In Conversation With Sonos’ John MacFarlane

I recently had the opportunity to catch up Sonos’s CEO John MacFarlane, the video of our conversation is below.

In the video John and I discuss various key issues facing the digital music market, including:

  • what the next generation of music services will need to deliver
  • The role of experience in music products
  • getting digital music into the living room
  • Facebook’s content dashboard strategy

John is an insightful guy and hopefully this video will give you a sense of his vision.

Free Report: The Socially Integrated Web

I have just released the latest Music Industry Blog report:

The Socially Integrated Web: Facebook’s Content Strategy and the Battle of the Ecosystems

If you are a subscriber to the blog you should already have received your free copy. If you do not yet subscribe to this blog then simply enter your email address into the ‘Email Subscription’ form to the left hand side on this page and you will receive your free copy of the report.  (If you are a subscriber but have not received your copy yet then please email musicindustryblog AT gmail DOT COM.)

Here are some highlights from the report:

The Universal Content Dashboard

Change is afoot in the Internet.  Facebook’s new Socially Integrated Web strategy is set to make Facebook one of the most important conduits on the web.  Facebook is pushing itself further out into content experiences in the outside web while simultaneously pulling more of them into Facebook itself.

The Timeline announcements at f8 saw Facebook establishing itself as a universal content dashboard – a 21st century cable company for the Internet – establishing its own content ecosystem to compete with the likes of Apple and Amazon. While traditional ecosystems are defined by hardware and paid services, Facebook’s is defined by data and user experience.

Joining The Digital Dots

The Socially Integrated Web is the strategic architecture of Facebook’s digital content strategy.  It is a strategy that others’ are following too but that Facebook is currently doing best.  Facebook has been quietly putting many of the building blocks of the Socially Integrated Web into place over the last year or so, but the most dramatic moves were announced at Facebook’s f8 conference in September.  It was there that we heard about Facebook’s controversial Timeline feature.  This – along other functions such as Likes on websites across the web – are Facebook’s attempts to join the dots in our increasingly fragmented and cluttered digital lives.

Four Ecosystems Now Define The Content Landscape

It was not so long ago that content ecosystems were the domain of device manufacturers like Apple, but all of that is changing.  Indeed now it is possible to view the entire digital content landscape through the lenses of 4 different types of content ecosystem (see figure).  If we think about content along two axis, one of ownership and one of openness we end up with four key groups of content types, each of which in-turn leads to a different form of content ecosystem:

  • Device Based Ecosystems. The traditional territory of content ecosystems, these are defined by consumer devices such as the iPad, the Kindle and the xBox.  They revolve around device based consumption of owned content that is either purchased from an integrated store (and typically is tied to the ecosystem with some use of DRM) or is sourced from a user’s own collection.
  • User Based ecosystems.  These are based upon users’ own content collections.  The photos and videos we create ourselves and all of the unprotected professionally created content we have either ripped or purchased.  We create our own ecosystem walls around this content by choosing who we share this content with and where.
  • Open-Web Based ecosystems.  These are the least structured of ecosystems, based around openly accessible web content destinations.  At first sight these might look anything but like ecosystems, yet there are numerous tactics that open-web sites increasingly use to create virtual ecosystems.  For example a video destination might define a narrow set of partner sites where it will make its content available, forcing the user to stay within that ecosystem of sites in order to access that content.
  • Protected-web based ecosystems. Here content companies pull walls down around their content. Sometimes these walls are paid, sometimes they are free but password restricted, sometimes they are created by making content experiences app based, ensuring the content experience can only happen within the app.

To receive your free copy of the report simply enter your email address into the ‘Email Subscription’ form to the left hand side on this page.

Here is the full table of contents:

Setting The Scene

  • Joining The Digital Dots

Analysis

  • Preparing For Long-Term Competitive Strategy
  • Facebook, The Early Follower 21st Century Portal
  • Four Ecosystems Now Define The Content Landscape
  • Ecosystem Co-existence And Competition
  • The Reach And Risks Of Facebook’s Universal Content Dashboard

Conclusion

Apple’s iCloud and What It Means to the Digital Music Market

Today Apple formally launched iCloud.  Back in June when Apple first announced iCloud I said I considered it a great start but just that.  After today’s announcement I’ll add that there is more meat on the bones but that Apple has still fallen short of its potential here.  Don’t get me wrong, iCloud and iTunes Match are great, elegantly implemented services.  But I still think Apple could have done more, much more.

