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.

fighting music piracy one rapidshare file at a time

sam rosenthal, of projekt records, is back on his piracy soapbox again.  he is asking each and every one of you to do your part to help stop piracy.  he breaks the world down into two camps: camp a says: “Music should be free, fuck you for thinking I should pay for your music.”  camp a is apparently the belligerent asshole camp.  camp b says: “I want to support the music I love, because I want you to keep making it.”  camp b is apparently the wishful thinking camp.

once again, sam is hurting the debate by oversimplifying the issue.  i refuse to believe that there are only two types of music listeners in the world — those that say “fuck you music should be free” and those that say “please let me give you more money so you can play for me.”  it would be awesome if the world was so binary — it would make the debate much easier to handle and deal with.  it would make the bad guys bad and the good guys good.  unfortunately, there really is no such thing as a black and white issue.

but, i’m not even going to necessarily get into that, because the truth is — regardless of whether the world fits into neat categories like sam suggests or not — he has a point: musicians need to get paid.  if they don’t, they will stop making music.  and that does nothing to fight the crappy state of popular music, where our choices are spoon-fed to us, and it’s increasingly difficult to find music outside the box of corporate sponsorship.  a system needs to be devised where the people who want the music can get it, and the people who make the music get paid.  back in the days of linear distribution and supply chains, that was easy: you make a record, you press it to vinyl, it gets sent to a distributor, who feeds it to record stores, where people buy it.  even when recordable cassettes came along, the supply chain remained more or less intact.  all that changes when the music is converted from atoms to bits; bits that can be duplicated onto your ipod, your friends’ ipod, your friends’ roommate’s ipod, your friends’ roommates’ ex-girlfriend’s laptop, etc, etc, etc.

sam describes three ways that music is traded illegally:

  1. russian mp3 stores that give the illusion of being legit because the have a real checkout process,
  2. bit torrent sites, and
  3. rapidsharemegaupload, and similar third-party file sharing/hosting sites.

sam says he can’t do anything about the russian sites, and they go largely unnoticed (or out of the jurisdiction) of organizations like the riaa.  he, likewise, considers torrent sites a lost cause for pulling down illegal content (more on this in a sec).  so, the solution to fighting online music piracy is: issue dmca complains against any and every rapidshare/megauploaded file you can.

wait.  what?

first of all, i disagree that torrent sites are entirely a lost cause.  i’d be willing to bet that the majority of music files traded illicitly on the internet happens across torrent networks.  back in the good old days, if The Pirate Bay got a takedown request, they’d laugh in your face.  but The Pirate Bay is no more, and whether they like it or not, their departure sets a major precedent in what can and can’t fly in today’s file-sharing.  the new heir to the throne as the most popular/widely used torrent site is isoHunt, which isn’t a torrent site, per se: it’s a search engine, pulling results from a variety of different source torrent sites.  as such, different rules apply.  but what’s also different about isoHunt is that they actually respond to takedown notices if a copyright owner issues them.  therefore, it’s not fair to say that there’s no chance of getting infringing material pulled off of torrent sites.  sure, getting the results removed from isoHunt is different than getting the files removed from their hosting torrent sharing networks, but if isoHunt has the most traffic of any single bit torrent site since The Pirate Bay, pulling it down from there would go pretty far.

even that, though, barely addresses the issue.  issuing dmca complaints (or bribing your minions to issue dmca complaints for you) is a band-aid solution to the problem.  it’s a feeble attempt to staunch the bleeding.  and it’s the same approach the major labels have been taking since the beginning of napster, and they are still no closer to “fixing” the problem than they were then — on the contrary, file sharing has proliferated.  it’s not an insane notion to consider that the kids entering college next year might not even realize or think about the fact that what they are doing is in the least bit wrong — it’s just what’s done, it’s how music is acquired.  whether or not that’s a “fuck you for telling me i need to pay for it”, the real challenge is to persuade those listeners to pay for what they’ve downloaded — or find some other gateway to a purchase — rather than alienating them more by saying “what you are doing is wrong.”  reprimanding your audience is not the way to get more sales.

maybe sam is right.  maybe putting your music out there for free and asking your audience to kindly pay if they feel like it really only works for established acts like nine inch nails and radiohead.  but that doesn’t mean it’s an entirely wrong approach.  the fact remains — and it always will be the same — that the music is there if you want to get it bad enough; pulling down one illegal copy of 10 neurotics will only prompt two or three more to show up in its place.  i still maintain that the music industry needs to take a freemium approach to selling music — give away a limited or restricted version of your product for free (say, the full album in 128kbps mp3 files), and grant access to premium content for purchasers or subscribers.  i may not be chris anderson, but i know that his own experiment in freemium still managed to get him a national bestseller.  and despite the fact that the copyright laws in canada are more lax when it comes to file sharing, their digital music sales are actually increasing, rather than decreasing like everywhere else.

