Mac Scope

It's Getting Bigger: The Online Music Bubble

Stephen Van Esch - 2003.12.10

Man + dog seem to be getting into the online Music industry. Coca-Cola is the most recent entry in a parade of iTunes Music Store wannabes. Who've we got so far? Let's see., Napster, Puretracks, Dell, and the list goes on. Even the mighty Walmart is apparently getting into the act.

Some history might be in order.

In the late nineties, the word "Internet" pretty much sent every business with a two sheets of paper running off in all directions. Established companies were scared into throwing together an online "presence." New, upstart dot-coms pledged to radically redefine how the world does business and put traditional companies out to pasture. Venture capitalists went haywire looking for the next great thing buried inside a ten-slide PowerPoint presentation. Generally accepted financial yardsticks like, err, having a product, revenue, and profits, were tossed out the window.

I'm dating myself, but it seems like it was just yesterday. Any other old fogies remember the good ol' days?

Can anyone see any parallels between what happened then and what's happening now in the online music industry? Let's see. No profits to speak of, flat revenues, and questionable business models. Crickey! It's Groundhog Day!

To be absolutely fair, Apple has made a good go of this. Flat (or non-existent) profits aside, if you throw the iPod into the equation, their business model makes sense. It's the wannabes that seem to be barking up the wrong tree. Let's be sensible here. There are only a finite number of people who will actually want to buy music online. Surely those who are online know where to download music for nothing.

This, of course, means that anyone who wants to play in this space will have to somehow get people to pay money for something other than the music itself.

Apple, for instance, is offering a few things that people are willing to pay for. They are guaranteed music quality, consistent licensing, and hardware integration. No one's paying for the music, really.

Competitors seem to be falling into the trap that the only thing that matters is the music. Take BuyMusic (please). I mean, really, what are they offering here that can't be had for free from Kazaa or Morpheus?

And it looks like others are piling on. Here's a clue, fellows: It's not the music. The music should be free. Concentrate on the service. Make people pay for the service.

As with the dot-com bubble, the inevitable shakeout will come soon enough. And, even with those tiny to non-existent profits, Apple is the most likely candidate to remain standing after the dust settles.

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Stephen Van Esch is the founder and president of the E-learning Foundry, an online training resource for Mac users. Steve loves the Mac and is doubly bilingual, since he's also fluent in Windows and French.

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