Friday, October 8, 2010

YOKUDO loves Mutabor

Sometimes you are lucky. I was when my first company, CoreMedia, looked for a corporate design and one of my colleagues stumbled upon Heinrich Paravicini of Mutabor and invited them to pitch their ideas. What they presented was simply from another galaxy, far above all the rest that we saw. Heinrich was transpiring more energy than a supernova. He had recently co-founded Mutabor with Johannes Plass, and CoreMedia seemed big enough to be an attractive client.

Mutabor excelled in so many ways. At one point in time they took the challenge to design our booth for the yearly CeBIT trade show. It was the first time they had designed a booth, and what a booth they designed. Even 9 years later, we were still using basically the same booth and were complimented for the fresh design.

One of Mutabor secrets seems to be that they search for the core idea of something, and when they have found it, they turn it into the DNA of the design. There is always something to discover when you see their designs.

10 years later, that initial energy I recognized has put Mutabor in a different league. They have won countless awards and are chased by big, global brands like Audi, Adidas and Deutsche Telekom to reactivate and rejuvenate their identity.

Lucky for me, when Heinrich heard about our idea for YOKUDO, he was up for the challenge of creating a corporate design that captures our vision, and, once again, he’s completely blown me away. Here is a little preview of what he has envisioned for our logo, to capture the self-expression that will be core to our platform:
Danke Hein! Kudos for your amazing creativity and many thanks for your great friendship. I really hope that Depeche Mode will sign up soon : )

Artificial scarcity failed, let’s try abundance

Some things are pretty scarce--things like clean water, fresh air, oil and steel, iPads and iPhones 4, to name a few. Other things aren’t scarce at all. They are abundant:  crazy ideas, creativity, information, digital music, pictures on the Internet--especially pictures of little kittens.

As Stowe Boyd pointed out in one of his talks at the Reboot conference in Copenhagen a few years ago, we seem to confuse things when it comes to scarcity and abundance. Indeed, we tend to treat many things that are scarce as if we have an endless supply of them (fish in the ocean, clean water, a stable atmosphere), and, at the same time, create artificial scarcities for things we have in abundance, like ideas, digital content, and knowledge.

The main reason for such confusion might be purely economical. It seems so much cheaper to treat natural resources as abundant, and it has proven a successful business model to make abundant stuff seem scarce in order to make tons of money selling it.

However, the consequences can be dire. We have not only wasted precious natural resources and created global warming, we have also limited our potential to create better solutions in order to clean up the mess by preventing “ideas from having sex”.

Fortunately, there is good news. The Internet is changing the underlying dynamic. The first fundamental change is an unprecedented level of transparency, global awareness and coordinated action that helps companies realize the cost of destroying common goods.  Through collective action, society has started to print the costs of common goods in big red ink on corporations' balance sheet--a language corporations understand well.

The other fundamental change lies in the astonishing ability of the Internet to create and exchange astronomical value without any money being involved.

I guess I should explain that statement a bit more. Our economy is based mainly on the exchange of goods or services for money:  the transfer of value generally involves cash. Barter deals and gifting are minor exceptions.

However, the Internet has changed this dramatically. Most of the value created on the Internet comes for "free." We can read Wikipedia for free, Google the Internet for free, video Skype with friends around the world for free, listen to music for free, exchange pictures with our loved ones for free, become a star on YouTube for free, get thousands of followers on Twitter for free, and so on.

The fact that all these abundant things come without a price tag doesn’t mean that they are of little or no value. Quite the opposite. Just imagine the price you were wiling to pay to buy an Encyclopedia, to make an international phone call, or to transmit 10 Gigabytes across the Atlantic ten or twenty years ago. Now, you get so much more for less. Now you can even get your very own global TV station with YouTube for free.

As a consequence, the official GDP growth of every country on Earth is not even remotely related to the gigantic value each one of us has gained over the last two decades.

