Illusions of Reality

Music and web are something that complement very well when you think of availability, search capability, reachability and things. You can search music, watch music videos, listen to internet radios that provide location flexibilities. Further to this, interesting innovations such as Pandora project (www.pandora.com) are having exciting impacts on what music we listen to. But, when you think legal along with music and web, it all goes wrong. This applies not only to music but also to TV shows, Movies and other content - but certainly the most to music.

Music bands, recording companies and music distributors had been making rich sums of money until the internet havoc spoiled the party. Now - places like youtube, MP3 download sites and peer to peer networks have broken the back of music industry. Efforts such as DRM have failed to a very great extend and somehow, it has sunk into the internet users that music means free. Necessity is the mother of invention. So, we have started to see coming up of a few very interesting business models that try to complement revenue generation while providing free music content.

First, there is Sell-A-Band. Sell-a-band allows bands to put up their music on the website www.sellaband.com for free. The listeners on the site can come and listen and donate $10 or more to a band. Well, wait - they are not donating the money as such. Once the band reaches the figure of $50000 - the site takes them to a studio and provides a professional producer to get the band’s own CD out. The songs are also put on the site where advertisers put up their banners on band’s profile pages. Based on number of song downloads, the advertising revenues are shared between the band, the website and the people who initially donated the small amounts - thus making the donators into kind of investors! Infact, if a donator feels that his donation was wrong - he can withdraw his 10 bucks before the band reaches the 50,000 figure. Read the model in detail at http://www.sellaband.com/site/how-it-works.html but it is certainly win-win-win-win-win model for band-website-investors-listeners-advertisers.

Four artists have crossed the 50K mark by now and 15 artists are above 10K mark - impressive considering that the site started in Aug 2006.

Next interesting model comes from Amie Street (www.amie.st) where bands can put up their music for free. Listeners would then listen to the stuff starting at 0 cents - as they listen to the music and recommend the music. As any music is recommended around the site, its price starts climbing with the ceiling set at 98 cents - an absolutely affordable figure. So people who are ready to experiment and evaluate get quality music free and they also get Amie credit that they can spend to buy other songs that already cost a few cents. People who want to listen to great music spend as much as 98 cents to the maximum which hardly hurts any wallets. Between all this stuff bands receive a lot of attention if they are real good and get 70% from every song sale after first $5 that song generates. The website earns the rest 30% of the revenue. Read in detail at http://amiestreet.com/page/what-is-amie-street. Again, a win-win-win-win situation for site-evaluators-buyers-bands.

Key interesting things about both the above models are:

1. Both of these models give new artists and quality music a real chance to reach to the top.
2. Music - at no point in time - on both the above models becomes unaffordable.
3. Both the models believe in the fact - music is free!
4. Both the models build up a kind of social-music-retail (infact the term comes from Amie Street and describes the models most accurately).

Amazon.com has been one website that has always been of great interest to me due to the amazing repository of books (something that I enjoy so much) that it holds and the kind of features it provides to get hold of the new ones and things.

It has always had and still goes excellent with the kind of eCommerce webstore it holds. You visit Amazon anytime and it will display the items on the top page based on your recent browsing, search and purchase activities. You search a single book in there and apart from the normal search results, lists such as Listmania, What customers ultimately buy after viewing this item?, Customers who bought this also bought, Better Together and Book reviews - each of these features make sure that you reach the best that you want - at the same time pushing Amazon’s sales up!

Its precision marketing has been accurate enough taht I have ended up using a few of these lists to find new books apart from the ones that I already know about and just want to get hold and start reading. Through these features, Amazon caters to a large base of users who have time and interest to read on specific topics but are not sure what to pick.

But apart from getting its core right, Amazon has been into a lot more interesting innovation:

1. Apart from selling its own stuff, Amazon allows other vendors to sell their stuff through its website. Infact one can find the same item that amazon.com sells being available by a lot of other vendors too - through Amazon’s site on the same page. This is an advantage for the end-user to be able to buy a lot more from Amazon.com that Amazon doesnt even sell - making it a single stop shopping location - something that Amazon also wishes its user to perceive. The sellers get an advantage of a huge platform to sell away their items anywhere in the world at a cost of certain commission that Amazon charges per sale.

2. Amazon also provides its warehouses (at certain cents per square foot per month) and fulfillment logistics at service of small vendors who do not wish to take the heck of orders fulfillment. That way, Amazon leverages its well established orders fulfillment process with shipping options, cost optimizations, tracking abilities to enable small vendors avoid the heck at payment of a certain fee per transaction. Again a win-win for both.

