By now it’s fairly well-known that selling digital music downloads is a tough business with thin margins. However, across both online as well as brick-and-mortar retailing, music and video is being used more universally as a loss leader and it’s not clear what this trends means for content in general. For example:
- for Apple, digital downloads are not something they make a lot of money on, however, it enables their hardware universe (iPhone, iPod, Apple TV).
- for Amazon, many people have suggested that digital downloads is a traditional retailing loss leader. It drives people to their page, where Amazon hopes to sell them something above and beyond the digital download.
- for wal-mart, CDs and DVDs have been used for a long time as a loss leader.
The New York Times is reporting that Apple’s new deal to sell movie downloads (as opposed to their rental business) is not a great deal for Apple from a dollar perspective. So, Apple appears to be using the same model here as they did with the iPod. Effectively they are relegating the movie downloads to a loss leader in the hopes of selling more Apple TVs.
So is content no longer king?
Live Mesh was introduced yesterday by Microsoft. It is the brain child of Ray Ozzie and really seems like an out-growth of the work he did with Groove. At its simplest, Live Mesh is basic file sync. But another way to think about Live Mesh is as the ultimate P2P platform. When people think of P2P they think about Kazaa, Napster etc where everyone’s files are available to everyone else. Live Mesh is different from vanilla P2P because it adds the following:
- control over who sees what files
- creates a personal P2P cloud amongst your own devices (file sync)
- the concept of your own cloud store
- a platform, which will let ISVs build applications on top of it
So what does this mean? Live Mesh has the following implications:
- Cloud storage companies can kiss their businesses good bye because cloud storage is integrated with Live Mesh. Cloud storage is a thin margin business and only those with scale can make it work. After the shake-out likely survivors are MSFT, GOOG and AMZN. I should be clear that there may be still be a lot of 3rd party applications that leverage the infrastructure of the big 3 but if you are doing your own storage thing, you better switch now.
- Sync is a big deal because if done right it has the ability to transform our digital lives. I know that sounds like hyperbole but if you have more than one computer you will likely have blown productivity managing your files. It basically makes computers (and devices) more useful. There is a lot of people playing in this space but by virtue of creating a platform and a standard set of APIs and protocols, MSFT has the chance to win big time.
- MSFT has an advantage over GOOG and AMZN here because they have better distribution (by virtue of their operating system). Additionally, they have been marketing to ISVs for years. Don’t underestimate this. Once Live Mesh is integrated into Visual Studio, any kid with rudimentary Basic skills will be able to build applications on top of the mesh.
- Going back to the P2P angle, Live Mesh can be a content delivery platform. If I were a content company I would start thinking about this right now. Streaming media has economic issues that Live Mesh solves. Microsoft should be out licensing this to every device maker on earth. The consumer electronics companies will be reluctant participants but they should embrace it because it enables them to compete with Apple and frankly they need help in this area. If you look at Ray Ozzie’s memo, he talks about the 3Cs the first being content.
- Social networks are about interaction whether it be IM, posting or sharing. Guess what? Live Mesh addresses posting and sharing and if done right will make it easier. YouTube flourished because it let people embed videos in HTML. Well, Live Mesh can take this to the next level, facilitating what Fred Wilson calls micro chunking.
However, the biggest key to Live Mesh’s success will be how much lock-in is baked into the platform. If all protocols are published and any one can interact with Live Mesh completely at the protocol level and for free, then Live Mesh could be transformative. If the above is not true, the Live Mesh will fail because lock-in does not work on the web.
Posted in attention, Gadgets, Mac, mobile, music, software, web
Tagged content, live mesh, microsoft, music, software, web
So Yahoo earnings are out and they are a little better than expected. But you have to think Yahoo tried very hard to beat the expectations pulling all possible levers to make this happen. If that assumption is true then the real numbers are probably more inline with what the street expected (or worse). So now what? Well, Ballmer said he doesn’t care what the earnings are. That makes sense because if MSFT did their homework, they already figured out what Yahoo was worth to them. I guess I don’t understand how Yahoo could argue that they are worth so much more. The stock was sub $20 before the bid was launched so in what reality is it worth $40 (or whatever they want). Hipmojo does a nice analysis here.