A few months ago I wrote that Apple, Amazon and Android comprised Digital Music’s Triple A and that they all shared SPACE, that is Scale, Product, Ambition, Cash and Ecosystem.  This framework provides a useful lens with which to view Apple’s music related announcements today:

  • Scale.  Apple is a truly global company with global reach.  Any service it launches needs to share as much of that reach as possible to deliver the benefit to device sales it exists for.  So it was a disappointment that Apple didn’t announce an international rollout for iCloud at launch (international markets will come later).  Launching in the UK will be crucial for Apple and will be where they can steal a march over the rest of the Tripple A. It is the most advanced digital market in Europe and Apple’s biggest market too.  Android and Amazon won’t find it so easy brining their locker services to the UK as Apple will though.  The UK does not yet have fair use legislation so the other 2 A’s (unlicensed) locker services that depend upon DMCA provisioned fair-use would not be legal in the UK.
  • Product. Most of the attention is around the iPhone 4S and new iPods.  They are of course what Apple is all about. The seamless integration of iCloud significantly enhances the value proposition of these products.  We are in an age where consumer devices are defined by their surrounding ecosystem as much as by the hardware itself (see my Socially Integrated Web post for more on this). iCloud takes the Apple ecosystem to the next level. I’d still like to have seen better productizing of it though, such as pre-installed device bundles with a year of iCloud included as a standard pricing option alongside harddrive capacity.
  • Ambition.  Here is where Apple fell a little short from a music perspective.  I’ve sensed a steady weakening of Apple’s music strategy ambition over the last few years and today’s announcements fit the trend.  It makes absolute sense of course.  When Apple first launched the iPod, music was the killer app for the small memory monochrome screen device.  In the days of the iPad, music just doesn’t show off the capabilities of the device like video, books and games do (regardless of whether that is the main activity people conduct on iPads or not).  iTunes has been hugely successful (16 billion downloads to date and 70%+ market share).  But Apple’s music strategy and consumer offering hasn’t changed dramatically since launching in 2003.  There have been some great evolutions (more catalogue – 20 million tracks, DRM-free, better editorial and programming etc) and some half hearted innovations (Ping, Genius) but it remains fundamentally the same product it was 8 years ago. Compare that to the evolution of the iPod.
  • Cash.  Apples’ great advantage in digital music is that it can afford to loss lead if it so wishes as music is all about selling i-devices not direct revenue for them.  Yet Apple is ideologically a margin company and this is why they don’t ‘do a Kindle Fire’ and build a killer music subscription offering because they calculate they can get better ROI from more modest music innovation.
  • Ecosystem.  Apple have just put clear blue water between their music ecosystem and those of the other 2 A’s of Digital Music.  The elephant in the room though is the new ecosystem in town: Facebook.  Apple was glaringly absent from the F8 announcements and there is no space for Facebook here.  Apple’s ecosystem is defined by devices, Facebook’s by user data and user convenuience.  Apple and Facebook will start banging into each other (see figure) and sooner or later the pair will start needing to build co-existence strategies.  In the meantime expect Android Music to start building strong links with Facebook.

So in conclusion,  I walked away from the Apple event with the familiar feeling that I wish there had been more.  But like I say, it is a familiar feeling.  I suspect that the music industry has missed its window of opportunity with Apple to drive truly transformational music industry innovation.  Maybe now they’ll start to regret having played hard ball with Apple in days gone by and start looking for someone else to pick up the baton.  They may be looking for some time.

The Socially Integrated Web and Facebook’s Content Strategy

Click on the video below to view my latest Music Industry Blog podcast.  This episode addresses the Socially Integrated Web, the term I use to describe Facebook’s content strategy.

