Some practical issues to consider
IMPACT OF THE DIGITAL SPACE
The musician and writer Steve Lawson recently defined the changes the music business is facing as transitional. Transitional as opposed to incremental. Historically, the industry saw technological change as an opportunity, for example an opportunity to sell music in a different format and the incremental financial upside realized when consumers moved from vinyl to CDs. However, the digital landscape has completely transformed the marketplace.
Incremental change is evolution. Transitional change is revolution.
The digital revolution has wiped most high-street music retailers off the map, has seen a generation grow up with the idea – if not the reality – that music is free, empowered them to create their own content, create their own music, market and promote it, share it and be social with it. It has seen the rise of the track and the decline of the album as consumers choose the song over the bundle and it has changed how these same consumers access media, changed the role of traditional gatekeepers and changed the relationships artists can have with fans.
It is worth noting that YouTube is only five years old, Facebook four years old (counting from when it went completely open) and iTunes started in the UK only six years ago.
Yet each of these three companies has had a major impact on society, media,
technology, consumers and the industry in a remarkably short time. Overall it was an impact the industry was ill prepared for. Traditionally the industry, either through vertical integration or just by holding the purse strings, had controlled production, manufacturing and distribution, and heavily influenced access to mainstream media. Over the last 10 years the consumer – and affordable and easy-to-access technology, whether via websites or software – has taken that control away from them.
For artists and curious music fans every week brings new sites, technology and metrics to develop sophisticated marketing, distribution and consumption offers and solutions for
minimal expenditure: sites such as Bandcamp that offer artists a complete solution to market and help to distribute their music in a personalized way that traditional retail could never match; Soundcloud, a company that – as it simply states – ‘moves music’ effectively across the web with an interface that is both effective and intuitive; and MSpot, a competitor to Spotify that offers consumers the opportunity to store their music collections in the Cloud and access them on the move.
The opportunities offered by major labels to artists were always limited to a very few. A label signing was an unrealistic goal for many artists, yet at the beginning of the twenty-first century artists have greater opportunities and freedom to grow and build sustainable careers.
They get to keep ownership of their copyrights, to monetize relationships and to take control.
Independent labels see this transitional change as positive, since it has leveled, to some extent, a playing field that was previously ‘owned’ by the majors. There is still an imbalance at mainstream media, although how important are mainstream media when your core fan base or markets ignore it anyway?
If there is one phrase that illustrates the new era the industry has been, and is, facing it is freedom of choice. Freedom of choice to take risks and launch start-ups, freedom of choice to launch own labels and self-release and, most importantly, the freedom of choice not just to see things differently but to be able to implement that personal vision.
What does this mean going forward? Simply no one really knows yet. We increasingly see the future purely through the prism of digital but it is worth remembering that in 2009 80% of all albums sold in the UK were CDs. There is a tendency – or to be more precise a temptation – to focus on the digital, but physical sales are still a major, indeed the major part of the sales equation. A cursory glance at Amazon Market Place or eBay shows a huge market, albeit secondary, for physical music.
The question I find compelling is not whether digital will replace physical, but how will the two co-exist?
In some cases they will be strange bedfellows. The concept of Cloud technology, for example, is both exciting and challenging. If your future infinite library of music is held in a virtual locker that you can access however, whenever and wherever you like without actually
‘owning’ what you have bought, what happens when you lose the key? There will be issues of privacy, ownership, quality and, as always, price. The Cloud is not new, just new to music.
Most of us already pay a monthly subscription via cable or satellite to access television, films and other content without actually ‘owning’ it. Is it such a leap to imagine the same with music, or do we have a different relationship with music? In the end, the consumer will decide. In the short term it will be predominantly the major labels that decide whether the consumer will get to make that decision.
The future will be digital, if for no other reason than each generation will take for granted what we see as new. Of that there can be little doubt. In fact, the present consumer experience is increasingly digital from conception to consumption. How consumers and fans engage with music is frankly more important than the method by which they do so. Music is more than ever facing a deficit in, or at the very least competition for, consumer attention, and a declining share of their disposable income.
How we define the value of music is a philosophical as much as a commercial ques-tion. Is an MP3 file vested with the same cultural significance as a piece of vinyl or a CD?