Noticed this week that WordPress has upgraded to some new version (at least the UI has changed significantly). And it now does not seem to work very well with Safari. Specifically, opening the “link” window gives you an empty window. Any one else notice this? I actually have reverted to using Safari because it feels snappier so this is a bummer. I also like Flock because of its integration but it does feel very slow compared to Safari.
So MSFT just turned up the heat on Yahoo and I agree with Henry Blodget that Yahoo has been out maneuvered. I am not sure that there is much left for Yahoo to do unless some other deal gets done in short order. I also think MSFT has already figured out what kind of quarter Yahoo will announce. They run similar businesses and I am sure they have active benchmarks comparing the businesses. As such they probably know that Yahoo’s quarter will not be that great (pure conjecture on my part). In other words they know what cards Yahoo holds. And other than another deal getting done, having a stellar quarter is probably the only defense Yahoo has left.
For those saying this proves that MSFT is evil, I am not sure what they are on about. This is business, pure and simple. MSFT is doing something that they think will improve the value of MSFT. That is actually their responsibility as a public company.
Update: BTW I told you MSFT has a plan.
Fred Wilson has a post this morning about streaming audio services on the web. Fred’s point is that streaming music is changing how people listen to and discover music on the web and that this type of use will accelerate. And I agree with that. But some fundamental problems still exist with streaming music. For one the user experience will always be somewhat compromised as compared with getting data from your hard drive. It will get better over time but your connection speed is always going to be variable. However, more fundamental is the economics of streaming. As Fred points out, advertising will play a role here but that only helps the labels/artists get paid (and I am not sure this pencils out). However, the elephant in the room is your ISP. Right now all these streaming services do not have any agreements with the ISPs of the world. We already know that the ISPs are “shaping” bandwidth and if/when streaming becomes mainstream it will strain networks. Even worse from a bandwidth standpoint is that no network caching can really go on because in this new world of streaming everyone is getting a custom stream. So the networks will start to have issues and the ISPs have no economic incentive to play along. Now let’s move this to the mobile space and these network issues become even worse. The networks are even more tightly controlled and constrained (LTE/Wimax etc notwithstanding). In some ways constant streaming from large number of users will be a nightmare for mobile operators. Which brings me back to the user experience I touched upon in the beginning of the post. One of the things that made iTunes/iPod so successful was the user experience. It just worked as opposed to any number of pre-existing services and devices. It’s my contention that streaming will have a place in this new world but that I am not as bullish on it as Fred is because of the above issues. So if not streaming then what? Well, I believe trickling content to a hard drive will become a major delivery mechanism for content. It delivers a better user experience and the network economics make a lot more sense. In some ways that is already the model that iTunes uses but I think we will see it used in innovative ways (eg AppleTV).Now for the crystal ball gazing about Topspin media which Fred also talks about in his post. I am guessing that Topspin will try to connect artists more directly with buying public and thus bypassing the labels. This will have to rely on the internet to a large extent and will finally address the distribution issue in today’s music business model. It needs to happen and it’s way overdue. Peter and I both had a hand in democratizing music production and I am guessing that both Ian and Peter are eager to knock down this last barrier for artists. It will be cool and will have a bigger impact than streaming because every article about music on the internet will not be filled with a bunch of caveats about the labels and what they think. The labels will not be invited to the party and new business models will flourish. And that may be a bigger deal than MySpace’s music service because that service will be about lock-in just like every other music service on the net today.
Lost in the hubbub about DEMO vs TechCrunch50 is another news item that is getting some press today but not nearly enough by my reckoning. Basically the study asserts that web influencers don’t really mean that much in the grand scheme of things. People instead get their recommendations from people they trust, namely their friends. And this makes perfect sense to me. Not to say that getting covered my Mike Arrington has no value for a startup but what is that value exactly? Companies should be very deliberate in their thinking when they try to get fame/fortune from the DEMO/TechCrunch50 crowd because it may not translate into the business value they thought it would. Jeremy has some good tactical advice here but I don’t think he addresses the relevance of these conferences head-on.