Add value or die

Internet music companies like Pandora, Spotify and create some but not all of the value they offer to users. The rest is created by the musicians and labels. Some of the revenues coming into the internet company flow back to the musicians and labels. Some stays with the internet company.

The internet company is buying the music as a raw material, processing it, and adding a markup. It’s like a candy bar company. It buys sugar and other ingredients, turns them into candy bars, and sells the bars at a higher price than the ingredients.

The internet music company must be able to add a markup. If it is paying the musicians and labels the same or more than it is earning, it goes bankrupt.

The internet music company must be able to keep the markup rather than pass the additional revenues back to the musicians and labels. If it does not have the negotiating leverage to do this, it might as well not be adding a markup at all.

Pandora pays about ½ its revenues for royalties. The rest goes to expenses, I believe mainly ad sales. The amount it owes for music is a percentage of revenues. The more it earns the more it owes. When Pandora makes a great new app for the iPhone or for auto dashboards it gets additional users, but it doesn’t make more money.

From :

“We’re definitely on a steep growth curve right now,” said Tim Westergren, who founded Pandora in 2000 and now serves as chief strategy officer of the Oakland, California-based company.
“We just passed 60 million users and I’ve never advertised,” Westergren told technology and media executives at the Fortune Brainstorm Tech conference here. “I’ve been a beneficiary of this incredible viral phenomenon online.”
Westergren said Pandora, which creates personalized radio stations for users based upon their favorite artists or songs, was seeing booming growth on mobile devices.

Note what he’s not saying: that Pandora is seeing booming profits. It’s nice but irrelevant that Pandora’s traffic was growing. Pandora has never had a problem getting users.

You only get to keep the revenues from the value you generate yourself. Part of your value to customers comes from the music. Revenues for this part of your product flow back to the labels and musicians.

When Pandora grows as a result of shipping software for iPhone, the value is in the software. Users could already get music on iPhone. What they couldn’t get is the usability and convenience of the Pandora user experience.

There is no exception to this rule for businesses based on infringement. If your internet music company doesn’t pay royalties it will pay out at least as much in legal expenses.

if your internet company don’t add value to the music, it has no reason for living. You are not a music company. You are in business to sell whatever it is that you add to the music.


I really enjoy blogging. I wonder why I don’t do it more often?

/me scratches chin. The problem is that I can’t speak freely when my views are associated with my company.

So why am I blogging now?

Because I am no longer working the straight job at MOG. Due to reasons having nothing to do with me my job has gone away.

I feel ok about it. I would have preferred to choose the time for myself, but whatever. And my family will be ok – I have some cool consulting work already.

And I’m glad to be able to speak just for myself for a little while.

Listening Room,, Pandora

The hype machine is all a-flutter about, which isn’t totally unreasonable because it’s a great app. But there are a couple reasons to calm down.

First, it is not the creator of the idea. is a clone of Listening Room. LR was too buggy to use when it was first released, and the folks took their copy from zero to better-than-the-original before the original could get up to snuff. Credit is due for being a really fast follower, but let’s not forget the original.

But the big reason for tamping down the euphoria is that the economics are no different than ever. Turntable is a webcaster, paying the same royalties as Pandora and other non-interactive streamers. This is a break-even business.

Back in the day when Pandora was number #3 behind AOL and Yahoo, what got it into first place was that AOL and Yahoo both exited the radio business. Just walked out the door and didn’t come back, like holders of underwater mortgages in one of those foreclosure ghost towns. These companies had no problem finding listeners, they had a problem justifying their investment.

A break-even business has to compete for investment capital with lower risk investments like savings accounts and bigger upside investments like Groupon. It is high risk like Groupon but has growth potential like a savings account.

But is in an even worse position than Pandora, in a way, because Pandora has a smaller catalog. users can call for any song at any time, which means pretty much every song at one time or another. Pandora only has about 800,000 songs in its catalog. That enables it to pursue direct licensing of some tracks. Direct licensing means that Pandora cuts a deal with a label to pay less per track in exchange for playing the track more often. This is one of the very few tricks Pandora has up its sleeve, and doesn’t have it.

Maybe has tricks up its sleeve. It could be that something new about creates a way to charge higher ad rates or pay lower royalties. Cross your fingers.

the transformative power of “save as”

Archiving Is The New Folk Art:

From the moment we used the “save as” command when composing electronic documents, our archival impulses began. “Save as” is a command that implies replication; and replication requires more complex archival considerations: where do I store the copy? Where is the original saved? What is the relationship between the two? Do I archive them both or do I delete the original?

I spend much more time acquiring, cataloging and archiving my artifacts these days than I do actually engaging with them. The ways in which culture is distributed and archived has become profoundly more intriguing than the cultural artifact itself. What we’ve experienced is a inversion of consumption, one in which we’ve come to engage in a more profound way with the acts of acquisition over that which we are acquiring; we’ve come to prefer the bottles to the wine.

Haptic touchscreens for mobile auto apps

Think of the way you change the volume on the car stereo when you don’t have attention to spare. It is a single instinctive motion. Your body knows approximately where the stereo is on the dash, so you reach for the volume knob instinctively. If you have to look at all the glance doesn’t last longer than it takes to aim your grasp in an approximate way. One you have the knob in hand you don’t use your eyes to see how far to turn it, or in what direction to turn it.

This is crucial for driving safely. Your attention belongs on the road.

Apps on a mobile device with a touchscreen don’t have this advantage. You have to read the screen to learn where the controls are.

So haptic feedback on a touchscreen phone is a milestone for mobile apps for drivers.