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Two days ago, I signed up for Spotify, a free music-streaming service available in Europe. Spotify effectively provides you an iTunes interface with almost every song imaginable in your library, for free.

Aside:You can try getting access following TC’s instructions. The revenue model is free-mium upsell to CD quality streaming

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(feeding more fuel to the debate on free; see Anderson, Gladwell, Wilson and Cuban).


But I digress…the more important point to be made in this post is one about the consumer choice pendulum.

The consumer choice continuum described

There are two poles when considering consumer choice: maximum generality, mass produced only in black Model Ts, and maximum choice, bespoke suits.

Looking back over “old” media (TV, radio and print), distribution costs limited the product diversity offered to the consumer. Money was finite and for a while, there were three TV stations.

Then someone figured out you could make money by creating TV stations to appeal to smaller audiences because the costs of distribution had declined. Cable TV was born!

Cable TV on Steriods – Fast forward to digital distribution

Introduce the internet and suddenly the economics of the ecosystem have completely changed. The internet has almost zero marginal distribution cost.  Each additional YouTube stream effectively costs nothing. The same is true of virtual goods:

How many pink penguins did QQ sell in 2008 for about $1 each?

41M

At what profit margin?

100%

Take that Beanie-Babies! Each additional pink penguin cost nothing to produce. So creating purple ones and red ones and green ones is pretty easy and quite profitable.

The Consumer Choice Pendulum for Media is at a Global Maximum

Therefore, to maximize profits, QQ should pump out as many different permutations of pink penguins as possible. Wait, that’s not right because there’s a cost to having consumers decide what to purchase; one that Barry Schwartz very eloquently elaborates in Paradox of Choice. As some point, too many permutations of pink penguins is problematic and actually decreases revenue.

That’s where we are today. The choices of virtual goods, blogs to read, and music, like Spotify, are simply enormous. The feeling of having the entire world’s commercially published music library (except for the Beatles) at my command makes me giddy. But it also makes finding music I like hard. I just don’t know where to start.

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A return to valuing filters

With near infinite choice, we’re all going to need to rely on individuals who are subject matter experts and whose taste we respect and/or share. Before the web, RollingStone served that need. But having gotten accustomed to all this choice, consumers tastes are much more diverse. A single publication or single writer can’t solve the needs of the entire rock loving population.

So they will have to rely on a panel of experts instead of just one.

We need new tools
Today, we use star ratings to do survey the landscape of “experts”. But we need additional tools to filter these ratings. I want to find people like me with similar education, similar musical tastes but different enough to find something new, or similar movie penchants. I’m not sure what they will look like but whatever they are, they will be incredibly valuable.

Those systems will inform the purchasing and consumption behaviors of tens of millions of people, if not more.

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Rewind and summarize

Distribution costs used to limit diversity of content. The internet enabled an explosion in diversity with free distribution of content. Old ways of filtering through new music, movies and books don’t work any more because they don’t scale. New ways are needed and those ways will be very valuable.

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