Got Milk?

milkPoor Samsung launched their latest punt at digital music success just as Spotify was stealing all the media oxygen with its acquisition of the Echo Nest.  Samsung’s latest venture, curiously called ‘Milk Music’, is another attempt from the smartphone giant to carve out some mindshare and consumer traction in the digital music space.  Like all but one smartphone manufacturer – you know, that one from Cupertino – Samsung does not have the best of track records when it comes to digital music, having recently culled its previous Hub service.  Milk is a Pandora-like mobile radio app and while it certainly suffers from ‘me-too syndrome’ it is not actually a terrible strategic fit.

With 200 stations and a catalogue of 13 million tracks, Milk Music has some muscle but it is hard not to see it as a thinly veiled attempt to ‘do an iTunes Radio’.  However there is not necessarily that much wrong in doing exactly that.  iTunes Radio is a very neat service that is well geared towards the mainstream, less engaged music fan.  That is exactly Samsung’s addressable audience.  Samsung has been at the vanguard of the mainstreaming of smartphone adoption, so much so that many of its devices are smartphones with dumb users.  Milk Music is however limited to the Galaxy range of handsets, which will to some degree filter its audience towards Samsung’s more engaged users.

No smartphone manufacturer has been able to make music work like Apple has.  In fact no smartphone manufacturer has been able to make content and services as a whole work like Apple has.  Apple’s ecosystem is a fascist state compared to Android’s federated democracy, but at least the trains ran on time in Mussolini’s Italy.  That absolute control of the user experience enables Apple to deliver on the single most important part of digital music product strategy: the service-to-device journey.  It just happens, and seamlessly so.  So many other phone companies have failed to understand the importance of this ineffable magic.

Samsung might be able to get it right with Milk Music, but because they are part of the federated states of Android, they will also have to tolerate a bunch of pre-installed incursions from fellow Android states, not least Google’s Play Store.  Apple meanwhile ensures there is just one place for music on its devices.

Samsung desperately wants to make music work and to its credit continues to throw money at trying to fix the problem.  Free radio might just be the best first step.  Especially considering that just 1% of Android consumers state they intend to start paying for a music subscription service and that a quarter of them say they have no need to pay for music because they get so much for free.  Milk Music might be feeding that free music habit, but it could also be the foundation for something bigger and better.  In the meantime, if you can’t beat them…

Listen Services Raise Their Game While Access Services Raise More Capital

Regular readers will recall my classification of the digital music market into Access services and Listen services, located at opposite ends of the Complexity Axis. Late last week two of those Listen services upped their respective games, with MusicQubed launching a new service with Vodafone New Zealand and Nokia Mix Radio introducing a host of new features.

Both services are focused squarely on delivering elegantly simple music experiences for as little effort as possible from the listener.  All you can eat Access services have done a great job of engaging the higher end aficionado and will continue to be the most appropriate business model and value proposition for the more engaged, higher spending music fan.  They do little for the lower spending mass market consumer however, which is where Listen services come in.

Interestingly MusicQubed and Nokia’s announcements came in the exact same week that news began to surface of Spotify securing an extra $250 million in finance, taking Spotify’s total investment tally to over half a billion.  In fact Deezer and Spotify alone account for approximately two thirds of all of the investment in digital music services in the last three years, amassing $0.6 billion between them from 2011 to 2013 alone.  Both companies have reported impressive subscriber counts and have made subscriptions work at scale in a way that the stalwart incumbents Rhapsody and Napster never did.  But building the Access business is clearly one that requires a large and steady influx of working capital.  The industry has got to hope that the investment to date helps build the foundations of long term sustainability and not simply supercharge a few services for a quick sale without an eye fixed firmly on the long game.

Concerns aside, it is great to see more investment pouring into the space, even if it is too concentrated at the moment. It is even more encouraging though to see more companies recognising the need to engage the less hip, but much larger installed base of mass market fans who are currently getting left behind by the digital music bandwagon.  It is to be hoped that these are the foundational signs of a more mature digital marketplace that can take the digital transition onto the next stage.

New Report: Building the New Business Case for Bundled Music Services

Today MIDiA Consulting is proud to announce the release of a white paper commissioned by Universal Music entitled “Building the New Business Case for Bundled Music Services”.  The report, written by myself and MIDiA Consulting co-founder Keith Jopling, provides an unprecedented analysis of telco music services, taking a critical look at what has and had not worked to date and a series of models and recommendations for the future.  We interviewed a host of telco music executives to get a deep understanding of what telcos need out of music services to make them a success and combined this insight with data from consumer surveys and music service trials as well as case studies and best practices.  We think it is pretty much the definitive piece of work on the topic (!) and we invite you to download it here: Building the New Business Case for Bundled Music Services – FULL REPORT.  You can also download an executive summary version of the report here: Building the New Business Case for Bundled Music Services – EXECUTIVE SUMMARY.