now i know sam is going to lambast me for expressing my opinion on my personal blog, in a forgotten corner of the internet that no one will read anyway, rather than on his facebook page where i can get flamed by project artists and die hards appropriately.  and that’s just the thing — people aren’t likely to do what you want them to do just because you want them to do it.  and just because you said “pretty please don’t steal my shit — if you really loved me you wouldn’t steal my shit” doesn’t necessarily make anyone less inclined to steal your shit if that’s what they are going to do.  pulling your shit down so they can’t steal it won’t even stop them from stealing it, if they are determined enough.  so attacking piracy one file at a time is kind of like trying to put out a raging fire with squirt guns.  i guess if it helps you sleep better at night to know that people are out there trying to pull your stuff off of those two sites, well, good for you.  but it’s not going to fix anything, and it’s certainly not any form of fight against piracy.

the truth is that the days of the record label are, largely, coming to an end, as more and more independent musicians are able to market and distribute their music themselves and make more profit from it.  eventually, if you aren’t making a pop40 record, you won’t have any need for a label — if you even need one now.  and maybe that’s why sam’s approach to music piracy so closely resembles that of the major labels — attacking the symptom rather than the problem.  i hope sam’s scrappy little independent darkwave label in new york — and every other indie label/distributor out there (kill rock starssub popmetropolisfat possum, etc, etc, etc) — makes it through these growing pains as we move from the dark ages of music production to a full-fledged renaissance, with or without indie or major label help.  i really do.  but i think it’s a good thing that isn’t just a record label, but also acts as a distributor and online music store providing access to some really awesome, obscure music.  because, as i see it, labels and distributors will eventually become the same thing as many artists choose to sell their record themselves on itunes or bandcamp, and promote it on twittermyspace, and facebook.

don’t get me wrong, i’m not heralding the death of the indie label — i think that indie labels will become like artisan food makers: sure you can get the same basic food elements at a fraction of the cost at any old supermarket, but the specialty stuff, the limited run, handmade stuff is so much better.  it’s worth it to take the time to track down the obscure stuff, the local producers.  and an essential part of specialty, artisan foods?  free samples.  hell, even the traditional drug pusher knows that the first taste is free — if you can get them hooked on the first freebie, they’ll be coming back for a long time to come.

wake up, music industry!

take-that-sama couple of weeks ago i posted my reactions to some stuff that sam rosenthal was talking about on his projekt newsletter and facebook page.  sam graciously took the opportunity to comment on my post, and one of his main points was this:

Just because *you* buy music after nabbing it illegally, you are mistaken to assume that other people do the same thing. According to many recent surveys, the majority of college students illegally download 100% of their music. That means they don’t decide to buy the records when they realize they enjoy the band. They are happy with the MP3.

well, it’s time to burst that bubble.  according to this article in a uk digital media journal:

Adults who download music from unofficial channels also spend £30 per year more on physical and digital music than people who don’t, according to a survey by the Demos thinktank of 1,008 people aged 16 to 50.

The study – funded by Virgin Media – says a third of adults go illegal. But the additional money they spend contributes £200 million to the music economy each year.

now i’m sure you’re going to try to get me on the “the survey skirts over the vast cost of piracy to the industry” part, but the main point of the article — and what Virgin was studying — was that digital subscription sites — exactly like what i was proposing a week ago — are viable options as a deterrent to piracy, if the price is right.  and honestly, it has been proposed for a while that this could be an option for college campuses where, as sam pointed out, piracy is rampant.  it’s my opinion that if colleges were able to offer some kind of subscription service — maybe even bundled in tuition or room and board — students could download all they wanted, and not even realize that they were doing so legitimately.  they’d be happy, sam would be happy, the riaa would be happy, and whoever developed the software infrastructure to cover the service would be very happy.  this article just confirms what i’ve been saying for a while, so i just wanted to take this opportunity to say: nyah nyah, i told you so.  what the music industry needs to realize is that you need geeks.  you need us to tell you what is going on outside and how you should adapt to the changing times.  because it’s obvious that you are way behind the times.

fix the music biz by taking cues from the porn industry

playboymp3some ideas occurred to me after my recent post about the music industry, and then erin said something that i thought was not only genius, but perfectly summed up the kind of thinking that needs to happen to save the music business: if you want to figure out what people will pay for online, look at the porn industry.

