Having Fun With Disruptive Models
The business world used to be a war where everyone knew the rules. The battle lines were well drawn out and the business model theater was a given. If you made a product, you tried to take your slice of the market by positioning it among the other competing product offerings in an optimal way.
While everyone claimed to be better, in reality, most products fit somewhere in the marketing mix, trading off quality and price for a niche among other competitors' offerings. This, of course, is a gross simplification of the alchemy of marketing, but for today's leading-edge companies the big bucks are not in winning marketing wars of attrition but with inventing totally new ways of making a living.
New business models are now as important as new product inventions. With the right model, even a relatively simple product can prove a money spinner. Anyone who watched Alex Tew, an English student, walk off with a million dollars from his home page will know a simple idea can be worth more than a complex product in the ultra-flexible network economy.
Microsoft (nasdaq: MSFT - news - people ) is not, for example, fighting another company trying to sell operating systems and productivity software. It has been a long time since it faced direct competition on that front. It is instead facing the prospect of massive legacy income streams simply vanishing through abrupt obsolescence, while continuing to be held at bay in the server space, not by a company, but by a loose confederation of open-source developers turning out free software. Likewise, a Google (nasdaq: GOOG - news - people ) online collaborative spreadsheet is not a competitive product in the old sense because its distribution channel and business model is so different.
Net software infrastructure is another classic example. Imagine a world where no free Linux or Apache or MySQL existed and then imagine how many billions Microsoft and Sun have lost because they do.
The music and film businesses are facing similar challenges in a business game where the primary customer has torn up the rule book. Intellectual property theft is inescapable, and now everyone with a pulse can do it. The only way to stop this piracy is to make it physically impossible, and that isn't going to happen. This means music is going to be free at the point of use to the consumer, and somehow the industry is going to have to make a living at the same time.
Spiral Frog is just one example of how the music industry is trying new models. Free music with advertising support is going to be Spiral Frog's stab at it, but a 90-second ad plus various hurdles in usage seems to be a tough proposition to sell when peer-to-peer (P2P) "sharing" is just a click away. My bet is on a shift in music publishing whereby record companies will make their money from music licensing rather than CD sales. Radio, TV, advertisers, Web sites and all these "easy to control" users of music will have to fund the industry instead of the direct listener. TV viewers and radio listeners have had their content funded by third parties for years, so there's no doubt this model works.
Meanwhile there is still time for someone to come up with a new business model, after all, not many people guessed that Google AdWords would create the fastest growing top line in corporate history. Did anyone see a headline when Google AdWords was released that said, "Little text boxes to rule the Web?" I don't recall any, but they do.
Alternately, all this fear of disruptive technology might be overboiled. The beacon of hope is Oracle (nasdaq: ORCL - news - people ). Intellectually, I understand perfectly why Oracle sells billions of dollars of databases, but it really is the most incredible achievement against the backdrop of powerful, robust and free databases like Postgress and MySQL. This aptly demonstrates the power of branding and canny marketing and shows there is more to the game than just price. Clearly, in a corporate world Microsoft can look to the "Oracle effect" to stave off Web 2.0 predations, but in the consumer world it seems unlikely that its Office suite will survive its sticker shock when free Web-based equivalents come to market. Meanwhile, it might just be that the age of static media as the dominant media form is about to be superseded--all be it via a long drawn out transition.
The giants of the future will sell content that can't be stolen, and the only content that fits the bill is real-time content. One only has to look at the huge success of Blizzard's World of Warcraft to see how a product that can't be stolen can generate huge sales; $1 billion so far. Likewise real-time stock market data can't be P2P'd, something that undoubtedly makes the likes of Bloomberg and Reuters rather more comfortable than the makers of recorded media.
The answer to the business model for static media is, unless someone has a flash of business genius, likely to be that beautiful, ugly word "free." Free, of course, comes in more shades than Eskimo snow, but whatever shade of free your music is, if you are paying .001 cents more on a can of Coke, you're not going to be complaining much. The money will still be flowing, but the bill to you will be bundled into some other cost like the advertising margin in your groceries. With all this "free," it's easy to think dot-com stands for dot-communism, but in reality, it's just an efficient market at work. In the meantime, we should all be trying to think up crazy ideas like text adverts in little boxes down the side of Web pages.