Michael Vakulenko

Apple Music vs. Spotify: Don't repeat this common mistake

Apple Music vs. Spotify: Don't repeat this common mistake

The media and blogosphere reaction to Apple Music was mixed at best. Bob Lefsetz, who has written about the music business for over 25 years, says:

It’s toast.

Bob is making a very common mistake: He assumes that Apple Music is a product aiming to win market share in the existing music streaming market. Bob’s focus is then on how Apple Music’s features and pricing compare with the competition.

Apple Music provides nothing new other than a live radio service, which is mildly interesting, but never forget that iTunes Radio didn’t put a dent in Pandora.

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Spotify and Pandora are services designed to resell music in the existing market structure. [tweetable]Apple Music is a platform designed to create a new market and reshape the music value chain[/tweetable]. The business model playbook is similar to how Google created a new market for small advertisers, Amazon Kindle created a new market for independent book writers, iPhone created a new market for app developers, Uber created a new market for drivers, AirBnB created a new market for apartment owners, Incrediblue created a new market for boat owners and Munchery is creating a new market for chefs.

The 3 types of innovation

Harvard Professor Clayton Christensen explains in “The Capitalist Dilemma” that innovation, comes in three varieties: one is performance-improving (sustaining), another efficiency and a third one market-creating innovation.

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A new market for music by connecting artists with users

Apple Music aims to create a new market for digital music by connecting artists with Apple users. The platform will empower hundreds of thousands of less-known artists and break the walls inherent to the current industry structure. Jimmy Iovine says in his interview to The Guardian:

What’s happened to the music industry, from my perspective, is a lot of great music is behind the wall that can’t get through, and therefore a lot of artists are getting discouraged. And we hope that this ecosystem really helps revive that.

And we tried to build something that had enough of each thing to build an ecosystem that just feeds off each other, and gives back to an artist.

The recipe is strikingly similar to the Apple App Store recipe: Connect app developers with users to create a new market for software and services that surpassed anything we knew before it existed.

New business models for music

It used to be that the only way to monetise software was to sell licenses to use it. Who says that the only way to monetise music is to sell licences for downloads or collect streaming royalties?

As I wrote in “To understand Beats you need to understand Lady Gaga”, the economics of abundance inherent in digital music open new ways to monetise music. Troy Carter, who discovered Gaga and was her manager until November 2013 summed it up nicely in his interview with FastCompany:

It was more about building a platform on top of music—because music, we realized, sells everything but music.

Will digital music, like apps, become predominantly free? Apps have become a channel to reach and engage users. Will the same thing happen to music? What role will Apple Pay play in this transformation? Time will tell, but Eddie Cue thinks it’s a possibility. In his interview with The Guardian he said:

Our viewpoint was very simple: let the artist and label control it. They can put it up on Connect for free if they want to, or they can put it up behind the [subscription] paywall, or they can make it available on the iTunes Store for sale. They’re in control of their music and how they want to distribute it.

Don’t repeat Bob Lefsetz’s mistake

[tweetable]Apple Music is more than a differently-packaged version of Spotify[/tweetable]. Google AdWords is more than a less-expensive advertising agency, iOS is more than a nicer-looking version of Symbian, Uber is more than a digital version of a Taxicab stand, AirBnB is more than renting mattresses to strangers and Munchery is more than a bigger restaurant kitchen. These are platforms having very different economics from traditional products. As Marshall Van Alstyne said:

Platforms beat products every time.

Platforms disrupt industry after industry: telecom, computing, watches, automotive, consumer electronics, banking, education, food, transportation, hospitality, healthcare, and more. When you see a new idea in the market or a new competitor, ask yourself: “Is it a market-creating platform?” and “What will it mean for my business if the platform reaches critical mass?”

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