In 2005, Steve Chen, co-founder of YouTube, famously said about his website’s long term future: “There’s just not that many videos I want to watch.” A year later, Chen convinced his partners, Chad Hurley and Jawed Karim, to sell their company to Google for just $1.65 billion — an incredible bargain for Google that has had no parallel in tech industry acquisitions in decades.
This goes on to show that even visionaries, like Chen, are unable to appreciate the true potential of their creations just two years on and end up making catastrophic decisions for themselves and investors. Today, YouTube has more than a billion users, with 300 hours of video being uploaded to the site, every minute. Mobile revenue on YouTube is up over 100 per cent year over year. With Google breaking up its companies and dropping them into the Alphabet conglomerate, it will be interesting to see YouTube’s financial numbers when they are released next quarter.
Dramatic changes
The once staid audio music industry is another case in point. It has been forced to undergo dramatic change due to business models that are changing at rapid speed, brought about by developments in communications, networking and computing technology.
For nearly 80 years, the record labels stuck to a formula that brought it, artistes and retailers, fat profits. Labels would develop budding artistes and risk investing in producing music records, occasionally hitting it big with stars like Michael Jackson, Celine Dion and Britney Spears. The medium of distribution did go through some technological change — Long Play (LP) Records yielded to audio cassettes and then Compact Discs. But the business model was the same: bundle disparate songs into a group and sell the entire collection through glossy retail stores in malls, even if customers wanted to listen to just a couple of tracks in the collection.
The first major technological challenge that the industry confronted was in the late 1990s. Consumers, armed with relatively powerful PCs, bought or downloaded software which ripped a CD’s bundle into individual songs. Compression technology allowed individuals to zip a single music track into MP3 format — still the most popular format for music worldwide. And with Napster — and later, other Peer to Peer websites such as BitTorrent, Gnutella and Kazaa — customers freely shared their valuable songs with strangers around the globe, cutting the music industry out completely.
Scared for its very existence, the industry fought back vigorously to protect its IP and ended up using governments to get many of these websites to shut down. But piracy remained an issue — until Steve Jobs approached the industry with an idea that today sounds so passé — “Why not unbundle your songs and sell them on the online iTunes store for 99 cents a song?” The industry scoffed at his vision and fought him tooth and nail. But Jobs found enough cracks among a few independent labels, that saw the potential of a la carte selling. Before long, the industry grudgingly began to sell every song online, knowing that it could face the threat of irrelevance otherwise.
Streaming — the current king
It is hard to believe that as recently as 2006, you could walk into a record store to buy your favourite vinyl or CD. But a massive consumer shift to online buying of discs and music forced once-mighty brick and mortar companies such as Tower Records, to declare bankruptcy. Today, the question of ownership of song titles matters little to consumers. All they care about is being able to listen to their favourite songs on demand and at will, on whatever device they have readily available to them.
So, streaming is currently the king. Pandora, Apple Music and even Google are among the companies quickly signing subscribers up. Spotify, the world’s largest player, boasts of more than 75 million active users, with 20 million paid subscribers. Subscriptions range from $4.99 a month for students on American campuses (students must have an email address from the .edu domain) to $9.99 a month for everyone else with unlimited streaming of music, podcasts and video.
In India, where internet speeds are still relatively slow, big streaming companies such as Saavn and Gaana offer subscribers a chance to download music for offline use. Gaana’s subscription for commercial free streaming is an amazing bargain — ₹199 a year for unlimited streaming, which is about $3 a year!
Taking over the world
In the US last month, I saw for real how rapid this innovation has been through every link in the value chain. I got into a friend’s car, who tapped a button on his 4G phone to activate Saavn and his favourite playlist — Bollywood songs of the 1990s. As soon as the car started, the car’s Bluetooth system picked up a song streaming from Saavn and beamed it instantly to the vehicle’s Bose audio surround system. The songs kept playing, one after another, with very few commercial interruptions. An incoming phone call automatically paused the track, and after the call ended, Saavn resumed playing the song from where it had paused. The music world was literally at my friend’s fingertips — and a favourite song was just a search box away, not hiding in a CD jacket in the car’s glove compartment. And best of all? The music was free.
I began to wonder how long the business models of Indian FM Radio stations — which rely heavily on annoyingly long commercial interruptions to play a few songs an hour — could survive this kind of technology onslaught. Because if all of this isn’t innovation at warp speed, I don’t know what is.
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