Question

Apple's iTunes music services sells music by the song. other services, such as Spotify and pandora, sell subscriptions to a library of music. Using the material in this chapter, which type of service do you think is most likely to succeed in the marketplace and why?

Answer 1

I remember observing once that most people probably don't even realize the astronomical jump in standard of living that Netflix and Spotify represents for humanity today compared to 200 years ago.

Entertainment at home while eating was once reserved for kings and aristocrats. Women would dance, great warriors would fight it out and occassionally some poor fellow would be beheaded - all for the patron Lord's amusement.

The point is:

if the historical stability and trend of the demand for entertainment services be any indicator - we're likely to not only be watching more videos and listening to more music, but also to prefer a personalized experience from it; so even a friends' get-together can feel like a kingly banquet.

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Suppose the representative cost of a song on iTunes is $p, while Spotify charges $M (M > p) for an ad-free, personally tailored experience.

If the consumer is a minimalist hermit interested in looping one song over and over for eternity, iTunes is the better choice.

But if
[consumed number of songs n > M/p];
or alternatively
if [expenditure on music services n*p > M],
then Spotify is the better choice - to say nothing about the utility derived from the personalized recommendations.

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SO far Spotify seems the likely candidate from a user perspective. There's also the production-side profit perspective;

we've moved away from the vinyl record days when it was pay-to-listen; now we listen for free, files can be copied at zero marginal cost unlike CD's

now, we pay - for the digital music, concert tickets, merchandise - to support. It could be associating ourselves with the artist's image or supporting the artists' values and message, but regardless with the Internet music consumption has become less excludable and the music industry is toying with alternative business models to keep up with modern times.

Spotify has deliberate attention paid to artist discovery, whereas it's more a passive thing in iTunes where it's left to fate for "good" artists to get discovered. This isn't optimal for either the consumers (who want variety and not necessarily the same pop junk playing on the radio ad infinitum) or the music producers (who only need to be discovered by the right people/community; "good" is relative)

so from this angle also, Spotify seems likely to come out the winner.