fixing subscription model music services.

I've already written at length about what I think Microsoft should do with the Zune. Go read it. It's surprisingly comment free for something I consider a solid piece of speculative strategy. This time, I'm talking about the issues that are keeping subscription based music services unpopular.

People don't like the idea of a subscription model music service, for many reasons. The foremost among them is the idea that they are renting the music, and that other services are offering them the ability to own it. This is undeniably correct in the sense that the music goes away. It's incorrect in the sense that most digital music retailers, including the behemoth iTunes Music Store, would disagree that they are offering to exchange ownership of digital music for money, and would instead say they are selling you a license to use a certain copy of a song a certain number of ways, on a certain number of devices. This is important, because ownership by definition includes actual control over the product. In either case, the user doesn't have it.

At least a subscription based service doesn't lie to you. And, truthfully, it offers you a better deal by leaps and bounds. That is more or less unimportant, however. The issue is public perception. And people care about the fact that the music will go away if they stop paying.

The solution to this is offering a buy-out option for users, something in the vein of a lease to own deal. However, you can't set a standard fee for this buy-out option, because 1) if the price is too high, it may as well not exist. The same price as an individual download is too high, if the user is already paying a sub fee, and 2) if the price is too low, people will sign up and download insane amounts of music in one month, paying the cost at the end of the month, because it will be cheaper than individual downloads.

If, however, the cost of buying out tracks downloaded on a subscription basis decreased over the length of the subscription, there is both a sense of security that you CAN own your music if you decide the service isn't your thing anymore, and a solid reason to stick out the subscription long enough for it to become habit. If, for the first month, buy-out costs the same as an individual download, this is reasonable. Anything less, and the retailer will get screwed. But if the price per song for buy-out decreases over time, then it becomes a good deal. Six months into a subscription, and the buy-out cost could be half the price of a download, approx 50 cents. A year in, 25. Eighteen months, 7 cents, etc.

Obviously, the price drop over time would have to be calculated to take into account the revenue generated by the service per user, as well as the amount of downloading that takes place for the average user. But it offers all of the benefits of a subscription model service, while dealing (at least somewhat) with one of the major drawbacks.

If you wanted to get really difficult, you could offer whole or partial rebates of the subscription cost for the first few months, if a user bought out all songs. This also removes some of the fear that a subscription model service will be forcing you to pay twice for the same music. If you decide to buy-out at full price, getting 2 months subscription fees off of your total purchase means no net loss for testing the service.

And if you have a good product, getting people to test the service is more valuable than anything.

how to stick it to apple.

So. This is how Microsoft could take over the digital music market, and create a whole new revenue stream in the process:

Before any of this starts, I love Apple to the point where it makes my significant other jealous from time to time. Steve Jobs is one of my heroes, slightly outranked by Fake Steve Jobs. I've bought three iPods, and am planning on a fourth already. My Macbook is necessary in the same way food and oxygen are.

But the approach they've taken to music is hilariously dependent on the labels they are fighting with over control. Luckily, I think Apple considers iTunes a means to the end of selling iPods the world over. This is, mainly, what it does in a manner that is above reproach.

Microsoft has several major advantages that have gone unused, or underused. 1) They are selling a player that has the ability to trade music built in to every unit. 2) Every major music label is looking for a credible place to turn that isn't Apple, and that is more willing to negotiate terms. 3) Microsoft is sitting on a massive user-base who trusts (or at least tolerates) their products. 4) Microsoft is Microsoft.

The music sharing functions on the Zune are crippled by DRM. This is inarguable, and definitely had to be thrust upon the company by the music industry partners they needed to launch the accompanying music service. Still, this is the game changing tool that is needed. Music is social. Music is supposed to be shared, and learned about through social connection, and that requires sharing. There was a time when that meant inviting someone over and playing it for them, but now it involves copies.

This is the main issue that isn't discussed. Music is not what it was. This is no longer a market defined by selling slabs of plastic. It's about offering context and convenience, because the competition is the now normalized act of online piracy. This is the basis of subscription models, which, if memory serves, is what Gates and Co are trying to push.

The first thing Microsoft would have to do is unlock the sharing function. Make it so that any song traded from Zune to Zune is traded permanently. This, obviously, will be a hard sell to anyone in the music industry. So, there's a simple solution. Make one of the requirements of the sharing function is that anyone who is not signed up with the Zune marketplace, or social, or whatever it's called this week, gets files wrapped in timed-delete DRM. Everyone subscribed, go nuts. Free and easy trading to anyone with a subscription, because in a sub-based service, they're getting the music anyways.

