WIRED:I'VE BEEN reading two fascinating reports this week: one, on a market that doesn't know how to make money online, and another, on a successful company that does.
It won’t come as much surprise that the failing market is the music industry, which all the headlines declare is losing out because it can’t compete with free.
The successful company has almost nothing in common with that industry – except that it competes with free products, including its own gratis version.
This company, YouSendIt.com, solves a simple but pervasive problem: what do you do when you need to send a very large attachment with an e-mail (perhaps a 1GB movie to a bunch of friends)?
If you try sending it directly from your home machine, you’ll spend hours uploading multiple copies of the movie, with no guarantee that the mailboxes at the other end will be able to receive it. Or worse, some of your recipients’ e-mails will get clogged up with gigabytes of downloading they don’t want or need.
YouSendIt’s solution is simple: you send the e-mail from its webpage, and each recipient receives a weblink from which they can download the file.
It’s not rocket science, and there are dozens of sites that provide the same service. Most are free to use, paying for their costs with banner advertisements.
YouSendIt does the same, but offers paid subscriptions for extra services. There are also one-off charges for particularly large files, or those with many recipients.
If you asked me a decade ago whether I thought a company like YouSendIt could make paid subscriptions a commercial concern, I would have been sceptical. With dozens of undifferentiated competitors, the majority of which offer a free service, how could YouSendIt afford to charge a subscription?
But Ranjith Kumaran, YouSendIt’s chief technology officer, explains the obvious: even when you’re competing with free, “some” people will pay for the relationship, extra convenience and reliability of a paid service.
The hard part is working out the price. Too high, and no one will switch from free. Too low, and you risk being unable to fund the services that differentiate you from the “free world”.
Kumaran also makes it clear that it is hard to increase sales, hard to innovate constantly to compete with free services, and hard to win and keep customers.
The other report I read was MusicTank’s Let’s Sell Recorded Music!. MusicTank is a University of Westminster project where researchers, internet service providers (ISPs) and the music industry try to work out how music can survive the internet.
It’s a great read on where that world finds itself right now – caught between lawsuits, the threat of government regulation, and a failing business model.
There’s plenty of agonising over how record labels are going to survive when they are competing against the free offerings of music infringers.
But reading Kumaran’s blog entry in parallel with MusicTank’s thoughtful study, I can’t help feeling that the clue is in the title of the latter. Sure, sales and profits may be dropping in the music world. But just because you’re competing with free doesn’t mean a commercial market vanishes.
We’re a decade into the so- called devastation of filesharing and I have yet to see any evidence of a collapse in the supply of new music. What I have seen is a collapse in the confidence of the music industry, which 10 years ago blustered into the world of the internet assuming it could use the business methods of the past, and is still reeling from the shock of discovering it has to compete, not only with free, but with the enthusiasm of its own fans, and a world of musical entertainment uncontained by its licences and contracts.
Sometimes I feel like the music labels are doomed, and deservedly so. Their actions seem so irrational, so at odds with the reality of a digital network, that it strains belief to imagine how they might survive the next decade.
Their question appears to be: how do we compete with free, except by dragging everyone into the courts, demanding vigilante justice against those we suspect of not paying us, and dismantling one of the greatest technical innovations of the last 50 years?
The answer would appear to be: you don’t. You should be stopped, or left to bankrupt yourselves.
But the real answer, as taught by Kumaran and the title of the MusicTank study, is: just try. Stop attempting to prohibit your competition, or imagine the billions you could make if free alternatives did not exist. Do what businesses always do best: concentrate on the bottom line, and see what happens.
The chances are that, even in the worst economic environment, there is money to be made.