Topics covered in this episode include:

  • Joining users’ digital dots
  • The four types of digital content ecosystems
  • How Facebook will extend its ecosystem reach
  • The universal content dashboard
  • What will happen to content companies that integrate with Facebook

Facebook Fallout

As if to prove that Facebook’s F8 announcements were truly seismic we are still feeling the aftershocks now.  Interestingly though it is Spotify who is feeling most of the effect of Facebook’s moves towards becoming a 21st Century Portal.

When Spotify was positioned centre stage at F8 (literally in the case of Daniel Ek)  it wasn’t immediately apparent whether this was just Spotify as the first among equals of the dozen+ digital music services included at launch.  Now the dust is settling it is becoming apparent (to misquote Orwell) that

All digital music services are equal, but some digital music services are more equal than others.

Facebook, Guardian or Gatekeeper?

There are many quite logical strategic and financial reasons why Spotify’s bond with Facebook is so close (shared investors, scale, momentum of brands, closeness of Zuckerberg and Ek etc etc).  But in my opinion it is more interesting to look at what the long term effect of the fallout may be:

  • Facebook: Gatekeeper of the ‘Socially-Enabled Web’. Over recent years Facebook has slowly been flicking the switch on its strategy of integrating itself into the wider Internet, first with ‘Likes’ across external web sites and now with features such as the Timeline, and a play for the Universal Log In (see below for more).  What Facebook is doing is placing a social (i.e. Facebook) layer across more and more of our external web experiences and also bringing more of our external web experiences into Facebook.  This is what I term Facebook’s Socially-Enabled Web strategy. As leading content destinations such as Spotify, Vevo and Netflix jump on board they have their eyes firmly set on the 800 million potential customers and turn a blind eye to the longer term implications their collective activity is facilitating.
  • Facebook’s Digital Music Gentleman’s Club: Spotify’s tighter integration raises questions about Facebook’s role as a curator of out digital content experiences. Rdio and Mog for example appear to be given less prominence than Spotify within Facebook. Rdio users have complained that Spotify’s ‘featured music service’ status overrides some Rdio functionality within Facebook.  Facebook creating a social layer for content experiences is one thing, but choosing who gets in and who does not is an another thing entirely.
  • A Nail In The Coffin for Ownership? Universal Music’s UK Director of Digital Paul Smernicki said he saw the F8 announcements as a ‘coming of age’ for streaming services and a shift to access rather than ownership. The emergence of the consumption paradigm has been something I’ve long expounded, but it is interesting to hear it come from the world’s largest record label.  (And from a record label that typically doesn’t just let executive comment ‘slip out’.)  The addition I’d add to the argument is that we are in a transition phase where additional, complementary blended access / ownership models will be crucial to mass market revenue migration.
  • Facebook Boosts Spotify Usage, Though From What Base? New usage metrics (from a third party measurement company) suggest that active Facebook integrated usage of Spotify rose from 3.25 million to 4.5 million following the F8 announcements.   Spotify report their ‘active’ users at c. 6.5 million, which means that if these 3rd party numbers are broadly accurate that only 50% of Spotify’s ‘active’ users in a normal non-F8 month are active Facbook integrated users.  It also means that Spotify’s 2 million paying subs represent 61% of this user base.  There are some important caveats: the measurement company suggests their data should be considered as directional rather than absolute. Additionally ‘active Facebook integrated’ users is not the same as ‘active Facebook users’ but it is a decent proxy for the most engaged Spotify users. Which raises questions about just how many more potential new premium customers are left to convert. Which in turn helps explain why Spotify is widening out the funnel with a ‘6 months free Facebook streaming’ offer.
  • Facebook and the Universal Log-In.  Perhaps the most contentious issue of all has been Spotify’s insistence on all Spotify users using their Facebook log in details to access the music service.  Which of course means that if you are not on Facebook you cannot use Spotify.  Faceboook’s 21st Century Portal ambitions don’t stop with adding that social layer to content.  The Socially-Enabled Web strategy requires Facebook to become the lock and key for our digital lives.  The concept of the Universal Log In concept is far from new. Many have tried and failed.  Facebook’s scale gives it a great chance of success, and if implemented well (i.e. gradually and on an opt-in not force-in basis) it will deliver great convenience and benefit for consumers.  What Spotify are guilty of is rushing it through in a heavy handed manner.  But doing so was probably part of the price of the centre stage positioning Spotify got given.  Note that Rdio and Mog have no such requirements.  Interestingly some premium Spotify users indicate that it is possible to get around the requirement by opting out of the timeline functionality within Facebook.  It will be interesting to see whether this is a bug in need of a fix or indeed a benefit for paying users.