3. Recently, Amazon also started selling disk space at the rate of certain cents per gig per year. Many companies have opted for this to take large backups to costs of backup devices and safety measure. Amazon has also started selling computing power at the rate of certain cents per hour - a lucerative option for enthusiastic Sillicon Valley startups who are always running short of cash and time amidst numerous issues.

4. On the technical front, Amazon has gone ahead and exposed its API in the form of Amazon Web Services to enable the world to use them and build upon that. Results have been stories such as Scanbuy - a service that enables you to check price of items on Amazon through mobile phones (imagine you being at a bookstore and wondering if the deal that bookstore is offering better than that at Amazon.com!)

A look at Amazon’s recent income statements certainly shows that net profits have been dipping down since 2005 despite a rise in sales - major costs being attributed to orders fulfillment (substantially attributed to its free delivery programs) and technology costs.

But, when one looks at Amazon’s moves over past some time - it appears that Amazon’s management has gone and looked at Amazon’s core competencies that they have built up over a long period of time, broken it down into a value chain and then exposed it to the outside world as separate service components in a model that even small vendors can leverage. This certainly creates a win-win situation since these small vendors are not direct competitors who can seriously kill Amazon’s revenue streams - so can complement well with Amazon.

In my beleif, if Amazon can ensure continuos improvement through an undisturbed focus over its core competencies while keeping on leveraging them - Amazon will certainly see a turn in growth of net margin figures in coming future. All it needs to remember is that its core compentencies are its sole assets and the value-add leverages though important, interesting, innovative and minimizing the over all risks, are truely those - value adds.

For the curious ones - the title came to my mind from a Jeff Bezos comment that I read on BusinessWeek here.

Its interesting to note how this article actually came by. I originally started to write an article to evaluate the currently existing revenue generation models for software selling. I had my opinions about one of these models - the online advertising revenue generation model that allows the content or software to be free. However, as I was reading more and more stuff on this model, I started to realize the number of companies that have actually got into this business and how and where they are kind of fitting into this exact scene. I still do not change my opinion completely and I guess I will talk a lot more on that in that other article - but all these readings certainly made me to give it a thought to write on just how much action is going on with this online advertisements and give my opinion on - if its all worth it?

Online advertisement as such is not a new thing - its just that Google - the first one to hit the jackpot with this model - tried to bring out something that I would call interactive helpful advertising. And Google’s revenue figures today make every other company - big or small - try to get into the online advertisement arena in one way or the other. Microsoft has come up with AdCenter and Yahoo is trying to market its Panama project in response to Google’s AdSense.

Google’s advertising now is not just restricted to the plain vanilla HTML pages but has exploded its way to personalized pages (such as your email inbox), social networking sites, user generated content pages. While both Google and Yahoo’s programs provide relavent advertisements based on numerous factors - Microsoft is marketing its AdCenter by letting the publishing agencies know that they consider the viewer’s demographic information as well - another step in trying to make the advertisement as relavent as possible.

And apart from the big players, there’s a large chunk of small players bringing in interesting innovation in different dimensions to pull some market share from the biggies. There’s TACODA (www.tacoda.com) using behavioral targetting rather than plain content specific advertising. TACODA tracks user’s behavior across sites and then uses it to advertise on different sites rather than just going content-driven for determining the advertisements to be displayed. There’s Ingenio (www.ingenio.com) providing Pay-Per-Call model over the traditional Pay-Per-Click one. So, the advertiser pays not for a click to the site but actually for conversion of the click further to a call to the advertiser’s office.

Further, as the online advertising matures and sees an expansion of the value chain, there’s a large number of companies coming up who are trying to fit into the existing pie. This includes SEO companies helping make sure their sites appear at the top of the list on searches. There are marketing agencies mixed up with some SEO techo knowledge helping advertisers determine what keywords they need to bid for.

On the other end, advertising is moving ahead from simple text content based web pages to Podcasts, videos and even games. Microsoft’s acquisition of Massive Inc. (www.massiveincorporated.com) last year for advertising in XBox games and Google’s recent acquisition of AdScape (www.adscapemedia.com) just goes to show how much potential these big players see with online advertising on a variety of media.

Looking at all these developments from the top, and coming back to my topic of the original article that I actually started to write, are we really moving towards the business model that provides the actual content or software free of cost and keeps the cash register ringing from advertisements? Or to put it more precisely, will the content provider companies be able to generate enough revenues to support the content/ software services they provide? And if yes, it will be extremely interesting to see how market share for different types of content and software services shifts between the current big players? (Imagine Microsoft Office for free with advertisements!). I will continue my next post with the original point of discussion and I beleive I would be able to complete the circle of opinion with that post.