Here are some of the key findings of the report.

The consumer shift from downloads to streaming is the most important digital music market trend since the advent of the iTunes Music Store.  Before streaming services telcos struggled to find a way in which they could compete in a market dominated by Apple, restricted to selling DRM locked downloads that of course would not play on Apple devices.  Subscription services changed all of that, with the leading streaming services all pursuing robust telco partnership strategies as well as a number of download subscription services.  There are now nearly 50 telco music service partnerships live in six regions across the globe.  With 40% of streaming consumers now paying to stream, generating $1.2 billion in trade revenue in 2012 the opportunity is clear.

Music Bundles Across the Globe

However it is clear that many of the hurdles that telcos faced in the last decade continue to pose challenges.  These include music not being a priority for many telcos, internal business casing getting in the way of building compelling services and the wrong success metrics being used.

The new success stories of telco music services are those that make music a strategic priority.  This is not some sop to the record labels, but a reflection of what it takes to make music strategy a success. If a telco just adds music to a long list of Value Added Services (VAS) it will wither on the vine.  But if a telco puts a music service front and centre and positions around it then success is far more likely.  Success stories that have followed this approach include Telia Sonera’s hard bundle with Spotify in Sweden and Cricket Wireless’ Muve Music in the US.

Streaming by the Numbers

The Role of Promotional Offers

For all the obvious synergies of telco music bundles there is a real danger that hard bundles that make music subscriptions free or feel like free to the end user run the risk of devaluing the proposition.  Yet it is also clear that consumers need to be able to ‘suck it and see’ before subscribing so promotional free trials and limited period bundles present a strong balance of value to the consumer, cost effectiveness to the telco and protecting the integral value of music for artists and labels.  The market data for free trial is compelling: half of one month trialists convert to a paid subscription at the end of the promotional offer period.

Customer Satisfaction, the New Music Service Opportunity

An entirely new aspect to music bundling that we dive into in the report is the role of music subscriptions in driving customer satisfaction across a telco’s wider business.  Even the most edgy, cleverly positioned challenger telco is ultimately a provider of important products but not usually a consumer passion point.  Music though has that brand passion secret sauce and partnering with the right music service can enhance the telco’s own brand and customer sentiment.  Smart integration of music into the customer journey and integration with customer satisfaction measurement tools, particularly Net Promoter Score (NPS) can enable telcos to create a customer satisfaction halo effect.  With music converting satisfied music subscription customers into highly vocal net promoters with satisfaction benefits felt across the full range of a telco’s services.

Bundled music services did not get off to the best of starts, but now their time has come, giving telcos the opportunity to assume centre stage in the digital music marketplace.

For more information on the research please feel free to email us at info AT midiaconsulting DOT COM.

About MIDiA Consulting

Midia ConsultingMIDiA Consulting is a boutique, media industry focused consultancy that delivers practical, results-driven outcomes.  MIDiA stands for Media Insights & Decisions in Action. Our mission is to help media and technology companies develop purposeful strategies quickly through market understanding, clarity of vision, and workable innovation.

We help media and technology companies make sense of the changes that digital market forces are bringing about. And we help them make profits from digital content.

http://www.midiaconsulting.com

info@midiaconsulting.com

The Complexity Coefficient: ‘Listen Services’ and the Tyranny of Choice

Despite commendable progress the digital music market is still way behind where it should be.  It is an easy mistake to view the global music market through the Anglo-American lens but if you strip out the UK and US from the statistics the result is that three quarters of global ‘rest of world’ music sales are physical.  Thus ten years since the launch of the iTunes Store digital is still only a quarter of non-US and UK revenues.  The role of Apple is, as ever, key: Apple knew how to make an elegantly simple user experience that just worked.  Thus where Apple was strongest (US and UK) digital music sales prospered.  But most consumers do not have Apple devices so the music industry needs more music services to be as elegantly simple as iTunes if it is going to push the needle on that 25%.  The problem is that most of the services on which industry hopes are being pinned are anything but.

Innovating for the Elite?

Streaming subscription services are undoubtedly at the leading edge of music technology sophistication and recent innovations from Spotify in particular are setting the bar high for immersive digital music experiences.  But paradoxically this is part of the problem.  At the end of 2012 subscription and ad supported services accounted for just one fifth of global digital music revenues.  Though that number will grow markedly in 2013 – and already over indexes in the digital sophisticate Nordic and Dutch markets – it will not overtake downloads anytime soon.  There are of course many factors, including the key issue of pricing – 9.99 is not a mass market price point, but there is a more fundamental one: streaming subscription services are just too sophisticated for mainstream users.