Expect more  fallout from the Facebook announcement, but don’t expect Spotify and Facebook to fall out

It is likely that the fallout will continue over the coming days and weeks and that Spotify and Facebook will both consider making changes (Daniel Ek even reached out to the Twitterverse to ask directly for their feedback and stated he would make changes if need be).  Indeed one survey suggested 20% of Swedes could leave Spotify in light of the changes.  But when the changes do come, don’t expect them to be a change in strategy, instead simply a slowing of the timeline (no pun intended).

The harsh reality is that Facebook’s Socially-Enabled Web strategy is simply too important to be put of course by a few disgruntled streaming music fans.

Facebook Music: The Tale Of the 21st Century Portal and the Death of Music Service Brands

The digital world had been waiting with baited breath for Facebook’s Thursday announcements. Of course it was always going to be more than just music, but music nonetheless plays a key role in Facebook’s social-pivot.

Almost regardless of what they actually launched Facebook’s announcement was always going to be big news because Facebook is such a major player in the online world.  Facebook, along with Google, are – to use my sage former colleague David Card’s term – 21st Century Portals.  The likes of AOL, MSN and Yahoo were transition technologies, that tried to translate the traditional media company model online.   Google and Facebook take a different approach, they are portals in a purer sense of the word.  They let you and others create the content, they provide instead the doorway to that content.  Google is the jumping off point for the places on the web that you don’t know yet, Facebook is the starting point for the places and people you do know (see figure 1).

Music: the great consumer lock-in

Why is this relevant to Facebook’s music strategy?  Because Facebook want to consolidate and extend their role in your digital life.  They want to give you more reasons not to leave Facebook.  Just as Apple and Amazon have each in their own ways used music as a consumer lock-in, so Facebook want to do the same.

The most significant music feature Facebook announced was the Music Timeline.  This timeline is a visual history of all the music you listen to in any of the music services that a) have integrated with Facebook and b) you have opted to feed that music service into your timeline.  Friends can listen to any of that music if they too use that service and have opted to have that service feed into their timeline.  As you can see it is currently a slightly clunky implementation of a great concept.  The next step Facebook need to take is a universal player.

By bringing together services like Spotify, Vevo and Turntable.FM and plugging them straight into the platform Facebook are transforming themselves into a content dashboard, an entertainment hub.  They are joining the digital dots in an increasingly fragmented and confusing digital music marketplace (see figure 2).


Music: the low hanging fruit

Of course Facebook are doing a lot more than just bringing music into the dashboard, but music is the mass market bait.  Music is the ubiquitous content that we all relate to and consume.  It was what Apple used to get started on the iTunes journey, it is what Amazon used to get started on the e-commerce journey and it is part of what Facebook are using to get started on the next stage of their journey as a 21st Century Portal.  And if you can build a framework or eco-system around that consumption then the lowest common denominator becomes a mass market consumer lock-in tool.

Will Facebook turn music services into ‘dumb feeds’?

The integration of the 15 services announced (full list at the end of this post) is the result of 6 months of hard development but it is just phase 1.  Facebook is upping the ante as a platform for developers, so expect integration to go even deeper, even wider, really quickly.  This is all great news for digital music services: Facebook is so ubiquitous that is like the best ad campaign you could ever have, all your target customers are right there.

But there is also a big risk for music services. As they become more and more integrated in Facebook (especially when the universal player comes) their brands will increasingly fade, subsumed into Facebook.  One Twitterer yesterday posted: “what do you get when you combine Facebook with Spotify? Facebook”.  That encapsulates the dynamic perfectly.  Music services such as Spotify are certainly boosted by the endorsement of Facebook and are drawn like moths to a light bulb by the lure of Faceboook’s 800 million users, but just like the moths they may find their wings singed when they realise it isn’t the moon they’ve just reached.  Just as telcos nowadays fear becoming ‘dumb pipes’, music services will need to be careful not to become ‘dumb feeds’ into Facebook’s Music Timeline.

