Match.com | David Chan

The Music Industry Re-invented as The Industry of Music

Somewhere between then and now the music industry almost died. Did it happen because of the digital revolution or because the revolution passed up the music industry? The fundamental dynamics by which consumers discover, digest and distribute content have been irreversibly changed.

Technology makes for a fickle bedmate. On the one hand, if you understand how to stoke the fire, technology can reap millions for the astute business. On the other hand, if you “diss’” technology, it can turn on you like a scorned lover.

Every industry from travel, music, movies, newspaper publishing, and, heck, even software itself is being pummeled by the ferocity of the online world. This new world order has leveled the playing field for global companies of ONE versus oversized, over budgeted multi-nationals of MANY. Simply put, one smart entrepreneur who knows how to leverage the right technologies can decimate an industry.

Witness the story of Marcus Frind, CEO of PlentyOfFish.com. In the last 10 years online dating has evolved into a billion dollar industry, dominated by companies like e-Harmony, Match.com and Chemistry.com. These companies make millions of dollars annually, but they have huge staff overhead and spend millions of dollars in advertising to acquire new customers.

Along comes Marcus Frind (cover of Jan 2009 Inc. Magazine). He decides that his dating service should be free … nada … zero. The result? 1.6 Billion … yes Billion … website visitors every month … $10 Million in annual revenues … 50% margins … 3 employees. What does he sell? $180,000 a week in advertising sales. Why do people pay him for this privilege? The demographics and the traffic are an advertiser’s dream come true.

Throughout the years, the music industry, like many others, has struggled to keep a tight grip on its intellectual property … and, rightly so. Singers, songwriters, and musicians all have the right to be paid for the work that they’ve lovingly produced.

The problem? Technology has leveled the playing field. Now a musician who wants to get his or her music “heard” can just plug in a mike, flip on an electronic keyboard, switch the dial to record and upload to YouTube or Vimeo … Voila, instant “channel”. In this era of digital music uploads and downloads, the world is literally ones oyster.

Instead of imposing artificial constraints, such as digital rights management (DRM), inflated prices or limited availability, the music industry should re-invent itself as the Industry of Music. The magic switch is to think of music as just one component of a broader merchandising platform. For example, sell a 99 cent (or less) song, follow it up with a $9.95 e-book, then a $4.95 fan base newsletter, a $30 / month coaching service, and so on.

The key is to grow ones subscriber / fan base. Then build a relationship with the base by continually “touching” them with quality content. Once trust has been established with this community, complementary products and services can be introduced and sold. The mantra? Sell plenty of fish to selected, qualified markets, rather than trying to sell the same fish to every market.

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The $10 Million Business Development Experiment

I recently read with great interest the cover story in January’s issue of Inc. magazine. The story is about a young man named Markus Frind out of Vancouver, British Columbia. The story describes how he was able to slay Goliath on the Internet in one of the largest categories of online services: Internet dating. And, he did so by charging zero money, nothing, not a cent.

Markus had formidable competition from the major players: Match.com, eHarmony and Chemistry.com. Not only were they already generating revenue, they had an “army” of employees … in some cases as many as 100 people.

What was so unique about Mr. Frind’s business development model? And, why was he able to get on the front cover of Inc. magazine? The whole online business model has changed radically from the days of big enterprise software companies. And, even from the more recent phenomenon of “Software As A Service” or SaaS.

In the enterprise software days, the model was to charge hefty software license fees, plus training, plus support, plus name your fee. By the time one was done with all of these fees, you’re now into the millions, if not hundreds of thousands of dollars. Then the SaaS model evolved. No more need for expensive software licenses, just pay us a monthly fee and all your troubles go away.

The new business development model has really come full circle to Gillette. Give away the razor to sell the blades … or HP for that matter … give away the printer to get the ink sales. Markus couldn’t figure out why people needed to pay money for a dating service. Why not give the service away for free? And, in so doing, drive significant traffic to his website.

And so he did. His site is so successful that he generates $180,000 a week in advertising sales or $10 million dollars a year. Why are companies so eager to advertise with Mr. Frind? One point six billion visitors every month come to his site every month … yes 1.6 Billion visitors … every month.

The new business development model that has evolved here is the strategic decision to give away a service in return for acquiring a loyal subscriber base. Not just any subscriber base, but a HUGE base that covers every demographic: age, sex, religion, etc.

This database is an advertisers’ dream! Every possible way to slice data is available for the advertiser to play with and tweak. So, Mr. Frind’s business development efforts really revolve around which advertisers to allow into his network.

Oh and by the way, did I mention how many employees he has? Three! Yes, 3. His site is so simple to navigate, no fancy graphics or flash animation. In fact, it reminds of a cross between Craigslist and Google. But, it works! And, it doesn’t take an army of people to manage. So, guess what? The other beautiful thing about his business model is that his net profit is 50%! What an enviable position to be in.

The new way of business, then, is how to drive a huge subscriber list. Once you get that list, determine the makeup of that list, their demographics, what sells, how to sell, test and tweak. Simply put, you don’t need huge venture capital anymore, nor do you need to develop complex software either.

If this model doesn’t excite you, I’ve got a bridge to sell you.