The reality is that mainstream music consumers are not heavily engaged with music and like programmed, curated music experiences.  For all the music industry turmoil of the last decade radio listening has remained relatively steady, even growing in many markets, and it also remains the number one music discovery source – still far ahead of YouTube.  Radio’s enduring popularity stems from its simplicity.  A common product strategy error is the assumption that more features = better quality product.  But more often than not, less = more.  The extra discovery features in subscription services are fantastic tools for the niche audience of engaged music aficionados that use these services but they also make them less accessible for mainstream users.  This is what I term the Complexity Coefficient. 

The Complexity Coefficient is a simple way of understanding a complex problem and can be calculated as follows:

Feature Benefits – Feature Sophistication = Complexity Coefficient

In short, the more sophisticated the features of a service, the less the benefits will be felt by the user.  When this is applied to less sophisticated users a multiplier needs to be applied: a heavily featured sophisticated music service will already have barriers to use for an aficionado but will be entirely inaccessible for a mainstream user.  The Complexity Coefficient manifests itself in another way also: the more complex a service, the longer the music journey is.  For music aficionados that can be a good thing, but for radio-centric mainstream users it is a barrier rather than a benefit.

The COmplexity Coeffecient

The Tyranny of Choice

When we apply this thinking to the digital music landscape something really interesting emerges (see graphic).  The on demand subscriptions that monetize access – ‘Access Services’ – sit at the top right, highly sophisticated, but therefore also complex, with the longest music journey.  These services provide access to a vast, vast catalogue of music.  A catalogue that is growing rapidly every single day.  Last week 7Digital’s Ben Drury reported that his company now has 27 million tracks in its catalogue and is growing at a rate of 100,000 a week.

Choice is fantastic but too much begets choice paralysis.  There becomes so much choice that there is effectively no choice at all.  This is the Tyranny of Choice. 27 million tracks is an unwieldy vastness of music that would take 205 years to listen to.  What matters about music catalogue is the music that truly matters not the total size.  Of those 27 million perhaps 3 to 6 million are ‘core’ catalogue.  Of those how many really matter to any given listener? Perhaps 10,000 at the most?  Even that would be 2 months of listening for someone who listens 10 hours a week and doesn’t listen to the same song more than once.

With the growth in catalogue each ‘Access Service’ must get 100,000 tracks worth of being better at its discovery job just to stay as good as it was last week.  And despite the vast progress that is being made, few would argue that there is a long way to go yet before we can come close to arguing that the discovery problem has been fixed.  So the odds are against a worsening status quo not an improving one.

The ‘Listen’ Services

But at the opposite end of the Complexity Coefficient scale a very different picture emerges. Here we have services like Pandora, MusicQubed’s O2 Tracks and Nokia’s Mix Radio delivering highly programmed, lean-back music experiences for the mainstream users, where the music journey is shortest.  Whereas Access services give the user access to all the music in the world, Listen service take the user straight to the music that matters.  One leads the user up the garden path, the other just opens the front door.

But there is an overriding monetization issue at the lower end of the Complexity Coefficient: most of these services predominately generate revenue via advertising.  The majority of Nokia Mix Radio’s and Pandora’s users are on free tiers.  O2 Tracks is the exception, with users paying for all tiers of access (other than a free trial).

In many ways the Access services are taking a TV broadcaster approach to discovery: they are trying to encourage users to discover as much new content as possible, to send the user on a rich journey of serendipitous discovery.  The Listen services however are focused squarely on delivering a smaller selection of music the user is most likely to like, and keeping firmly within those parameters. To an aficionado the Listen service approach may feel restrictive and limited, but to a mainstream music consumer it fits their exact needs.  But what is clear is that music services at the lower end of the Complexity Coefficient scale are going to be crucial for pushing digital music towards the mainstream.  Welcome to the age of the ‘Listen’ service?

Deezer Says It’s Going Global…

…and it means it: the pictures below are of Deezer branded bus stops in rural Mauritius. With Spotify also having announced a bunch of new markets this week, and Apple and Nokia already having an extensive network of global digital stores, 2013 really is the year that digital music should start to see some meaningful ‘rest of world’ traction.

deezer-mauritius copy

The Challenges of Becoming a Subscription Business

Subscriptions are still only a small share of the music market but their time is coming. That time is long over due (I and my former Jupiter colleagues David Card and Aram Sinnreich first started making the case for subscriptions back in 2000) and a slew of big players are getting ready to play ball now that subscription look ready for primetime.  But they will find it far from plain sailing.

