Slacker And The Innovator's Dilemma

US personalized online radio provider Slacker has thrown its hat into the on-demand music ring by launching a $9.99 a month on-demand streaming music service with offline playlists. Yes, that is indeed akin to launching Spotify in the US before Spotify does. You can just imagine the grin on some of the faces on both sides of the negotiating table when Slacker tied up this deal with rights owners . . .

So, would-be US music subscription customers are now spoilt for choice, with the top-tier options including stalwarts Rhapsody and Napster, newcomers MOG and rdio, and now Slacker. The only problem is that US consumers are lukewarm about subscriptions. No US service has broken the 1 million paying subscribers mark, despite years of trying, and others have simply given up completely, including the heavily funded Yahoo Music service.

Slacker will rightly argue that it is entering the market with a differentiated mix of complementary tiers: its free, ad-supported Pandora-esque personalized radio tier is a genuine complement to a premium on-demand tier in the way that a free, ad-supported, on-demand tier a-la-Spotify is not. The former helps drive discovery and meets different usage needs, while the latter is just a watered-down version of the premium tier.

But that still won’t be enough. The premium subscription market hasn’t failed to break through to the mainstream for all these years through a lack of availability or the quality of services (Rhapsody still makes a pretty good claim for being the best programmed music service out there). The reason consumers have held back is simple:

$9.99 subscription rentals are not a mass-market value proposition. 

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Google And The 360 Degree Music Experience Conundrum

One of the themes that we write about a lot here in the Consumer Product Strategy team is disruption. Time and time again, incumbent traditional companies fail to respond effectively to the disruptive threat of innovative competitors and/or technology and as a result find themselves either utterly destroyed or dramatically reduced. Think Nokia’s response to the iPhone, think the record labels’ response to Napster et al. The thing about the labels, though, is that they have a monopoly of control of supply, so instead of being usurped by new entrants, disruption has whittled away the best part of half of their business over the last decade or so.

Which brings us onto Google Music, which looks set to launch today with no more than a locker service. More to the point, an upload-your-music-collection locker service (with limits) rather than a point-and-match service. Which means sitting down and painfully uploading all your songs to the cloud. Sort of like the first time you ripped your CDs, except slower and more painful. Upload locker services – arguably – don’t require rights owner licenses; point-and-match services do. Licenses that service providers such as Google argue are too expensive. Thus Google has followed Amazon’s lead, bypassing label licenses in favour of a – supposedly – DMCA and Fair Use compliant service.

So with all the expectation surrounding Google’s move into music, why is this all it has come to market with? Google lays the blame firmly at the feet of the labels.

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Does Spotify Really Want To Be An iTunes Killer?

Spotify has today anounced a series of new features which the Swedish streaming service hope will position it in direct competition with iTunes. New features include a download store selling discounted playlists, playlist synching with iPods and iPhones, and turning the Spotify client into a music management tool. Have no doubt, these really do add up to competing with Apple head-on, something that few succeed at.

Apple dominates the paid digital music business, and it does so because of its device-service ecosystem. To badly misquote Bill Clinton: "It’s the iPod, stupid." The majority of iPod owners don’t even buy music regularly, but those that do still make Apple way out-perform pure-play download stores. iTunes Music Store downloads are effectively monetized CRM. 

Apple has innovated its music offering so little (thus far) because:

a)      What it's got has been doing a good-enough job -- up to now -- of enriching the device value proposition (the coming cloud strategy reflects a recognition that downloads alone soon won’t be enough).

b)      Nobody (not even price-slashing has seriously eaten into Apple’s market share.

Without the device ecosystem, third parties have failed to break Apple’s digital hegemony. So why on earth is Spotify trying to do so now? Why compete directly with Apple when it's done so well at competing around Apple?

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