Facebook: Aggregator? Curator? Platform? Or Gatekeeper?

Facebook wants to lock users in but it also wants to lock content partners in.  It wants to ensure that Spotify, Vevo and the rest simply couldn’t imagine life without Facebook anymore, just in the way Google has embedded itself. With that power will come great responsibility and it is hoped Facebook will resist the temptation to become a gatekeeper.

Change, though never easy, is a big risk for Facebook

But it is not just the music services who face huge risk here, so does Facebook  itself. Mashable talked about  Facebook’s changes breathing life into a relationship with users that had gone stale.  This makes sense, but I suspect it is more a case of the partners in the relationship beginning to want different things. I think most mass market Facebook users were perfectly happy with the neutral platform for communicating and sharing experiences with friends.  Mass market Facebook users are the content wife, happy with how the relationship is going, ready to settle down further and have kids while Facebook is the husband with itchy feet wanting to travel the world and take up sky diving.

Online media (my blog included) are an echo chamber of a particular niche of the tech literate, that gives an distorted view of the world.  Sure I and you my readers may find the new Facebook changes exciting.  But I’d wager that at least 350 million of Facebook’s users are more likely to find them scary.  Facebook is so mainstream that it has to tread carefully.  (If you are in any doubt as to just how mainstream Facebook is Read It Write It Web write a story about Facebook’s universal log in that was bombarded with thousands of comments from irate Facebook users wanting to know where they could log into Facebook on the story because they clicked on the story link when Googling for ‘Facebook Log In’).

Execution is of course everything.  Sophisticated doesn’t need to mean complicated, it can be elegantly simple – just look at Spotify and Apple.   Facebook’s success will be in striking a balance in which they can grow momentum of use of new features but at the same time let the passive majority be as disengaged as they wish.

Facebook is already a 21st Century portal, a social layer on our web activity, these new features give Facebook the capabilities to take this to the next level, to a point where social networking may even be a secondary reason for many people using Facebook.  Facebook as a social content hub first and a social network second.  Now that really would be a social-pivot.

 

The music services integrated at launch:

  • AudioVroom
  • Earbits
  • Deezer
  • iHeartRadio
  • Jelli
  • MixCloud
  • MOG
  • Rhapsody
  • Rdio
  • Slacker
  • Songza
  • SoundCloud
  • Spotify
  • TuneIn
  • Turntable.fm

 

In Conversation With Boinc’s Adam Kidron

Here is the video of my conversation yesterday with the CEO and founder of the forthcoming music service Boinc.  We discuss a number of things, including:

  • the state of digital music
  • Facebook’s potential impact on the space
  • reestablishing value in music
  • addressing the emerging market challenge

Adam also shares his vision for the music industry annd his concept of ‘creating an API around the entirity of music’.

Take a look and let me know your thoughts and comments.

Waiting For Facebook

As the market collectively holds its breath in anticipation of Facebook’s much (over?) hyped music service launch this coming Thursday, it is instructive to take stock of where we are at the moment to better understand the eager expectation.

Digital music is stuck in a rut

At the start of the year I made a speech at Midem, positing that digital music was at an impasse.  Now, with the best part of a year gone, it still is. Granted we’ve had some important and encouraging developments (Spotify’s US launch and 1 million+ paying subs and Pandora’s IPO among them) but the fundamentals remain unchanged (see figure):

 

