Lessons from Social.fm
I spoke with Mercora founder Srivats Simpath about three years ago as the company was looking for possible partnership opportunities with Microsoft. At the time, the company's vision and proposed business model seemed a little muddy. Music was involved. There would be some sort of peer-to-peer sharing system, but somehow this would be legal. To differentiate itself from the popular but illegal file-sharing systems used by most of the world at that time, Mercora would have a strong social-networking aspect, with users recommending or voting on songs. I don't remember exactly how the company expected to make money, but I recall telling them that charging subscription fees to end-users is a hard way to go.
If you can't explain your online music service in a sentence, it's too complicated.
Yesterday, the company--which changed its name to Social.fm last year--announced it's out of business. Without knowing exactly what went down, I'll just say that Mercora's was one of many confusing pitches that I've heard over the years. (I sympathize with Rafe Needleman's frustration.)
So, in hopes of turning a negative into a learning experience, here are some very general rules for digital music start-ups:
1. Focus. If you can't describe your service in a single sentence, you're doing too much. Think of the few successes in the digital music space we've seen so far. iTunes Music Store: buy songs and they'll automatically transfer to your iPod the next time you connect it. MySpace (from a music standpoint): people can learn about and sample musicians that their friends and peers like. CDBaby: online CD store for unsigned bands. Pandora: builds a custom radio station for you based on your musical taste.
2. Uniqueness. We've already got plenty of choices for downloading and streaming music--what can you offer that's different? Social networking won't cut it because it's so subject to network effects--the more people are on one, the more useful it becomes. MySpace has been doing social networking-plus-music since 2005 and consistently draws more than 100 million users per month. How will you convince anyone to migrate to your brand new service when all their friends are still on MySpace? I'm not saying it's impossible, but you better have something unique.
3. Music listeners are cheap. This is a hard one to swallow, but any time I'm listening to a pitch or reading about a new online music service and the idea of fees--particularly monthly subscription fees--comes up, I immediately think "fail." It may not be moral or fair, but any fee-based music service has to compete against a huge amount of free music that's easily available to anybody with an Internet connection. So what's the answer? Music listeners are also lazy! You can charge money if--and only if--you offer a significantly easier experience than we could get by frequenting file-sharing sites and other free sources (not to mention ripping CDs from our friends). Again, iTunes is instructive: you pay to download the songs directly into the same app you use to transfer them to your iPod. Saving a few steps is worth $0.99.
A quick aside: musicians are even cheaper, and well-attuned to suspect anything that smells like pay-to-play. Good luck with that.
4. Launch strong. On the day your site goes public, you better have enough capacity and bandwidth to accept all the curiosity seekers. Your site better be so easy to use that I don't have to read the FAQ. And most important, you better launch with all the content (that means licensing deals ahead of time) and features you promised--I feel so burned by Qtrax (just to pluck an example out of thin air) that I'll probably never write about the company again.
Matt Rosoff is an analyst with Directions on Microsoft, where he covers Microsoft's consumer products and corporate news. He's written about the technology industry since 1995, and reviewed the first Rio MP3 player for CNET.com in 1998. He is a member of the CNET Blog Network. Disclosure. You can follow Matt on Twitter @mattrosoff. 
1. The author of the article was referring to the failed launch of QTRAX back in January 2008. If you may recall, the service claimed to have the backing of the four major record labels when, in fact, no such licensing agreements existed. As a result, I can understand how the author might feel burned by QTRAX.
2. QTRAX had initially promised a compatible application for Macintosh users to launch sometime back in March 2008 I believe. This application never came to fruition and the promise has since been removed from their site. Similar to SpiralFrog, I believe that such an application was never a possibility from the start, since it uses a proprietary Windows Digital Rights Management scheme to protect the ad-supported songs. As such, the Windows DRM is not compatible with the Mac.
3. Furthermore, since Windows DRM is used, if QTRAX decides to allow songs to be transferred to digital audio players, the only supported players are those branded with Microsoft's PlaysForSure logo. As such, these songs are neither compatible with the market-leading iPod from Apple or with Microsoft's own Zune. As such, the songs are only portable to a very small percentage of the market.
4. Thus, as it stands, QTRAX and SpiralFrog will probably only ever cater to a rather small group of users. As such, I don't see how either can ever become a sustainable business beyond a few years, without some sort of mind-blowing innovation or a complete ideological shift in the thinking of the record labels. Therefore, I would not be surprised if QTRAX and SpiralFrog end up either merging to reduce costs or end up both closing down.
Apple has successfully proven with iTunes that people are willing to pay for music downloads, and I don't see their market dominance waning anytime soon either. If a service like QTRAX had been on the scene before iTunes, I strongly believe the digital audio marketplace would be vastly different today and my outlook on ad-supported music services would be vastly different as well.
As a result, I wouldn't be surprised to see QTRAX and SpiralFrog in the next few years join the list of other defunct music services: MusicMatch, Mercora/Social.fm, SonyConnect, MSN Music, MTV Urge, etc.
- by themusicskeptic01 August 12, 2008 7:59 AM PDT
- I agree the majority of downloaded music in the US comes from illegal file sharing networks. The main reasons are it's free, no digital rights restrictions, and portability to all digital mediums. Here in lies the problem with QTRAX.
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(4 Comments)While QTRAX offers free music, there are digital rights restrictions on the music files and as such, they are locked to a specific set of devices -- Microsoft PlaysForSure devices. Thus, the music cannot be synced with either Apple's widely popular iPod, which has a 67% market share in the US and a 25% market share in Europe, nor Microsoft's own Zune. In addition, due to the DRM, the music cannot be format shifted either. Thus, the music cannot be burned to a CD nor converted into mp3s which can be synced with all devices.
As such, I feel QTRAX will have a very difficult time converting those individuals. In spite of the introduction of the DMCA in the US and the RIAA's continued lawsuits, there has been no effect on the amount of illegal file sharing taking place.
Lastly, while QTRAX aims to offer music available on p2p networks, I believe none of the labels have agreed to allow this. Furthermore, the majority of tracks available on those networks are either mislabeled, of poor sound quality, or infested with viruses.
QTRAX certainly has an interesting idea on paper; however, its actual viability in today's marketplace remains very much in doubt.