now, i’m not condoning looking at porn; in general, i consider porn addiction to be similar to smoking — a seemingly innocuous habit that is just as difficult to quit, and causes numerous side-effects, mostly invisible or under-the-surface (only instead of being something somewhat quantifiable and medically recognized like second-hand smoke, the side effects are sexism, objectification, and a generally unbalanced gender appreciation — all social issues, and therefore less tangible).  in this case, however, it’s a perfect analogy.  there’s plenty of porn you can get for free.  you only need to google, turn your safe search filter off, and bam! porn.  i’ll probably get some porn spam just by saying the word porn in this post.  and yet, the online adult entertainment industry (by which i mean: porn) is one of the largest, most lucrative, and fastest growing online business industries.  it makes tons of money every day.  so much so, that no one can really, accurately tabulate exactly how much.  these guys aren’t worried about their stuff being stolen, and they aren’t telling porn addicts to please pay first before downloading their stuff.  they know that they’ve got the goods, and the people will come back for them.

let’s take a look at what’s happened to porn in the last 10 years or so. for this,  i’m gonna briefly pull out my old person voice: you kids may not remember this, but once upon a time, porn came in magazines, printed on paper, and the only way to get it was to a) creep into a bookstore and ask for the stuff behind the counter looking guilty, b) go to a sleazy corner magazine and/or liquor store and hand the trashy magazine to the clerk, looking guilty, c) slink into your parents’ closet and steal your dad’s collection, or d) go to the same sleazy corner liquor store and shove the dirty magazine under your shirt and take off — chances are, you’d only get away with that one once or twice before you’d have to switch liquor stores.  there was sort of a fifth option, too, which was find one of the newsstands that sold the cheap, $1 newsprint rags that was 80% personal ads (you know, like the craigslist adult personals, before there was such a thing) and 20% black & white, amateur-ish photos often with stars over the goods.  this was the easiest in terms of the guilt factor, but the least rewarding in terms of getting your rocks off.

when the internet exploded, the porn biz was probably one of the first industries to make the transition online.  as they did, the physical magazines took a nosedive.  why suffer the guilt and shame of having to ask a dweeby, greasy-haired nerdboy at Borders for the latest issue of Hustler when you could get the same stuff at home, and you don’t even have to get dressed?  now, it’s second nature; does anyone buy Playboy magazines anymore?  porn and the internet are as natural as peanut butter and jelly.

so let’s go back to music, how does porn apply to music?

well, one thing i was thinking about, that’s been discussed in various forms around the ‘net — and is being done in various forms already — is the idea of a paid membership site.  sort of like a netflix for music.  here’s one way it’s being used: Zune Pass lets you access thousands of songs, download unlimited music for $14.95/month (or something to that effect).  you get to keep 10 of those a month, the rest — if your membership ever expired — die or expire or self-destruct or something like that.  it’s an interesting idea.  there’s the new neil young archive, which — when it is completed — will essentially allow access to an expansive online archive of everything he’s ever recorded ever (for a hugely exorbitant price).

here’s my $0.02: think of your favorite record label — what if they put everything they ever recorded online.  everything.  including live concert videos (either professionally produced or bootlegged and uploaded by fans), b-sides, outtakes, interviews, some new, exclusive content, etc, etc, etc.  you pay a monthly fee, say $10/month, get unlimited, unrestricted access to download decent (but not perfect) quality mp3s (say 128 or 192kbps), and access to watch and listen to all the extra bonus stuff.  just for kicks, let’s suggest the possibility, too, that members get other bonuses, too, like discounts on merchandise and CDs.  now, let’s widen the perspective here: what if a bunch of indie labels went in on this together?  you get unlimited downloads of thousands of great songs, old and new, a huge online music library at your fingertips, most of which would never hit the radio, plus access to exclusive online content and goodies and discounts on real merchandise you can wear or pop into your CD player, for one low price a month.  wouldn’t you pay for that?

there would be the argument that the labels would lose money doing something like this, but i don’t think so.  with the kind of downloading that’s going on already, i think it would instead legitimize the downloading that’s already being done, putting cash back into the pockets of the people who made the music happen.  not only that, but kickbacks on actual merch would put a demand back on physical goods and possibly encourage some extra sales of disks and clothing.  the key is that the monthly cost would need to be low enough that the extras balanced out the fact that the people you’re targeting can get half of this stuff for free.

i’m not a marketing genius.  i’m not in the music business, i don’t know what it’s like to run a music label.  this is just vaporware; pipe dreams of things i wish would come true.  but there is something i do get — i get the tech.  this idea is both very possible and already being done in other industries.  it would be easier to do this with music than it would for, say, movies or television, like what netflix and hulu are doing, because the files are so much smaller and easier to stream and download.

the only way to stay ahead of the game is to think like a web 2.0 startup — use existing technologies to market and make available your product in a format that your audience is already familiar with.  people aren’t going to stop downloading just because you tell them to.  there needs to be an alternative that actually entices people to pay.  as any parent should know, negative reinforcement doesn’t work very well.  instead, reward your fans for good behavior, and they will come back to you with their wallets open.

fantasize about that.