  • Paid downloads are an Apple micro-economy not a marketplace. Despite valiant efforts from the likes of 7 Digital and Amazon, the 99 cent download just isn’t translating well outside of the iTunes ecosystem.  Why?  Because the tail is wagging the dog.  iTunes downloads are an extension of i-devices not vice versa.   The iTunes 99 cent download is effectively monetized CRM.  Deep, elegant device integration is crucial for any digital music experience, especially so paid downloads. 7 Digital’s Music Hub build for Samsung’s Galaxy Tab is the sort of implementation needed, but both 7 Digital and the market as a whole need a much wider addressable base than Galaxies alone (retail embargoes notwithstanding).
  • Premium rentals are an evolutionary dead-end. Despite Spotify doing a most admirable job of breaking the 1 million premium subscribers mark – which all other services had spent years failing to do the fact remains that 9.99 rented music is a high-end aficionado market.  Spotify have done a great job of building on the fantastic pioneering work of Rhapsody but in doing so they have developed the ‘faster horse’ that Henry Ford said his customers would have requested instead of the Model T if he’d asked them what they wanted.  Rdio and Mog both have great user experiences but have struggled to make headway because the basic value proposition of 9.99 a month for rented music just doesn’t appeal to most consumers.  Heck, 9.99 a month for owned music doesn’t even appeal anymore to most consumers anymore.  Mass market consumers may be willing to pay much more than 9.99 a month on TV, broadband, mobile etc. but they won’t for music. It may not be pretty but this is the harsh reality that must be accepted. As far as music is concerned the contagion of free is legion and the best way to fight free is with free itself (or at least something that feels like free – see my previous post on subsidized subscriptions for more).
  • Digital music is cluttered and complex. There is so much choice of catalogue and services that paradoxically there is no choice at all for consumers, unless you’re a savvy aficionado willing to wade your way through the clutter. Mass market consumers need the digital dots joining.  Back in my days at Forrester I wrote about the need for 360 Degree Music Experiences, where the disparate parts of the digital music journey get pulled together by an interconnected ecosystem.  The case for this is even stronger now.

Music: Facebook’s user lock-in

And this is where Facebook comes in.   As I wrote earlier this year, it doesn’t make any sense for Facebook to try to ‘do a MySpace’ or for that matter to ‘do a Spotify’ or ‘do an iTunes’.  Facebook is becoming a launch pad for our online lives just as Google is.   But whereas Google largely gets us to places we don’t yet know, Facebook is what (and who) we do know.  And in that lies a massive asset for digital music and an even larger platform for Facebook’s future growth.

I expect Facebook to join music’s digital dots and become a social dashboard for digital music activity.  By plugging our music activity into our social graph Facebook can both enrich those services and tap into the tastes of our friends.  The net result will be a richer digital music experience across multiple services and – most crucially for Mark Zuckerberg – one more reason why we’ll want to stick with Facebook when the Facebook-Killer finally raises its long overdue head.

Samsung and Meeting The Device Use Orbit Challenge

Two pieces of Samsung related news hit the wires this week:

Samsung might not be one of the big players in digital music but this mixed service portfolio approach indicates a strategic pragmatism that is crucial for anyone trying to compete with Digital Music’s Triple A of Apple, Android and Apple.

But the approach – and 7 Digital’s broader mobile success – is also indicative of an increasingly important strategic imperative for digital music services: namely navigating consumers multiple and interrelated device orbits (see figure).

Ubiquitous connectivity is, to put it mildly, some way off and the stream isn’t going to fully replace the download anytime soon.   And yet, more people are using more devices to listen to music in more places than ever before, and these usage patterns are creating an increasingly complex mesh of usage orbits.  Consumers are becoming more and more adept at developing specific and distinct use cases for their growing number of devices.

Historically, music allowed itself to be pulled across different devices, responding to consumer needs.  This was a perfectly adequate first stage but now music services need to do more than just deliver music to where consumers are.  To prosper in the next stage, music services need to tailor music experiences and value propositions both to specific use cases and be designed for co-existence within multiple, interrelated device orbits.

Coexistence Strategies

Of course some services will hope to simultaneously address every device use orbit (good luck on getting the licenses for that).  But the smart services will design nuanced co-existence strategies that ensure the core use case not only fits alongside a consumer’s wider digital music activity but establishes itself as an indispensible complement to it.  For example getting onto Sonos’ new Play:3 will likely be a more valuable route to the living room than trying to develop integrated hardware from scratch.  Similarly delivering mobile Facebook playlist support and integrating discovery tools like the Hype Machine will prove every bit as important to the consumer experiences as securing the rights to deliver the music itself.

Consumers will continue to have more devices, more content and more music service choices. The challenge that music services and device manufacturers such as Samsung must meet is helping join those digital dots by navigating consumers’ device use orbits.