Sometimes it is the simple questions that are the most challenging. The reason most recorded music is sold in the last financial quarter of the year is because it is bought as Christmas gifts. How do you translate the tangibility of a physical gift and perhaps the emotional message the gift represents to a digital cloud or even an MP3 file?
When I talk to students about the music industry I try and impress upon them one fact.
We are living and working in one of the most exciting periods in history. A period when more people have more freedom to take control of their careers, their future, their talent, and to actually do something with it, than at any other time.
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The question we seemingly ask ourselves every day is: how are we going to sustain an industry on the back of this new-found freedom? Perhaps we aren’t. Perhaps the old music industry is dead or at the very least terminally ill. Can an industry that was built on a hier-archical model survive in a world that is now flat? The answer has to be no. The choice of company name by internet radio service Pandora was very apt. The box has been opened and it cannot be shut. That is both the opportunity and the challenge facing the music industry.
Mike McNally (2010)
BUT DOT-COM BOOM? THAT’S SO NINETIES! . RIGHT?
“Excuse me sir, can you tell Chantelle? She keeps on tweeting!” Chantelle scowls. This isn’t the first time that her inner entrepreneur has caused trouble within the classroom, but unbeknown to anyone, 17-year-old Chantelle, a heavy-metal music lover from Clacton-on-Sea, is one to watch. From her mobile phone, she’s managing a dot-com business with huge boom potential, and she doesn’t even know it yet. Neither do her classmates. Asking Chantelle to put down her telephone and getting back to our lesson on e-Business, neither do I.
Usually surrounding drivers of change, there have been plenty of such booms (or bubbles) in history. When the world was young, agriculture drove change in the trading environment and created money-bubbles to match. As the nineteenth century hit, industry gained control (think the 1840s’ ‘Railway mania’ boom, think the coal boom, think the metal boom), and then, in the twentieth century, technology took over.
Say hello to the 1990s and a brand new dot-com bubble. If you were serious about business, this meant websites, e-commerce and global trading. Those who got in there first reaped the rewards of advances in media and communications technologies, and whether existence was short-lived (we must recognize that for some, the bubble burst) or guaranteed (just look at Amazon, eBay and Google), mountains of money were made and businesses of gargantuan size were built.
But what about today? Has the final whistle been blown on media and communications technology, or is there a second bubble still to come? With some big acquisitions having taken place recently (think YouTube by Google and Skype by eBay), mergers of communications giants (think Orange and T-Mobile) happening as we speak, and innovation in technology showing itself daily, I think the answer is, ‘almost certainly .’. But, before we all rush to the drawing board in an effort to create the next big thing in the dot-com world, let’s get back to Chantelle and her classmates, and question whether we need to be thinking big at all.
Forty or so students sit before me. Yes, a few traditionalists are taking notes down using pen and paper, but the majority (all nineties-born kids) use a laptop. Some of the more edgy guys are using their smartphones. There’s even one with an iPad.
They talk, they text, they e-mail, they chat, they tweet, blog, comment and the like on a daily basis; turned on and tuned in to a wealth of information streams that are delivered over socially enabled infrastructures, networks and platforms controlled by the big guys: the Googles, the Vodafones, the Facebooks of this world. And those big guys are making huge amounts of money; from airtime contracts, from access subscriptions, from advertising – but still it isn’t enough. So now they’re going after other big guys. Google is going into travel (their recent acquisition of travel technology company ITA Software is a clear threat to those such as Expedia). Amazon is going into groceries, but shares in the online retailer Ocado remain some of the most highly sought after by short sellers, three months after the company listed on the London Stock Exchange.
This diversification will ultimately end in less competition (history has taught us that the big guys always wipe out the small fries), less choice for the consumer, and a more difficult trading environment for new entrepreneurs and business start-ups. So how can you
make it big without starting big? They say that money breeds money, but the likelihood is that Chantelle and her chums don’t have billions in the bank to make something work. Not to worry, though. They already have the answer.
