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

iTunes in the Cloud: A Great Start, But Just That

So Apple finally launched their much anticipated cloud music service, and they didn’t disappoint. At least by cloud-locker standards they didn’t. But I wanted more, a lot more.

Here’s my quick take on what Apple launched and where I think they should go next:

Automatic Downloads

What is it? Enables iTunes buyers to transfer music purchases to any iTunes supported device of songs that you have bought from iTunes.

How much of a big deal is it? This is a welcome move, but one that really should have happened long ago, and it’s entirely not Apple’s fault it took so long. The music industry still thinks of digital music on a per-device basis. But restricting the devices people can take their purchased music on only weakens legal services when compared to illegal ones, which of course have no such qualms. Thinking of music consumption on a device basis rather than a person basis is simply the wrong worldview and it needs to change, fast. Automatic Downloads are nice move towards a new way of thinking, but of course within the tightly controlled confines of the iTunes ecosystem.

iTunes Match

What is it? Matches your music collection against Apple’s cloud catalogue and upgrades your music to 256 kbps AAC, all for $24.99 a year.

How much of a big deal is it? This is the sort of locker service Amazon and Google *should* have launched. Instead of having to painfully upload your entire music collection you simply need to scan and match, a process which should take a matter of minutes. It makes a cloud collection a seamless extension of your local collection.

Mulligan’s Take: With these simple but elegantly executed features Apple has created a best-of-breed cloud / music store combination that makes much of the competition pale by comparison. Apple has done what Apple does best: it has let the competition move first, learned from their mistakes and launched a better product. And yet it is it enough? Apple have done more than enough in terms of the current cloud-storage debate, and this is a clear shot across the bows of Google and Amazon’s burgeoning digital music ambitions. Also, make no mistake, Apple will have worked hard to get what they have from the rights holders to get this service to market. But it doesn’t do half as much as it could do, to move the digital music conversation on beyond the ‘distraction’ of locker services.

Locker services – in iTunes Match form – should be part of every digital music service, just like there should be a play button on every MP3 player. But they are just that: a feature not a service. If the music industry is going to take big strides forward over the coming years it needs more than locker services, much more. It needs rich, interactive and social music services that make people fall in love with the power of digital music again. In the context of iCloud that would mean:

• On-demand streaming of music you *don’t* own
• Monthly iTunes purchase credits which (unless you specify otherwise) automatically convert into purchased downloads of the songs you played most last month but didn’t own
• Subscription costs bundled into the cost of Apple devices at point of purchase
• Ping!, Genius, Twitter and Facebook deeply integrated to create a truly social music consumption and discovery experience
• Limited Garageband and iMovie functionality integrated to enable mash-ups

That is of course a lengthy wish-list and one that won’t be fulfilled anytime soon. But nonetheless that is the sort of thing the record labels need to encourage Apple, Google and Amazon to build over the next few years if they are going to get digital music out of its current impasse.

Five Music Predictions for 2010 (and Five Reasons Why 2009 was a Flop)

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Over the coming month or so I will be migrating all of my activity there.  I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]

Lots happened in 2009 but it wasn’t a vintage year for digital music (in fact it was the year it well and truly lost the digital buzz to eReaders). All in all I’d give 2009 a 6 out of 10, with the launch of Spotify accounting for at least couple of those points and the following as the 5 key disappointments:

  1. Comes With Music under-whelmed (as did Play Now plus)
  2. ISP services didn’t get off the ground (including unlimited MP3’s nearly but not quite moment)
  3. Apple’s new killer music format was….oh iTunes albums
  4. imeem gave a master class in how not to make money out of social music
  5. The big boys (MySpace, Apple) snapped up the innovative competition (Lala, iLike, imeem)

So will be 2010 be any different?  Though I don’t think it will be the year digital music will really come of age (that’s at least a couple more years away) I do expect it on balance to be a stronger one than its predecessor.  Leaving aside the few specific developments I’m not able to talk about here are a few of my predictions:

