closes their doors: a case study in how to alienate your core userbase

Once upon a time there was a website called Lala.  I think I first heard about them in an issue of Wired as an alternative to filesharing.  Because, when Lala got started, it was all about cd trading — put the cd’s you don’t really care for anymore up in the pool, create a wishlist of stuff you do want, get a match, stuff an envelope, and a week or so later get something new and cool (okay, used and cool).  For a year or two, I was an active member…and by active I mean I had a little gadget that ran in the background and told me if anyone had added something from my Want list to their Have list so I could attempt to snatch it before anyone else did; I visited and was vocal in the forums; I followed other users and got a few good music recommendations out of the site (in particular Scatter the Ashes, the Silent Ballet and Run the Road compilations, and Throwing Muses).  And, to an extent, it did replace filesharing — if I could snap up a CD of a band I’d marginally heard of, or heard good things about, I could listen to that, not download it, and then ship it back out if it didn’t strike my fancy.  Or keep it and get everything else they’ve ever made if it did.  There were a few duds, misfires, and CDs I got that were somehow on my want list rather than my have list, but otherwise it was a good system.

Eventually, though, once you’d been trading a while, you’d run out of things that people had available to share on your want list (or your want list would grow increasingly obscure) or stuff that people wanted on your have list (i.e. your have list growing increasingly obscure), and your trades would slow to a trickle, and then stop entirely.  It happened to everyone.  The only way to fight it was to get new users involved, new wants and haves, to replenish the active trading pool.  Seasoned members tried to spark interest via the forums by shipping something from their have list or buying a new cd for a random or chosen member (called “gifting”)  to revitalize the CD pool, but it didn’t really work.  The only thing that worked well was new members.

Meanwhile, shipping discs was expensive, especially when there wasn’t any other tangible way to monetize the site.  The first thing Lala did was to make the site similar to a virtual music storage site, where you could upload your entire mp3 collection.  The software was smart enough to recognize when it already had a track in your collection, and only stored files selectively based on what it was missing.  Along with this, they added the ability to create playlists (from your digital music collection) that people could subscribe to, and, most importantly, started selling digital downloads (they had been, by way of a small, independent music and comic book store, selling CDs through the site for a while).

The problem with this plan was that the core users — the traders — didn’t care about the digital stuff, we (because I include myself in this group) just wanted to trade CDs.  Then, Lala redesigned the site, putting more focus on sales and hiding the trades, making it a background feature.  And we were pissed.   Because now there was much less of a chance that any new users would even enter into the trading pool.  It essentially doomed the trades to oblivion.

There was talk of a mass exodus to some other platform, but the thing is, there wasn’t anything, nothing as good at any rate.  But there were more than a few coders in the group, and some plans were made.  I don’t know if anything came of them.  Eventually, having nothing to keep me on Lala, I left.  So did a lot of other people.  Which is why I wasn’t all that surprised when, a couple weeks ago, I found this on the site:

Here’s my criticism: Lala could have done just about anything other than what they did and kept their core users.  Need to monetize the site?  How about offering bonus incoming trade slots for a monthly fee?  Let’s say you could convert trades to credits and get a CD from the store for 10 trades.  $10 a month and at least one CD guaranteed every month?  I’m guessing people would go for that.  And that’s the sort of repeat business you could get going on a large scale that many online retailers would kill for.  Need more cash?  Maybe you can turn in 15 trades for 1 CD or have additional subscription plans.  Using trades as currency that could be bought or converted to store credits makes sense and doesn’t destroy all the work that went into the complex “karma” system that evaluated who — of the possibly hundreds or thousands of people wanting a particular disc — got first crack at a given CD.  Seriously, if I were a developer who’d spent hours upon hours building up that karma system only to see that Lala was going to go head-to-head with and iTunes, I’d put in my resignation right there.  And maybe a few did.

What Lala failed to take into account was the very fact that they were not a store: they were a unique service catering to a specific niche.  In this case, their niche was often hard core music collectors and enthusiasts.  Rather than figuring out a way to monetize that select group, they tried to appeal to a broader audience.  They offered a better price point than iTunes, sure — $0.89 vs. $0.99 — but who cares?  The innovation and uniqueness was gone. Lala was just another online music store, and those have been falling like the stock market since 2000, when CDNow started to decline and was merged with BMG and subsequently acquired by Amazon in 2001.

The moral here is that if you’ve got something unique, you need to go all in or nothing.  It doesn’t work to take it half way.  Lala shot themselves in the foot by alienating their most loyal users.