Two of the key themes that we are currently working on within the Consumer Product Strategy role at Forrester are the concepts of Disruptive Product Strategy and Elevated Product Strategy.
Disruptive Product Strategy addresses how new consumer technology completely disrupts existing business models and product ranges, forcing an unprecedented degree of reactive product innovation. Think about what eReaders and the iPad are doing to publishing, think about what the iPhone is doing to traditional mobile phone companies.
Elevated Product Strategy looks at how the challenge of this disruptive consumer technology compels the most senior elements of companies to take an active, leading role in the organization’s product strategy. Think about how CEOs of book publishers and newspapers are making statements about what the future of their products will look like and empowering their organizations to implement their vision.
And this isn’t a dynamic that just affects media and technology companies; it applies equally to financial services, retailers, FMCG firms, etc. Consider how telephone banking transformed traditional banking, about how Internet retail impacted high-street shops, about how social tools changed brands' relationships with their customers. And now, of course, all these sectors are being impacted again by the rise of mobile, of app stores, of the 24x7 connected consumer.
Today, we are kicking off a major global executive survey to complement our programme of research and we’d love you to take part!
At Nokia World, I’ve had the opportunity to get some detailed updates on Nokia’s music product strategy but also to observe some changes in its positioning within Nokia’s broader strategy. Nokia has made commendable progress, establishing the largest global footprint of any digital music retailer and bringing a much-needed focus to emerging markets. But it also comes across as a lower priority for Nokia this year. At last year’s Nokia World, music was at the centre of everything, from the CEO’s keynote through to background images on presentation slides. Of course the intense level of expansion and investment of 2009 couldn’t be sustained and wasn’t ever intended to be. But music no longer occupies centre stage at Nokia; instead it sits as one among equals in the suite of Ovi services.
But there are some impressive milestones:
Ovi Music live in 38 markets.
Ovi Music Unlimited (more on that in a moment) live in 33 markets.
#2 OTA service in Europe (though of course volumes will benefit heavily from the fact Comes with Mu….sorry…Ovi Music Unlimited users can download unlimited numbers of track without paying incrementally, thus boosting volumes).
Ovi Music is now the #1 source of digital music revenue in Russia, India, Finland, and South Africa. In these admittedly challenged markets, Nokia has become the main digital music game in town.
Yesterday Sonos and Spotify finally announced a partnership which has been long overdue. Sonos’ high quality all-home audio hardware and Spotify’s high quality streaming music service are natural bedfellows.
The partnership also comes at an interesting time for Spotify. Their meteoric momentum has slowed somewhat of late (both for reasons of their choosing and also due to factors out of their control such as the labels’ apparent distaste for a US launch). Spotify is also beginning to prioritize breaking free of the chains of the PC and CEO Daniel Ek is more than smart enough to understand that any sort of mass market future requires getting off the desktop and into people’s hands and into their living rooms. The various mobile apps were a first step, this Sonos partnership is another.
Regular readers will know that I’ve been calling for Apple to up its music service game for a few years now. If the iTunes music experience had been upgraded as frequently as the iPod range has been then we’d be looking at Apple as being the driving force in digital music that it was in the early years of the iTunes store. Instead Tunes has trodden water, squeezing the momentum out of what should be a dynamic digital music market.
Apple has never been in the business of selling music for its own sake. Apple sells music (apps, movies and the rest) to help sell devices. iTunes music sales are an artifact of iPod, iPhone and iPad sales, little more than monetized CRM.
So it was always most likely that Apple’s next step in digital music was always going to focus on enhancing the music device experience first and foremost. And so the stage is prepared for Ping, positioned as ‘a social network for music’. It is in actual fact music discovery functionality built into iTunes. Steve Jobs cited the 160 million iTunes accounts as a rich addressable market for the ‘social network’. At risk of sounding over cynical this sounds very similar to Microsoft and Yahoo citing their massive installed bases of email users as a social network simply waiting to be connected. Similarly Nokia with their handset customers. Apple now appears to be joining the ranks of multinational companies who mistake large installed bases of engaged customers as a dormant social network.
The labels are still kicking themselves for having let MTV build a business around their promotional videos. Once they’d realized their error, it was too late: MTV was too powerful and was making too valuable a contribution towards their business for them to simply turn off the tap. Some label execs stated they weren’t going to let Apple "do an MTV." Whether they like it or not, they did.
Apple’s dominance of the download market is a huge deal. I’d argue that EMI and WMG are actually downplaying the importance. It’s not in their interest to scare investors with the news that a company they often don’t get on with too well effectively controls the destiny of one of the only parts of their business which is still growing and which they expect to be their future.