  1. Apple launches a major refresh to the music experience.  (I’ll caveat this first prediction with the disclaimer that Apple make a habit of proving wrong those of us foolish enough to try to second guess them.)  With that said, there are many things Apple could do with music in 2010.  Whatever they do, they have to do something significant if they are to stay on top of their game. They’ve spent much of 2009 collecting user data via the Genius app and they’ve acquired some top notch streaming and programming expertise via the Lala acquisition. And of course they’re busy developing with content partners for the forthcoming touch screen note book.  Here’s hoping that this will all add up to something like an integrated on-device, connected, interactive and immersive music experience where the cost is bundled into the price of the device (perhaps with the touch screen note book as the flagship device for the offering).  Apple wouldn’t be in the game of hiding the cost of music to the consumer (a la Comes With Music) but they may use content subscription bundling as a way to maintain premium price points and differentiation for their devices.
  2. MySpace deepens its focus on music. Though MySpace will spend most of 2010 simply ingesting iLike and imeem, the acquisitions form part of a longer term strategy to breathe much needed new life into MySpace’s music role.  The new management talent is tasked with pulling MySpace from the brink of becoming a garbled also ran and dragging it by the collar into the 2nd decade of the century.  Though they’re unlikely to admit it, the mainstream social networking race against Facebook is as good as over. By contrast they remain the #1 destination for artist communities online, yet without a major reinvention they’ll start to feel the competitive pressure bite there also.
  3. Spotify scales back its US launch. Spotify appears to be paying the price for the major labels having second thoughts about ad supported on-demand content.  Those pesky US licenses have been proving tough to tie down and I’d expect to see Spotify’s US launch to be more strongly focused on the premium tier than it is in Europe.  If so, it could actually prove to be something of a blessing for the Swedish upstart, allowing it to consolidate the monetization of its core user base rather than building a US ad business from scratch whilst millions of free US subscribers add cost to the bottom line. Whatever the case, Spotify’s European revenue fundamentals should improve in Europe in 2010.
  4. ISP music services don’t pack a killer punch. I’m a firm believer that ISPs will become established as a core element of the digital music value chain and the best way of fighting piracy head on.  In 2010 we’ll see more services launched both in the US and in Europe, especially the UK.  But I don’t see anything yet to suggest they’ll be adequately provisioned to flourish. It’ll take another year or two of revenue pain decline for the labels to adjust their license requirements sufficiently. What do I think will work?  5 pounds / euros / dollars a month for household access to near unlimited (i.e. fair use) MP3.
  5. Semipro sites and services prosper. I’m not sure I’d go as far as to say 2010 will be their year, but it will certainly see continued growth for the likes of SellaBand, MyMajorCompany and Tune Core. These sites that create a route to audiences for artists either not good enough or not yet good enough for record deals, play to the strength of the Internet as a social channel for artists and fans. Which of course is all the more reason for MySpace to be watching its back.

To conclude, 2010 will be another year in which digital music continues to find its feet, but significant progress will be made.

So Why Did Apple Approve Spotify’s iPhone App?

So they did it: Spotify got their iPhone app approved and it is available today (as is the Android app).  I won’t pretend I’m not surprised.  I felt this competed too directly with core iTunes music player functionality for Apple to approve it.  And of course Spotify isn’t even available to the vast majority of Apple customers so they wouldn’t be affected by lack of availability to kick up a fuss.

So just why did Apple approve it?  Well my take is that this reinforces Apple’s play as a platform, albeit a heavily controlled one.  They want to ensure that the iPhone and iPods are the places where you can find the best music experiences.  Last.FM, Pandora et al enhance and deepen that music experience.  Spotify will also.  But Apple is a company that is as sharp as they come and this is a very calculated move.  The Spotify app is free to download by only works for Spotify customers that pay 9.99 a month.  So it is only going to be a pretty small number of people who’ll actually get exposed to this, a tiny tiny fraction of Apple’s installed base of portable device customers.   So Apple get to look inclusive and welcoming, with minimal impact on their business.

The other possibility of course is that Apple has some new music service up its sleeve that would make the Spotify app look obsolete….and oh look, there’s a music themed announcement by Apple on Wednesday…

Why Napster’s New Pricing Strategy is More than Just Price Cuts

Napster has overhauled its pricing strategy in the US, selling pre-stored value cards in retail stores. It’s being widely reported as ‘Napster slashing prices’ but it’s more than just that.  The key things of note here are:

  • It shifts the consumer focus onto downloads: each card has a pre-stored value for MP3 downloads as the headline.  Unlimited streaming is the sub head.
  • It targets iPod owners: MP3 downloads and easy synching make iPod owners a core target
  • It lowers barrier to entry to subscriptions: by using a Pay As You Go solution Napster makes subscriptions more attainable to more consumers, even if they are sneaking them in through the back door
  • It tacitly acknowledges the dire state of premium subscriptions: the focus on MP3s moves the focus away from the subscription business, but the latter is still Napster’s core business.  To really thrive in the imeem and Spotify age they need to be unlimited MP3

This is an innovative move by Napster, and should widen their market appeal, but I can’t help but feel that it is almost embarrassed of its core value proposition (on demand streaming).  Positioning the streaming component as a freebie with MP3 tracks will weaken perceived value.  They’ll need to be careful with their positioning, or risk further weakening their ability to sell their core product, unless of course they can fire the silver bullet of unlimited MP3s.