Spotify, Deezer, Rhapsody, Muve, Rdio, WiMP etc. have done much get the market moving and although there are still major challenges ahead (e.g. 9.99 not being a mass market price point) a host of new entrants are poised to make their moves.  The much mooted / touted (delete as appropriate) Daisy is one of the more eagerly anticipated ones (see my take here) but focus has recently turned to potential moves from big players like Amazon and Google, while Apple’s arrival in the subscription market is becoming Godot-esque.

All of these companies bring fantastic assets to the subscription market –scale being the most important – but they will all find the subscription transition difficult.  However good their technology assets, however big their marketing spend, however big their customer base, none of these companies have subscriptions running through the DNA of their products nor, most importantly, their customers.  Here are the key challenges each will face:

  • Apple: Apple was the music industry’s digital beachhead but now Apple has a problem.  Downloads were a transition strategy with one foot in the digital future and one foot in the analogue past.  Apple has built a paid content customer base founded on ownership, a la carte transactions and downloads.  Meanwhile it tiers its hardware pricing by hard-drive capacity.  In some ways this latter point matters most: in the streaming era consumers download less which means there is less need for higher capacity devices, which in turn means that demand for the higher priced, higher capacity devices tails off.  Apple can use subscriptions to address this issue by creating bundles e.g. iPad Gold, a $200 price premium with device-lifetime access to an iTunes music, video and Apps subscription.   This sort of tactic will be crucial for Apple because the concept of digital content subscriptions is alien to the vast majority of its 400 million iTunes customers.  If anyone can make subscriptions work, it is Apple – and I believe they will – but currently its customer base, hardware pricing and content offerings (iMatch and movie rentals excepted) are simply not the right foundations for building a subscription service on.  A lot needs to change before Apple and its customers are ready for subscriptions.
  • Amazon: Amazon’s content-device strategy is the mirror opposite of Apple’s: Amazon is selling devices to help sell content. Amazon needs to be a key player in the music and video business because these low price point items are the bottom rung on the purchase ladder that Amazon hooks new customers in with.  Subscriptions though, are high consideration items.  Amazon is hoping it can nudge customers up to monthly subscriptions in the same way it can nudge customers from a CD to a laptop.  But it isn’t the same transition.  Most Amazon customers have a lot of one-night stands with the retailer rather than a relationship: it is where they go to get stuff, not to immerse themselves in experiences.  Of course Amazon is trying to change that – particularly with video – but it requires a fundamental change in the relationship with its customers.  As with Apple, a device / subscription bundle strategy will deliver best near-term results.
  • Google: Google has the most diverse set of assets at its disposal. In YouTube it has the most successful streaming music service on the planet and in Google Play it has, well, not the most successful digital content store on the planet.  Launching a subscription service on YouTube is an obvious option and the sheer scale of YouTube means that even with highly modest conversion rate it can easily become a major player very quickly.  But the fact that YouTube is free is core to why it is so popular, so the vast majority of its users have little interest in paying fees.  Thus Google will have to ‘think different’ to make subscriptions work on YouTube.  But where Google could really make the subscription play work is, well, on Play.  Not Play by itself though but instead as a tightly integrated subscription – device ecosystem with Motorola.  A while ago I wrote that Google ‘needs to do an Apple with Motorola’. It still does, but it should do so in a manner fit for the cloud era by hard bundling a Play subscription service into Motorola handsets. (You should be spotting the theme by now).
  • Samsung / HTC / Nokia et al. By this stage any readers from a non-Apple and non-Motorola handset business might be beginning to wonder how on earth their companies are going able to squeeze themselves into the subscription equation.  It is a very good question.  Most mobile handset companies are at a crucial juncture, they now face the same problem as ISPs did in the mid-2000’s: unless something changes mobile handset companies are going to become ‘dumb devices’ just as ISPs ‘became dumb pipes’.  Nokia recognized this earlier than most but got the solution wrong – or at least the implementation – with Ovi and is slowly clawing its way back.  But all of them have a huge task ahead them if they are to avoid becoming helpless observers as other companies build robust digital businesses on the back of their hardware. If they can harness the carrier billing relationship then they have a truly unique asset for building a music subscription market, but that is much, much easier said then done (remember Comes With Music?).

All of these business have the potential to be successful subscription businesses but none of them will find it an easy transition and none of them are guaranteed success.  Not only will they have to transform their products, pricing and customer bases, but they will also have to develop entirely new business practices.  To some degree or another, all of these companies have to make the transition from being retail businesses to being subscription businesses.  Being in the subscription business is all about managing churn.  It doesn’t matter how good a job you do of acquiring customers if you can’t keep hold of them.  These are the skillsets that Rhapsody has been quietly perfecting for years and that Spotify is quickly learning.  A successful subscription business can appear like a duck, slow moving above the water line, but feet moving furiously fast below.

