They want your balls!

First there was Shawn Fanning and his MP3-sharing service, Napster, a name inspired by his nappy hairstyle. At its peak Napster had 25 million users and 80 million songs available for download from a system that never once crashed. It was 1999 and suddenly you did not need to be a geek to download and share music online.

Napster helped boost the sales of alternative rock, experimental rock or independent bands such as Radiohead, Dispatch and Public Enemy. But recording artists like Metallica and Dr. Dre and nearly all of the record companies cried foul and filed lawsuits against it and managed to successfully shut down Napster in July 2001.

Then came Steve Jobs‘ iPod on October 23, 2001 that took the “unbelievably awful” MP3 players of the time and made them cool, trendy and awfully user-friendly. The iPod forever “altered the landscape for portable audio players”. As of April 2010 over 260,000,000 iPods have been sold worldwide.

Steve Jobs also set out to save the floundering recording industry with his iTunes Store. He signed deals with major record companies getting them to pay him license fees, but allowed them to earn pennies on the dollar for their songs.  While a few billion songs were purchased and digitally downloaded this year,  there were trillion more songs downloaded through innumerable illegal websites.

Enter Spotify, the free service that hopes to finish what Napster started …

But first let me classify the digital music business in four ways: download-to-own music as available through iTunes and Amazon.com; free streaming audio that works like online radio stations – Pandora being a fine example; sites supported by advertising such as MySpace Music; and subscription-based services like Rhapsody.

Spotify is a hybrid that offers both a free service supported by advertising and an ad-free service where consumers pay $15 per month. In addition, it offers a mobile version that lets you access streaming songs through an iPhone or Android app. If you don’t pay the $15 monthly fee, your songs stay locked on the computer running Spotify.

Simply put, Spotify works on the simple principle of why illegal download still exists: People do not want to spend $10,000 to download 10,000 songs. But they would happily spend $15 per month for anywhere anytime access to 10 million songs that they merely borrow when they want to hear them.

After grabbing 7 million users in Europe, Spotify’s CEO Daniel Ek and its newest stakeholder Sean Parker, say they are ready to enter the US market early in 2011.

And they say, “We’ve got you by the balls …”

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