Exploding value creation on the Internet is a great thing. It enables us to give free or comparatively cheap access to services that were luxury goods only a few years ago to people around the world, even in some of the world’s poorest areas. Equally important, it enables more people to use their talent and to participate in this global value creation.

There are still various barriers that must be overcome to unleash more of the full human potential. Fortunately, a growing number of emerging ventures work on exactly that. They implement smarter ways to make use of abundant resources like human talent and social capital.

Nathaniel Whittemore, founder of Assetmap, calls this the “New Era of Human Capacity Startups”. He makes the convincing case “that people have more to contribute to their own lives and to their communities than they currently realize”. The Internet is certainly the most powerful tool we have to unleash this potential.

Unfortunately, there seems to be a dark side of free, a major barrier if you will. Where is the business model? If everything I produce is free, how can I pay for the milk in the morning? This questions feels increasingly real for many musicians, artists, writers and other members of the creative industries.

If the stuff you try to sell becomes abundant, your market will collapse. The declining revenues of music labels are a pretty vivid example of this rule. And their struggle might teach us a lesson.

The music labels decided to fight the unwanted abundance of digital music. Their main strategy was to maintain an artificial scarcity through DRM, Copyrights and legal action. Technically, digital music is abundant, but, legally, it is not. However, given the declining revenues in the industry over the last 10 years, the success of the “artificial scarcity strategy” seems questionable, to say the least.

On the Internet, artificial scarcities proved to be harder to maintain than expected. Technical solutions didn’t live up to their promises. DRM technology wasn’t 100% water tight and often too cumbersome to use. However, the far bigger and decisive looming threat to artificial scarcity might be a social one. Many, if not most, users don’t mind sharing digital content and, while doing it, lack the emotional restraint that is (nearly) universal when it comes to shoplifting.

Users seem to feel a difference when it comes to real scarcity (stealing an apple) and artificial scarcity (copying a piece of digital content). The rule “don’t steal” is generally accepted and a core value of our culture, but the rule “don’t copy and share” is not.

While the above observation doesn’t make copyright infringements legal or a good thing to do, it still leads to an interesting question:  If we can’t maintain artificial scarcity for digital music, how can artists make a living by embracing abundance?

yokudo is working hard to answer the above question. If we and other startups succeed, one more barrier for the free exchange of creative work will be gone. Abundance of (legally free) content will eventually become the new norm, and it will finally be a good thing for the artists, not just for their fans.

Posted by @soerenstamer

Selling music - a dead man walking

If you believe in selling music as a business model, or are about to fund someone who does, then you might want to pause to consider a few numbers, as well as recent trends.

First, the numbers.  97,751 albums were released in 2009, according to and Nielsen Soundscan. 12 of those sold over 1 million units (down from 35 albums just three years earlier). That’s a paltry 0.0123% of all new albums.

Yet, there is an even more disturbing number to consider: 2.1%. That is the percentage of new albums that sold at least 5,000 units. In fact, only 2,050 albums reached that goal in 2009. Which means that 95,701 albums--97.9%--didn’t.
If you don’t think this looks like the last breaths of a dying business model, we can wait for the 2010 numbers...

While waiting, we might take a closer look at recent trends among music start-ups:  a spate of already established, brand new, and about-to-launch music subscription services. If the number of start-ups in a given field is any indication, there must be a ton of money to be made. Or not?

The New York Times observed correctly “Suddenly, Mobile Music Services Seem to Be Everywhere” and surely it won’t be long until Apple and Google sing the same tune as well.

Seamless, cloud-based music streaming is certainly feasible these days. And it’s not just feasible, it’s great. It will happen and we will love it. Why should anyone need to manually select, buy, download and sync files when we are always online?  The superiority of cloud-based services with local caching will pretty much kill the “old” way of distributing music (e.g. “buying and downloading files”).

However, regardless of the superiority and bright future of the cloud-based music service itself, I don’t see a big buck to be made.