The Churn Killer: Device Subscription Bundles

Any business that is new to subscriptions – whatever they may say to the contrary and whatever talent they might hire in – is going to be learning the ropes.  Which is another reason why hard-bundling subscriptions with hardware makes so much sense for these new entrants. Besides the consumer benefits of turning an ethereal subscription into a tangible product, they allow the providers to plan for 12 to 24 months worth of customer life time value rather than worrying about subscribers churning out after just a month or two.

Even though downloads and CDs will still dominate global music revenues by the end of 2013, it is going to be a big year for subscriptions. Whether the new entrants can help turn that into a big decade remains to be seen.

The Tale of Nokia, Mobile First and Sonic Augmented Reality

At Midem this last weekend Nokia announced the launch of Nokia Music Plus, a premium iteration of its free Nokia Mix Radio offering.  For €3.99 per month subscribers get an enhanced personalized radio service including unlimited track skips, unlimited offline playback and lyrics streaming.  From a pure specifications perspective none of that is particularly groundbreaking, but what is interesting is Nokia’s execution as a truly mobile first music service.

When Mobile First Means Anything But 

Many digital content providers are positioning themselves as being mobile first these days, but the results often suggest they are anything but.  Mobile first does not mean simply having most of your customer engagement happening via mobile, nor does it mean focusing your development costs on mobile, heck it doesn’t even mean only being available on mobile.  None of these factors constitute being mobile first, instead they should be natural outputs of a mobile first approach, success indicators of a mobile first strategy.  Being a mobile first consumer offering, at least if we use the term in a strategically meaningful sense, should be about meeting a consumer’s mobile needs in a uniquely mobile way. One that does not just leverage mobile functionality but instead has it at the core of its DNA.  That creates an experience that is so good on mobile that it would be an inferior experience on a PC.

Too often the mobile apps of music services either:

  • look like little more than a PC screen squashed into a mobile screen
  • repurpose the PC user journey for mobile, splitting it across multiple screens to create a fragmented and disjointed user experience

And When It Really Is

Despite being a mobile company first, Nokia hasn’t always delivered mobile first experiences.  Indeed one of the failings of the much maligned but nonetheless visionary Comes With Music was that it delivered a clumsy and squashed PC experience that masqueraded as a mobile music experience.  But with Mix Radio, Nokia have delivered a truly mobile first experience that sets the bar for others to follow. There is nothing particularly revolutionary in the service, but that misses the point. Nokia have taken the Apple mantra of delivering elegant, seamless user experiences and have run with it.  As the screen shots in figure one show, Mix Radio does not try to cram the screen with metadata and information but instead uses the screen inventory to deliver uncluttered, visually rich content.

Nokia-Mix-Radio

I’ve been trying out Mix Radio on a Lumia 920 (which by the way is IMHO Nokia’s best device since the N95 8 Gig.  It is great to see that Nokia has got its hardware mojo back, let’s hope it isn’t too late). On the Lumia 920’s large screen, Mix Radio is a music experience that genuinely feels like a mobile music experience and that does not leave one wanting to switch to a PC screen as soon as is possible.  It isn’t a perfect service, and I am not convinced that the beefed up Music Plus offering will get much traction as a premium offering, but it does set a standard for what a mobile first music experience should be.

Sonic Augmented Reality 

One other feature that Nokia launched on Saturday, but with little or no fan fare, is one of the most fun digital music features I have seen in years: NFC Activated Mixes. The user simply points their phone at one of the NFC targets (see graphic below) and a mix starts playing instantly as soon as the he or she accepts the mix. NFC music is far from a brand new concept but the value of the feature is again all in the execution: point, touch, play.  All in an instant.  And this isn’t just for promoting music, users can use NFC stickers to create their own mixes and leave them anywhere they like.  It is also just as easy to dump a mix onto a sticker as to listen to one – with all the actual music files residing in the cloud so it is only metadata that is being transferred.   And of course, it is again a genuinely mobile first experience.

Activate-A-Mix-By-NFC[4]

The opportunities for personal sharing as well as commercial uses are boundless. Cafes could have them at the counter so customers could chose a mix with their coffee. Bars and clubs could have them on their doors to give passing clientele the opportunity to hear what sort of music they can expect inside. (Use cases similar to those, by the way, that Swedish start up TunaSpot has also been working towards with its Spotify / 4 Square API mash-up app).

Though only a small and fun feature, Nokia’s NFC Activated Mixes nonetheless represent the potential of a profound extension of music consumption: making location and context genuine parts of the music experience.  Augmented Reality apps such as Layar have focused, understandably, on augmenting the visual world with mobile context, but this is Sonic Augmented Reality. The next obvious step for music experiences is to then blend sonic and visual elements, but in many ways that will detract from the elegant simplicity of Sonic Augmented Reality. Nokia’s NFC Activated Mixes work because they are quick, simple and non-intrusive.  It is as easy as picking up a free newspaper from the stand at a train station, whereas traditional Augmented Reality apps require a strong degree of consumer involvement.