However, this is all useless unless you get people to try the damn thing, first. Which is why you need to bundle a year's subscription to every new Zune unit.

Unfettered sharing is a useful thing. So, it has the potential to become addictive. Let it do so. This will require concessions to the labels (as everything does) so offer them, at first, a percentage of the price of each new Zune. That might not be enough, but there are still two things up your sleeve at this point.

Firstly, you're Microsoft. The biggest, strongest, most willing to take a loss in the short term, most likely to break into a market already won and take over company in memory. Honestly, the major battle-cry here should be 'Apple dominates the market, and has defined the category? Well, we've never won in THAT situation before...' Play hardball. Make concessions, but make it clear that this is a no-holds-barred fight for control of the market, and not siding with you is like deciding in advance not to succeed. Artists with clout are already leaving labels and creating their own distribution channels. If a major one takes off, and a label has locked itself out of it for no good reason, well, you end up in the situation the music labels are now, with execs approaching senility wondering if that Fanning boy can still get them a dominant position in the market, like he was talking about back in the day.

Be Microsoft. Make it work, because crossing you is generally idiotic.

Secondly, and most importantly, offer them a whole new revenue stream.

In allowing open sharing between any Zune subscriber, which, at first, means any Zune user, you gain access to data. In something as simple as getting users to give you an email address, and A/S/L info, you gain access to a horrendous amount of information. Not only do you get demographic breakdown of who likes what music, and how it spreads among ages and locations, but you get something truly unprecedented. By tracking sharing, you get an epidemiology of music, information on who the influencers are, who shares music, who is the first in an area or social circle to discover it, and how many people they send it to. You get real time information on the popularity of an artist - not through plays, which though useful are misleading, but through exposure, who is downloading, who is sharing, and who is re-sharing.

This information alone is worth losing money for a few years for. Not just to target advertising, but from a logistics perspective. Imagine the ability to plan a tour to maximize attendance, and therefore profit, at every stop - every single show in a place where the artist is at the peak of popularity. Imagine creating a market for selling this information to touring bands, imagine offering it to managers, to labels, etc, for either money or cooperation. This works for indie acts, as well. They more than anyone need a good turnout at shows, just to make money - price it on a sliding scale, and this information suddenly gets indie acts working with majors on a regular basis, for survival.

Imagine targeting advertising for an artist, or similar artists, to areas where they are right near a breaking point. Imagine trackable word of mouth.

This is ignoring completely random ideas, such as taking the influencers identified for this information, and slipping them preview tracks for new albums or artists. If they like, it, it gets distributed and re-distributed. Completely organic buzz and anticipation, kicked off from a concrete, calculated standpoint.

I've worked out further uses, and further details to make the plan work smoothly, but it's a moot point, as I don't run the Zune division of Microsoft. Other companies could technically do the same thing, but they either lack the software influence, the compatible hardware, or the influence to do it in a game-changing way. This is a method of offering something superior in user experience to a generation used to free music with minor hassle. They need something to play it on. And if Microsoft has taught us anything from the Xbox, it's that taking a loss in the short term, or even the shorter long term, is worth having serious sway in the market.

This is one way to do it.

laughing at microsoft - becoming common in my life.

Two posts in one day? Something disruptive must have happened.

I recall, earlier this summer, a conversation with a friend, relating to the UX of the iPod, and what could trump it. This pops back into my mind because the iPod touch is basically forcing me to laugh at microsoft.

The Zune was interesting because it had a big screen (a beautiful screen, from everything I've heard) and wi-fi. These were the features that everyone saw and started muttering 'iPod killer' over. And with good reason. When bitching about the iPod's UX (which took some thinking, but there were still complaints) my major problems were 1) no search mechanism on the ipod itself other than scrolling, 2) have to be hooked to a computer to download music. This discussion went immediately to how simple it would have been for MSFT to address at least one of these issues, if they hadn't put so much effort into appeasing the DRM lust held by music labels, tv networks, movie studios, et al.

I'm not laughing at Microsoft because they are releasing a new set of Zunes into a marketplace that refuses to stay static long enough for them to play it safe. I'm laughing at Microsoft because the Zune proves, to me at least, that they can no longer even steal ideas and improve on them effectively. The fact that there was a wi-fi enabled, bigger screened competitor available for so long, and they managed to make it less appealing not in spite of the wi-fi, but BECAUSE of it, boggles the mind.

And then Apple walks back into the throne room and says 'Oh yeah, wi-fi, cute idea. Maybe we'll let people use it for what they want, and what it can do'.

I'm laughing because the idea of being able to download music directly to your music player is actually somewhat revolutionary in the current western marketplace. I'm laughing because I want it so badly.