Here is a likely scenario:

  1. Someone will figure out a significantly better way to distribute digital music. This is basically what just happened.
  2. More than 10 companies will compete for the users who are willing to pay 10 bucks per month for a music subscription.
  3. One or more companies will try to gain momentum by offering subscription services for less than $10 per month.
  4. A company with complementary products and services like Nokia, Samsung, Dell and HP (devices); Apple (devices, advertising); Google and Microsoft (advertising); or AT&T, Verizon and T-Mobile (network) will feel the need to bundle music with their core products to make them competitive.
  5. Competitors will follow to stay competitive and, by doing so, will turn music into a commodity.
  6. The effective price of music will be zero.

The fact that we already see so many startups with very compelling services in this field turns #1 and #2 into done deals.

There are also some signs that #3 is already under way. Rhapsody used to charge $10 ($9.99) per month and the same price point was adapted by Rdio and Thumbplay. However, the market hasn’t stopped there.

Napster pushed a $5 per month price point and others followed suit. Rdio and Mog offer packages that are somewhat limited for $5 a month in addition to their regular $10 packages. Furthermore, there are quite successful players like Pandora, and Spotify that offer ad-supported music streaming services for free, and ad-free options for a subscription fee.

Given this high level of competition (plus the “default” option to freeload music illegally), there is only one way for the price of music to go: down.

It’s only a matter of time until the price of music will disappear completely. Nokia’s “Comes With Music” looks like the first serious attempt to implement #4 and bundle music with other products and services. Comes With Music is part of Nokia’s strategy to become an internet service company and it seems to be gaining traction in some markets. For instance, by the end of the third quarter of 2009, Comes With Music had claimed around 10 percent of the digital music market in Brazil, according to IFPI.

The more that global music revenues decline (down 7% in 2009 to $17.03 billion), the cheaper it will be to implement a bundling strategy. The cost for bundling music with other services might become astonishingly low compared with the profits at risk for some of the above mentioned global players.

Nokia desperately needs a silver bullet to compete with Apple and the iPhone. The same is true for Microsoft, whose latest push to improve the music search experience on Bing in order to beat Google’s dominance indicates the same strategy. If they want to make Windows Mobile 7 a success, it had better “come with music” as well.

But Microsoft is not alone here. With Google Music, Google might also decide to become a more disruptive force in the music business in order to steal iPhone’s thunder when it comes to music.

We will see. As a consumer, the future sounds excellent. As an entrepreneur or investor in paid music services, it just doesn’t rhyme with making money.

Posted by @soerenstamer

Pretty close to ZERO and falling

Whether we like it or not, digital music will be free.

And nobody is to blame. It's not the fault of Napster, Pirate Bay, the music industry, or any other group of people (except maybe the brilliant minds that invented the Internet).

Free information is the systemic result of a highly networked society. With the Internet came abundance:  the abundance of information. And with abundance comes a steep price decline, the simple supply and demand paradigm of Economics 101.

More than 10 years ago, Carl Shapiro and Hal R. Varian pointed out that the price of digital information will soon approach zero because the marginal costs are zero (For more details, I highly recommend their straightforward analysis of the "New Economy" in Information Rules - A Strategic Guide to the Network Economy).  And that is what is happening.

If you prefer this dry theory as a juicy chart, a British journalist, David McCandless, has produced a great visual. He answered the question how much do artists earn online? See for yourself.

According to David's analysis, Rhapsody pays $0.001365 per stream to the artists (there appears to be a slight discrepancy in the numbers between the spreadsheet and the chart, but the takeaway is equally dramatic). While this isn't a ton of money, it is still more than twice as much as pays. And the newest platform, Spotify, takes this trend yet one step closer to zero by cutting the price per stream in half again.

To understand how tiny the difference between $0.000255 per stream and free already is, let’s take a look at a pretty successful song as an example. According to this report, Spotify's payment to Lady Gaga for over 1 million streams of her hit track "Poker Face" amounted to $167.

Pretty close to ZERO and falling.

Posted by @soerenstamer

Hello World

Creativity. Sharing. Freedom. Fairness. Fun.
We think so too. yokudo.