Nokia are not necessarily reinventing the digital music market – after all they tried that with Comes With Music and got their fingers burnt through to the bone.  But what they are doing is using the already available assets in the digital music landscape to set new standards in mobile first music experiences. Welcome back to the fold Nokia.

How the App Economy Has Transformed Product Strategy

Mobile apps can stake a pretty solid claim to being the single most important shift in consumer product behaviour in the last 5 years.  Sure the devices themselves are pivotally important, but were it not for the apps consumers install on them, they would just be better versions of the feature phones and early smartphones from half a decade earlier.  Apps have transformed consumers’ expectations of what digital experiences should be, and not just on connected devices.  But Apps have also transformed product strategy, in two key ways:

  • Apps have replaced product strategy with feature strategy
  • Apps have created a renaissance in the consumer software market

Apps have replaced product strategy with feature strategy

Though there are a good number of apps which can be genuinely held up as fully fledged products (Google Maps, Angry Birds, WhatsApp etc.) many are in fact product features rather than products.  Shazam for example is a fantastic feature, so fantastic that it should be as ubiquitous in music products as a volume button, but it is nonetheless a feature not a product.  Don’t mistake this for a derogatory critique: indeed feature strategy is virtually the core DNA of the app model.  After all apps rely upon the core product of the smartphone or tablet itself to do much of the hard work.

Apps co-exist with the core functionality of the device in order to layer extra features on top.  Instagram uses a phone’s camera and web functionality, Layar uses the camera and GPS and so forth.  In short, apps add features and functionality to hardware products.  That does not make them inherently any less valuable for doing so, but it does make them dramatically different from pre-App products. Even the majority of utility apps, such as those that track rail and flight schedules, or the weather are at heart browser bookmarks on steroids.  Games are perhaps the only app category which in the main can be considered as self-contained products.

This shift from product strategy to feature strategy has slashed the time it takes for products to get to market and has dramatically reduced development overhead, but it is a model riven with risk.  Consumers and the device ecosystem companies are winners, but many app developers are exposed.  On the one hand they have the insecurity associated with platform dependency, on the other they know that if their features are that good that they will likely be integrated into the device’s core OS or into the featureset of another app with broader functionality.  Sometimes those scenarios will be achieved via favourable commercial avenues (such as an acquisition or licensing) but sometimes it will just be flat out plagiarism.

The lesson for app developers is clear: if your app is a feature and it is good, then you need to plan for how to turn it into a product, else plan for what to do when your app has become someone else’s feature.

Apps have created a renaissance in the consumer software market

It is sometimes easy to lose sight of just what apps are: software.  In the PC age software was for most people one of three things:

  • Microsoft Windows and Office
  • An anti-virus tool
  • A bunch of free-trial bloatware shortcuts preinstalled on their desk top pre point of sale

Mainstream PC behaviour was defined by Microsoft functionality and browser based activity.  Sure, software from the likes of Real Networks and Adobe supported much of those browser based experiences, but they were to the consumer effectively extensions of the core OS rather than software products themselves.  A premium consumer software market did exist but never broke through to mainstream.  Consumers didn’t know where to look for software, whether it would install properly, whether it would work on their PC, and then on top of all this they were faced with having to provide credit card details to small companies they knew nothing about.

Mobile apps changed all of that.  App stores simultaneously fixed the discovery, billing, installation and compatibility issues in one fair swoop.  Apps have enabled the consumer software market to finally reach its true opportunity.  Just in the same way that the iPod allowed digital music to fulfil its potential.

Apps continue to transform consumer behaviour and expectations

So where will feature strategy and the reinvigorated consumer software business take us?  What is clear is that consumers are getting exposed to a wider array of digital experiences and are evolving more sophisticated digital behaviours due to apps.  Apps are also enabling consumers to do things more effectively and efficiently, and are empowering them with more information to make better decisions, whether that be getting the best flight price or choosing the best local plumber.  They are also making consumers expect a lot more from a device’s ecosystem than just the devices.  How often do you see a phone company advertise its handsets with the screen turned off? It is the apps that count.  For now, however good Nokia might be able to make its smartphones it knows that its app catalogue and ecosystem struggles to hold a candle to Apple’s App store and ecosystem (the same of course applies to all other handset manufacturers).