Apple iTunes Music Store (Finally) Goes DRM-free: First Take

So finally Apple gets DRM-free across all of its music catalogue on the iTunes Music Store (80% now, 100% end of Q1). It’s late, not too late but non-the-less late. As Apple accounts for the vast majority of the paid download market we can talk effectively talk about the impact this will have on the broader digital music market rather than just on iTunes sales.

Don’t expect it to kick start the digital music market (which is worryingly sluggish). This is just a basic enabler the market needs for long term viability. It is, however, crucial for future differentiation of the next wave of digital music services. Subsidized and ad supported services such as Qtrax and Nokia’s Comes With Music give consumers music for free but with DRM restrictions. DRM will become the key tool for differentiating premium from subsidized. The more you pay, the less DRM you have.

So it’s a case of DRM is dead, long live DRM.

But why did we have to wait so long for this announcement? European digital music execs told Forrester in late 2006 that they were ready for dropping DRM and, in April EMI went DRM free on iTunes and elsewhere. Most readers will have noticed that much of Apple’s competition has been acquiring increasingly comprehensive MP3 catalogue from the majors whilst Apple has not. Some of the majors trying to ‘level the playing field’ is undoubtedly a factor here, but it’s evident that Apple remains the biggest game in town with or without DRM-free. So all this strategy achieved was penalizing the majority of digital music buyers and the key force in one of the few dynamic parts of the industry the labels have left.

DRM-free should be a non-story by now. It’s not even much of an issue for the majority of digital music consumers. Principally because they don’t come up against it. Apple has dominant market share in devices and downloads. So the majority of digital music buyers don’t have DRM interoperability issues. And anyone who wants to burn more than 5 CDs knows how to. But at some time Apple may lose market share, perhaps to music enabled phones. When it does, consumers will start encountering interoperability issues. So it’s actually in the interests of the labels to weaken Apple’s lock in sooner rather than later in order to aid any such transition.

Finally, from an Apple perspective, dropping DRM starts a process of bringing iTMS up to date. Whilst the iPod and iPhone have undergone key transformation, the iTMS has essentially remained unchanged save for Genius. Whilst MP3, social music and mobile music happened around it iTMS clung stubbornly to it’s 2003 blueprint. Nokia’s Comes With Music is arguably the first major challenger to the iPod / iTunes dominance, because it a) is an integrated device / service proposition buy b) because it tries to do something radically different i.e. unlimited permanent downloads. Apple know they need to respond. DRM-free across all catalogue is a first step towards putting clear blue water between them, but they need to do a lot more yet. Ideally the next steps will be in the social-music direction, building upon the start made with Genius.

Why MySpace Should Think Long and Hard Before Challenging the iPod

When questioned at a conference recently, MySpace Chief Executive Chris DeWolfe suggested the social network would consider launching an MP3 player some time in the future, thus going head on against Apple.  It might sound like a logical next-step but it’s not.

 

The reason MySpace has become so important to the music value chain (both for digital and broader discovery/marketing) is because it has a distinct place.  MySpace, like imeem, Last.FM, Pandora etc. works well because it is an explicitly online, consumption and discovery based experience.  The launch of the new streaming content pushes it even further in that direction.  MySpace doesn’t suffer from the endemic DRM constraints and controversies that mire download services.  And because it is free it doesn’t have to develop a value positioning either.  In its free, online guise, MySpace sits as an entirely complementary asset alongside the iTunes / iPod combination.  

 

Sure Apple might be (ever so slowly) starting to steal some of social music’s clothes (cf Genius) but its focus remains devices and downloads.  As soon as MySpace starts trying to fight Apple on Apple’s home turf, they’ll find themselves having to reinvent and reinforce their value proposition from the foundations up.  Consumers tolerate the various quibbles and glitches that are an accepted companion to MySpace as a free, online destination.  But those standards aren’t good enough for a paid offering. 

 

When MySpace finally launches its own download store it will need to refine its music DNA, a need which will become more fundamental if an associated device strategy is pursued.   But I fear MySpace will shy away from the requisite comprehensive rethink even for the download store and simply launch it and hope/expect it to succeed.  If they do so, and launch a device in a similar fashion, then MySpace will sow the seeds for long-term decline.

 

For now MySpace would be well advised to read up on how well Napster’s branded MP3 player strategy went….remember that?  Exactly.