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.
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.