Apps have become velvet handcuffs for connected device owners

But what happens if/when consumers start to shift at scale between ecosystems?  For example, say Apple finds swathes of its iPhone and iPad customers switching to competitors in the future, what sort of backlash will occur when consumers find they have to expensively reassemble their app collections to reconstruct the features they grew used to on their Apple devices?  Perhaps a smart handset manufacturer would consider investing in an app amnesty, giving new customers the equivalents of their iOS apps for free on their new handsets.

For now though, Apple’s market leading app catalogue behaves like velvet handcuffs on its customers and gives it a product strategy grace period, in which it could get away with having a sub-par product generation, with customers staying loyal because of not wanting to lose their App collections.  But not even the strength of Apple’s app catalogue would not enable them to keep hold of disaffected customers much longer than that.  After all, apps are features, not the product itself.

The Digital Music Year That Was: 2011 in Review and 2012 Predictions

Following the disappointment of 2010, 2011 was always going to need to pack more punch.  In some ways it did, and other ways it continued to underwhelm. On balance though the stage is set for an exciting 2012.

There were certainly lots of twists and turns in 2011, including: disquiet among the artist community regarding digital pay-outs, the passing of Steve Jobs, Nokia’s return to digital music,  EMI’s API play, and of course Universal Music’s acquisition of EMI.  Here are some of the 2011 developments that have most far reaching implications:

  • The year of the ecosystems. With the launch of Facebook’s content dashboard, Android Music, the Amazon Fire (a name not designed to win over eco-warriors),  Apple’s iTunes Match and Spotify’s developer platform there was a surge in the number of competing ecosystem plays in the digital music arena.  Despite the risk of consumer confusion, some of these are exciting foundations for a new generation of music experiences.
  • Cash for cache.  The ownership versus access debate raged fully in 2011, spurred by the rise of streaming services.  Although we are in an unprecedented period of transition, ownership and access will coexist for many years yet, and tactics such as charging users for cached-streams blur the lines between streams and downloads, and in turn between rental and ownership. (The analogy becomes less like renting a movie and more like renting a flat.)
  • Subscriptions finally hit momentum.  Though the likes of rdio and MOG haven’t yet generated big user numbers Spotify certainly has, and Rhapsody’s acquisition of Napster saw the two grandaddys of the space consolidate.  Spotify hit 2.5 million paying users, Rhapsody 800,000 and Sony Music Unlimited 800,000.
  • New services started coming to market.  After a year or so of relative inactivity in the digital music service space, 2011 saw the arrival of a raft of new players including Blackberry’s BBM Music, Android Music, Muve Music , and Rara.  The momentum looks set to continue in 2012 with further new entrants such as Beyond Oblivion and psonar.
  • Total revenues still shrank.  By the end of 2011 the European and North American music markets will have shrunk by 7.8% to $13.5bn, with digital growing by 8% to reach $5 billion.  The mirror image growth rates illustrate the persistent problem of CD sales tanking too quickly to allow digital to pick up the slack.  Things will get a little better in 2012, with the total market contracting by just 4% and digital growing by 7% to hit $5.4 billion, and 41% of total revenues.

Now let’s take a look at what 2011 was like for three of digital music’s key players (Facebook, Spotify and Pandora) and what 2012 holds for them:

Facebook
2011.  Arguably the biggest winner in digital music in 2011, Facebook played a strategic masterstroke with the launch of its Digital Content Dashboard at the f8 conference.  Subtly brilliant, Facebook’s music strategy is underestimated at the observer’s peril.  Without investing a cent in music licenses, Facebook has put itself at the heart of access-based digital music experiences.   It even persuaded Spotify – the current darling of the music industry – to give it control of the login credentials of Spotify’s entire user base. Facebook’s Socially Integrated Web Strategy places Facebook at the heart of our digital lives.  And it’s not just Facebook that is benefiting: Spotify attributed much of its 500,00 new paying subs gained in October and November to the Facebook partnership.

2012. Facebook is quietly collecting unprecedentedly deep user data from the world’s leading streaming music services.  By mid-2012 Facebook should be in a position to take this to the record labels (along with artist profile page data) in the form of a series of product propositions.  Expect whatever is agreed upon to blend artist level content with music service content to create a 360 user experience.  But crucially one that does not require Facebook to pay a penny to the labels.

VERDICT: The sleeping giant of digital music finally stepped up to the plate in 2011 and will spend 2012 consolidating its new role as one of the (perhaps even *the*) most important conduit(s) in digital music history.

Spotify.
2011.
 It would be puerile not to give Spotify credit for a fantastic year.  Doubts about the economics of the service and long term viability remain, but nonetheless 2011 was a great year for the Swedish streaming service.  It finally got its long-fought-for US launch and also became Facebook’s VIP music service partner. Spotify started the year with 840,000 paying subscribers and hit 2.5 million in November.  It should finish the year with around 200,000 more.  Its total active user base is now at 10 million. But perhaps the most significant development was Spotify’s Developer platform announcement,paving the way for the creation of a music experience ecosystem.  Spotify took an invaluable step towards making Music the API.

