An Industry In Search Of A Disruptive Business Model
A few weeks ago I posted about Rick Rubin’s subscriber-based vision for the music industry. But a familiar company currently using this business model is abandoning it due to plummeting revenue.
A year ago the company spent $8.5 million on sales and marketing, and this quarter that number had shrunk to $5 million. The results: six months ago the subscription music service had 830,000 subs, three months ago it had 770,000, and now it has 750,000. The company says that last drop was expected, because kids stop using the service during the summer. But it’s not as if those numbers will swell this fall: NAPS projects only a 4% revenue increase for next quarter.
Restated: the company that invented the MP3 industry is in danger of going under. This brings to mind other pioneers from history who failed to cash in on their discoveries - like Marie Curie, who discovered radium, yet died young while companies like General Electric made billions on radiological technology. Napster blazed the trail but has failed where Apple has succeeded - in the area of exploiting the customer experience for buying and enjoying digital music.
Yet Rubin and others feel the subscription model will win out. How? By offering customers access to EVERYTHING. Using metaphors: the Apple business model is like buying paperback books to fill up your bookcase. The subscription model is like going to the library and checking out whatever books you want. Proponents of the latter believe that customers would rather listen to whatever they want, whenever they want to, rather than possess the actual music in their CD rack or hard drive.
Yet Napster’s failure indicates that customers would rather own and control their own music. Why? Restating part of the focus group data from the Rubin article:
“The Big Red focus groups were both depressing and informative, and they confirmed what I — and Rick — already knew,” DiDia told me afterward. “The kids all said that a) no one listens to the radio anymore, b) they mostly steal music, but they don’t consider it stealing, and c) they get most of their music from iTunes on their iPod…and the biggest thing in their life is word of mouth. That’s how they hear about music, bands, everything.”
The subscription model is similar to Youtube in that you can view/listen to whatever’s in the library whenever you want, but you never actually possession the media. Yet we get Youtube for free, and it’s video. Why then would people pay for an audio-only version, even if it had a much larger library?
Also, no one has figured out how to make the subscription model portable like iPod. The best you could do now is use your cell phone and burn bandwidth. The subscription model needs a low-cost portable device that lets customers access their library from anywhere, as part of the subscription fee.
Like it or not, the iTunes model offers things that customers have come to expect - ownership and portability. The subscription model will succeed or fail based on whether or not its founders can come up with something customers would want more than that.
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[...] this evening I was surveying Wordpress.com & came across this little gem regarding Napster, iTunes & the potential failure of Napsters model. I couldn’t be more [...]
sandy, the missing element to this puzzle is the fact that napster doesn’t enable the user to keep the music. using the library analogy, sometimes the user will want to be able to keep the book and not have to return it. that is the mentality and usage patterns and the industry is ignoring it. one company that is doing this right is noank media, they are providing a subscription service that allows unlimited access and full ownership.