing this happen with the introduction of “radio” features, first with MOG, then Rdio (and now Spotify), to better compete with the likes of Pandora. With music library and technology approximately equal (as experienced by most consumers), the battle lines will likely be drawn along two primary dimensions.
Listeners want to find new music; bands want to be discovered. Facilitating discovery is what the Music Genome Project is all about. Before, discovery happened mostly through some combination of radio airplay and friends gossiping.
The new approaches to discovery will apply emerging technologies to those old forms. Algorithms will act like radio DJ’s, presenting audiences with new music they might like based on what they have heard and requested already. People will be presented with contextually relevant information about what their friends are listening to and liking as well, without even having to ask.
The advantage of an algorithm over a human is the ability to accrue more specific information about individual users and their social connections and pull from a larger library of music than any one real DJ can actually hope to know and recall in a lifetime. (I think Slacker Radio is really about nostalgia, not any real advantage from human DJ’s.) The challenge is preserving a sense of serendipity that comes from random connections and dealing with the (currently) very limited ability for computer programs to read human emotions.
Sociality is not just another form of discovery. Sociality refers to the shared experience of music. “Social discovery,” is the intersection of the two, but for my purposes here, I am including that as part of discovery in general.
People are social animals, and they want to experience music together. That is the unmet need that Turntable.fm filled. Unless we were already physically together, I couldn’t listen to Pandora or iTunes with my friends. Turntable.fm (and others since) made listening to music social again without the limitations of physical distance. Update: Facebook Music has already done a lot to make music social again, enabling people to listen along with their Facebook friends when a song appears in their ticker. Unfortunately, listening still isn’t synchronized though. What’s most notable here is that Facebook isn’t picking winners. It has engaged a number of partners, many of them direct competitors, providing none a clear competitive advantage.
Positive psychology has shown the benefits of synchronized movement (also known as dancing). We’re only just beginning to explore ways for people to dance together to digital music. Surely still more opportunities exist.
Music can be profoundly emotional. It provides a soundtrack to our lives and marks the sentiment of occasions. Just look the role it plays in film and sports. People connect emotionally with other sentient beings, not their computer speakers, but technology can help forge those connections by allowing users to tell stories about and with music. That is what sociality is all about.
What kind of business will streaming music be?
What’s a streaming service provider to do if they’re core service offering is destined to be fungible? Choosing whether to be a product innovation, customer relationship, or infrastructure business will go a long well toward helping guide strategy.
Although it is where a great many companies start, product innovation seems like it will be the hardest to defend of the three. Returning to the example of the radio feature, after MOG introduced its slider, it wasn’t long before Rdio had a radio button, and now Spotify has its equivalent. Moreover, a streaming service that positions itself as in a product innovation business will be competing against the countless startups out there trying to shape the future of music as well.
MOG, with its roots in a social music network, seems to have aligned itself to a customer relationship business. Deepening and extending the customer relationship will, of course, still depend on innovation, but being a fast follower can suffice.
Spotify seems to be competing as an infrastructure business with its ad supported offering, and I think that is where the mass market is today. A customer relationship business will appeal only to the most fervent music fans who are willing to pay for the incremental value of greater customer intimacy (which comes at a greater cost to the service provider).
The open question in my mind is whether ads will generate enough profits for Spotify or if they will need to convert listeners to paying accounts and sell recordings to succeed. It doesn’t seem to be working out that well for Pandora, and once users have to pay, I think both MOG and Rdio have a more compelling value proposition. Time will tell.