2012: Expect Spotify’s growth trajectory to remain strong in 2012.  It should break the 3 million pay subscribers mark in February and should finish the year with close to 5 million.  And it will need those numbers because the funnel of free users will grow even more dramatically, spurred by the Facebook integration.  But again it will be the developer platform that will be of greatest and most disruptive significance.  By the end of 2012 Spotify will have a catalogue of music apps that will only be rivalled by Apple’s App Store.  But even Apple won’t be able to come close to the number of Apps with unlimited music at their core.  More and more start ups will find themselves opting to develop within Spotify rather than getting bogged down with record label license negotiations.  Some will find the platform a natural extension of their strategy (e.g. Share My Playlists) but others will feel competitive threat (e.g. Turntable FM).  If Spotify can harness its current buzz and momentum to create the irresistible force of critical mass within the developer community, it will create a virtuous circle of momentum with Apps driving user uptake and vice versa.  And with such a great catalogue of Apps, who would bet against Spotify opening an App Store in 2012?

VERDICT: Not yet the coming of age year, but 2011 was nonetheless a pivotal year paving the way for potentially making 2012 the year in which Spotify lays the foundations for long term sustainability.

Pandora
2011.
 Though 2011 wasn’t quite the coming of age year for Spotify it most certainly was for Pandora.  In June Pandora’s IPO saw 1st day trading trends reminiscent of the dot.com boom years.    By July it had added more than 20 million registered users since the start of the year to hit 100 million in total and an active user base of 36 million, representing 3.6% of entire US radio listening hours.  But Pandora also felt the downs of being a publically listed company, with flippant traders demonstrating their fear that Spotify’s US launch would hurt Pandora.

2012: And those investors do have something of a point:  whatever founder Tim Westergren may say, Spotify will hurt Pandora.  A portion of Pandora’s users used Pandora because it was the best available (legal) free music service.  Those users will jump ship to Spotify.  This will mean that Pandora’s total registered user number will not get too much bigger than 100 million in 2012 and the active number will likely decline by mid-year.  After that though, expect things to pick up for Pandora and active user numbers to grow again.  The long term outlook is very strong.  Pandora is the future of radio.  It, and services like it, will get an increasingly large share of radio listening hours with every month that passes in 2012, and with it a bigger share of radio ad revenues.  Pandora will be better off without the Spotify-converts, leaving it with its core user base of true radio fans. Spotify’s new radio play will obviously be a concern for Pandora  but this is Pandora’s core competency, and only a side show for Spotify.  Expect Pandora to up their game.

VERDICT: Since launching in November 2005 Pandora have fought a long, dogged battle to establish themselves as part of the music establishment, and 2011 was finally the year they achieved that.  There will be choppy waters in 2012 but Pandora will come out of it stronger than it went in.

Nokia Mix Radio (What Happened After Comes With Music)

In the excitement of Nokia’s announcement of its first Windows phones today, one would be forgiven for missing the announcement of Nokia’s first major move in the music space since Comes With Music: Mix Radio.

Nokia’s post-Comes With Music strategy was always going to be a difficult one to get right.  Regular readers will know I was a big fan of the Comes With Music, subsidized-music-on-handset model but that I thought it might be someone else who makes it a success (Boinc will certainly have a good go at it).  Nokia paid the price of being the first mover – as Apple’s successes attest, it’s the early follower who normally wins out.  Nokia bore the brunt of a lot of criticism for Comes With Music, some of it warranted, some not, and then cleared the decks, with key figures like Liz Shimel moving on.  Music still matters to Nokia, a lot, as it does to most CE companies.  But Nokia got burned by investing heavily in a highly disruptive model that delivered negative ROI.  Meanwhile Apple stuck with a basic download store and continues to clean up.

This is the world into which Nokia’s post-Comes With Music strategy was born.  And the result? Nokia Mix Radio.  No subscription, no download fees, no log in etc.  You simply tap the home screen and music starts playing and you can even select to listen to the music offline. Comes With Music exit stage left, make way for Comes With Radio.

Nokia Mix Radio is certainly no Spotify challenger and it is certainly no Comes With Music.  But that’s the point.  Nokia’s post-Comes With Music, music strategy is all about looking at how to get the best ROI on delivering differentiated on-device music experiences without having to try to change the world.

Of course, expect Nokia’s music strategy to ramp up, and for Mix Radio to be a stepping stone – there may even be a Microsoft play – but don’t expect Comes With Music take two.