Apple’s dominance is such that would-be new entrants have to think as a priority about what their "Apple strategy" should be. Should they be MP3 or build an iPhone app? Should they integrate themselves into the iTunes ecosystem or co-exist? Anyone who intends to be a key player in the digital music space is inherently competing with Apple. (See my colleague Ian Fogg’s fantastic report ‘Competing With Apple’ for more on this topic.)
In guidance for their latest earnings results, troubled major label EMI cited the dominance of Apple’s iTunes as a major concern for the digital music market. The exact words were:
"The substantial dependence on a limited number of online music stores, in particular the iTunes Store, for the online sale of music recordings, and the resultant significant influence that they can exert over the pricing structure for online music stores."
I have three things to say to EMI (and indeed the other three majors also):
I told you so.
It’s your fault.
Let me explain in a little more detail:
I told you so. We’ve been warning the labels about the overdependence on Apple for years. Not just because of the pricing and competitive concerns a dominant player brings but because of Apple’s motives. Apple is in the business of selling hardware. Music has been a useful tool to help them do that. But they’ll change tack as soon as it suits them. Heck, these are the guys who started out their music strategy with ‘Rip. Mix. Burn.’ Yet the more cantankerous the labels get (e.g., giving everyone else MP3 licenses before Apple), the more Apple will look elsewhere. cf the iPad, a device which should have had music embedded in its DNA to drive a new generation of music products but instead becomes a Holy Grail for book and magazine publishers.
Cloud functionality is becoming increasingly important to music product strategy as illustrated by another product launch today: digital radio manufacturer PURE announced the launch of cloud-based music service ‘FlowSongs’, powered by the UK’s 7digital (now 50% owned by HMV). To be precise the service isn’t a pure cloud service but instead leverages the cloud to deliver a music download store. The service is integrated into PURE’s Web-connected digital radio devices. For an annual £2.99 subscription fee, users get to identify an unlimited number of songs (using Shazam’s music recognition technology) and can then buy tracks for £0.79 each. Tracks are downloaded to a supported PC but are streamed to the radio.
Integrating Shazam is a smart move. Shazam is a feature not a product, but along with volume, it’s one of the key features that every audio device should have. The service will certainly drive discovery-based purchases (Forrester's Technographics® data shows that 57% of consumers discover new music via radio, making it the No. 1 discovery channel). But those benefits aside, I’m not convinced this is a killer service, yet at least. There was an opportunity to make this a frictionless access-based subscription service whereby customers could instantaneously replay the songs on a device that they identify without having to invest in a download. The future is in access-based models, not the dead-end street of the download store.
I’ve just got back from 2 weeks of holiday during which time quite a lot happened in the digital music space. One thing that really caught my eye was UK dance act Faithless’ partnership with Italian car company Fiat for their single ‘Feelin’ Good’. Brands (Converse, Bacardi, etc.) commissioning artists to record tracks for ad campaigns is a growing trend, but what Faithless have done here is different. No money actually changed hands, and no Fiat slogans or messaging appear on the video. So how does it work? Fiat paid for the video and in return had a Fiat Punto featured in the video. The car actually gets pretty prominent positioning (including extended dashboard footage), but Fiat’s creative agency have worked hard to ensure that it has been done in a creative and non-intrusive manner. (Well, maybe not quite that non-intrusive, but the intent is there and it’s leagues above much other product placement.)
The three-minute video will air across an entire ad break during the reality TV show ‘Big Brother’ to an audience of c 1.5m.
I’ve been covering the digital music space for over a decade now and in that time I’ve seen a lot of services and devices come and go. I’ve also seen a lot of lessons learned and there is clearly more choice of high-quality music services and products now than at any stage before. And yet there is one major Achilles' heel which continues to cripple the market: poor service-to-device journeys. We have great services and we have great devices. But we have very few great service and device combinations. Pitifully few companies put anything like enough focus on the service-to-device journey (or if they do, they execute poorly). Just as much effort needs to be invested in ensuring services are fully integrated and optimized for supported devices as in building the services and devices themselves. Otherwise: great device + great service = poor experience.
So, in the Consumer Product Strategy team at Forrester, we decided to do something about this problem and created a new methodology that will help product strategists build winning service/device combinations. We call it the Convenience Quotient of Music Experience. For those not familiar with Forrester’s Convenience Quotient, it is based on a very simple equation:
The title of the report is important and highlights the key focus of the report: that cloud-based music services should not be some technology-driven rush to deliver music across as many devices as possible but should instead focus on extending and connecting the digital music experience into what we are calling 360-Degree Music Experiences.
The idea of cloud-based music has been with us for a long time (some of you many remember the decade-old concept of The Celestial Jukebox). Now that technology and connectivity have, to some degree at least, caught up, the cloud is drifting across the digital music marketplace once again. However, numerous hurdles continue to temper the potential: