The more I think about it, the more I see the music start-ups space as a dog that won’t ever bark..err…sing. The MySpace-iLike deal — and the price that iLike got — is a perfect example of what will continue to shape all of the online and mobile music startups. As I see it, there are endemic structural and cultural reasons for it. The first part, something that has borne out over the last few years, is obvious: that margins in music downloads are horrible for anyone without iTunes scale (and even that’s not growing rapidly), and that music labels are the choke point for most of the startups in the download space. Then, the other part about ad-supported music startups that we all instinctively know: too little ad money sloshing around for too many startups and the economics of ad rev share don’t work out well. Plus, there are too many interested parties trying to leech off money at every stage of the value chain for this to ever scale.
Then, the platform dependence problem: as the iLike price shows, any startup that wants to achieve scale will be at the mercy of platforms like MySpace, Facebook or any other social media service that it piggybacks on.
But my contention is that once all music becomes digital, whether through downloads, on-demand or streaming, then there are only so many ways in which startups can differentiate themselves.
There are only so many ways you can enhance an always-on, playable-anywhere experience. One could argue that music discovery and recommendation still has a lot going for it as a sector, but it is completely overblown, especially when that has to compete with all the other information/media/services that overload users with push media. I think user communities will coalesce around artists, and not central services, which also weakens the argument for discovery/recommendation/community startups.
Besides, users are not loyal, that we have seen time and again: first it was Last.fm, then iLike, then Imeem, then Pandora, then Slacker, then Spotify, and it goes on and on. For me as a user, it doesn’t matter if I hear a song on one or any other of the services. Last night I discovered Flybymusic.com, and now I am on to that. If I have fun discovering new artists, I have fun discovering new ways to discover new artists and songs as well. And that is what consumer behavior is going to be: if you think music and artist discovery is the holy grail for differentiation, then be ready for new-music-service discovery as a fact of life as well.
P.S.: As a slight aside, my favorite music discovery service is, surprise surprise, YouTube (but that’s another post).