These two industries are tanking. The facts speak for themselves. Starting a company has never been cheaper, and record sales have never been lower. You could wrap up a MySpace clone in a weekend, or find the whole Beatles discography on Limewire. At what point do these industries need to step aside and decide whether the outdated paradigms that made them their wealth, need to change? To continue to provide yourself, or your industry, value, you need to stay relevant and innovative. That may mean, in the case of the music industry, more so than the investment industry, that you have to completely revolutionize your model. Complaining never got anyone anywhere and pointing fingers didn’t either.
What’s interesting to note is that while there has never been a cheaper time to start a company (web based at least), there hasn’t been more venture capital flowing into companies since 2000. Ironically, this may be a result of the ease of entry, and to set themselves apart, companies may feel it necessary to secure an influx of cash, not only to distinguish themselves but also for credibility. Saying you got funded by Sequoia will elevate you to the top tier in the valley. But doing so also involves taking on a huge obligation. And I say obligation and not responsibility because you’re suddenly required to move towards a much larger liquidity event than you may have otherwise planned. You lose control of your company, and may not be able to scale as quickly as the investors would like. You inevitebly change direction and potentially lose focus. Taking on capital may prove to be counter productive in and of itself. Granted, there are companies that truly do need the working capital to be sustainable and in such cases, you will need an influx. But I’d strive to say the majority don’t, and staying small and agile is an enormous competitive advantage you can have.
So how do VC’s continue to provide companies value? If you don’t need their cash, why would you need them at all? Well there are a few things they can provide. For one, the connections a reputable firm has is invaluable. Providing you with human resources is another asset the VC’s can provide. Ultimately, it’s direction, advice and guidance that they can provide young companies. Intangible resources that can prove to be invaluable. There are already companies that have seen this trend. Y Combinator provides companies an environment where they can passionately pursue their startup, while guiding them and helping them scale. (Disclaimer: I have submitted an application to YC for an investment opportunity). It’s only a matter of time before young companies realize they really don’t need much capital at all, and VC’s will have to adapt to stay in business.
Similarly, the record labels provide no value whatsoever to established artists. If you’re an established artist, you can, for almost no cost at all, sell your music to your fans. The value of distribution has gone out the window with the internet. Radiohead has already proved this by literally giving away their music and still make money. But where labels still provide value to artists is in marketing and promotion. Small upcoming bands, whether they may like what I say or not, want to get onto MTV. MTV sells records, and promotes bands, it’s that simple. Whether it may be the bane of the independent music culture, it’s inevitable to promote yourself on a large scale. But record labels don’t see this. They think that by suing their customers and complaining about downloads, they’re going to get somewhere. No. Let established artists take the risk of how to distribute music. You clearly cannot come up with an innovative way of doing so, so lose that liability. But make money where you can. Promote young artists and help them grow. Figure out a way to make money from that. I’m waiting for the first person to develop a music store that allows any artist to do what Radiohead has done on a large scale. Now that would be cool.
4 Comments
October 13, 2007 at 8:51 am
Great post, Ashok.
I think that the result is that people are being forced to become more creative and inventive in both industries. Technology is more accessible — so getting music, movies, books, etc. is a matter of an instant transaction now. This is truly the era of marketing more than ever. This flood of social networks and web 2.0 interactivity is forcing people to do two things: 1) find whats good and 2) find what their friends are into. Ultimately, what becomes popular is the stuff that markets itself with good design, usability, feature base and resource richness — or what everyone else gets to first.
I think with music, the approach is similar. People buy what they hear on the radio, what their friends listen to, what plays on MTV, etc. However, people also invest in the bands that they can respect and the musicians that come out with quality.
Ultimately, in establishing a brand, you want to establish quality and respect and it will market itself. That’s what I feel Steve Jobs has done with Apple. There is a reason why they invest so much into design, usability and service. Brand loyalty with Apple is incredible. Brand loyalty with Google is great because of the same. I don’t care how much money you get from venture capital: loyalty comes with building the best new thing out there, making it look the best and making sure it works the best and will continue to work the best.
October 13, 2007 at 7:27 pm
Thanks Aniq and great post as well.
Yes you’re definitely right about traditionally anti-social user experiences are quickly being changed to socially driven experiences. And like you’ve said, it’s technology and new innovative mediums (such as a social network) that allows for this.
I have a very strong faith in product development and execution. Creating a good product is the best marketing you can do. Especially in this day and age, you really don’t need to spend a dime in marketing if you’ve created a good product.
Where I do disagree with you is in equating good products to brand loyalty. Or rather in equating a successful product to brand loyalty. I think brand loyalty is almost by definition “loyal to the ‘brand’”, irrespective of product quality. The reason I bring this up is because you brought up Apple. Now, I actually don’t know why Microsoft has 90% of the market, because personally I find Apple to be much more user friendly. But the fact remains that they do. And arguably, Apple has the greatest brand loyalty of any technology company, Google possibly being a close second. So do you see the inconsistency? Also, if you have any insight onto why you think Microsoft owns the market with a poor product, I’d like to hear it.
October 17, 2007 at 8:25 pm
[...] noted by Aniq Rahman, in my previous post, building a good product is the greatest form of marketing. Build it and they will come. This is [...]
January 17, 2008 at 5:10 pm
[...] noted by Aniq Rahman, in my previous post, building a good product is the greatest form of marketing. Build it and they will come. This is [...]