It’s holiday time for the students, which means it’s marking time for me. I open up Chantelle’s e-Business assignment and am wowed by a gleaming example of a new dot-com start-up with oodles of potential for making money. Her executive summary reads like a dream. Chantelle has taken something that she loves (metal music), spotted a gap and created an efficient, electronic business with hardly any start-up budget: a socially enabled and aggregated, magazine-style web portal for the metal music community. As well as news, a forum, etc., she has products and services to sell (like concert tickets, travel packs), suppliers to provide them (like WeGotTickets andLastminute.comthrough their affiliate programs) and customers to buy them. Her site is available on multiple platforms: on mobile, on touch interfaces, on computer and on the big screen. She knows the market inside out (she is the market) and she has a very clever strategy for making her millions . it’s all about creating a scalable model, potential for growth and an alluring investment opportunity for a big boy. Mainstream companies providing services (like travel planning) for a general audience may find the opportunity to be introduced to a brand new market irresistible.
If you fancy creating some dot-com boom potential of your own, then start with these easy tips:
Find something you love. Although it may seem a little hippy, this is paramount in a project’s infancy, where many years can pass before financial reward is seen. If you love your area of business, you will never feel like you are working, and the energy for what you are doing will continue to flow.
Do your research. It is important that you follow a market-driven strategy, creating a business in answer to market conditions and needs.
Spot a gap and get in there. Choose a something (a product, a service, an experience), a someone (a market) or a somehow (a route to market) combination that you can call your own. It doesn’t matter if someone else is doing one or two of these things already, but the overall mix should be unique to your business.
Don’t think big . think small (but sustainable). After all, you’ll never beat the big boys on a mass-market product or service without throwing wasteful amounts of money at it. Go niche.
Brand it. Work on your branding and identity. Define your project’s values and personality.
Know its benefits and its positioning in the marketplace. A well thought-out brand strategy is key for any would-be successful dot-com start-up. The added importance here is that while concepts cannot be protected, specific implementations of concepts can. The more developed your brand is, the more intellectual property (IP) protection you can gain, increasing the value of your business.
Bag yourself a good domain. Be creative. Make sure it says what it is. There are so many domain suffixes out there (with new ones being introduced regularly), don’t fall into the trap of thinking that .com is your only option.
Keep your costs low. The e in e-Business shouldn’t just be for electronic, but for efficient.
If you can match suppliers and customers, making money by taking a cut of the deal, then do it. You might not need to get more involved. Many companies offer affiliate schemes that pay commission when your promotion of their product/service results in a transaction.
So take advantage of third party networks, platforms, infrastructures, manufacturing, products, services and human resources instead of having the expense of man-aging your own.
Seek out your market. Communicate with them. Maintain their interest and keep them there. Today’s media-savvy consumers want to eat, sleep and drink things that interest them 24/7. Take advantage of efficient, targeted advertising services being offered (such as Facebook Ads or Google AdWords). Use relevant social networking tools and platforms to create a seemingly constant flow of information surrounding your business.
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Know your customer inside out. Know what they like, what they don’t, and most importantly, what makes them part with cash. Take a hint from the social networks and use profiling (whether it should be explicit or implicit) to gather information that may be useful to you (and others, at a cost!). Use customer relationship management to exploit that knowledge and promote commerce.
Know your competition even more.
Multiplatform is no longer good enough. Think every platform. People interact with the online domain in many ways: on mobiles, touch-enabled devices (think iPhone and iPad), laptops, desktops and televisions to name a few. Consider some differentiation, optimizing your site for use over these various platforms.
People need to know what it is they are getting before they can be expected to pay for it.
Don’t introduce a complete paywall to your dot-com business, and perhaps even consider implementing some kind of Freemium strategy in order to gain a strong customer base during the project’s infancy. This has worked wonders for the likes of Spotify. Free product for free information is a proven and valuable way of learning more about an audience.
Identify your exit strategy. Develop your business so that the big boys invite you out to play some day. Look at Lala (a little-known music streaming service that was recently acquired by Apple for $17 million). They had knowledge of the market, a working business, a small customer base and huge potential. It is suggested that Apple bought Lala for the purposes of modeling a new incarnation of iTunes based on the very en vogue Streaming/Access based model (watch this space), so think about your knowledge, your market, your business, and who it might one day be valuable to.
But, most importantly:
Do it and enjoy it. The online world is a fun place for a company to exist. Say goodbye to land and sea borders, goodbye to issues of accessibility, and hello to the excitement of the dot-com business.
Oliver Sussat