Insane Rambling on Business Models.

[SirNitram]

Tomorrow's business model.

As the world changes, so does business. It's one of those things. But it's not for no reason; businesses typically are slow to change, especially big ones. Why? Simple matter of inertia. While the guys on the cutting edge in one departent may realize how to go for the next Big Thing, convincing everyone needed to make it go is different. But why am I going on about this?

Here's where we compare two kinds of business model. One of them, is that of the Recording Industry. They've been drawing alot of attention; they want to change laws to protect their content, and they are throwing around big bucks to make the things you buy only able to operate on your terms. The other, is of a company called Google. Not so long ago, Google was a simple, no-frills webpage with a little spot for you to type in what you were searching for. Now, it's big business. Of course, it's easy to miss this; they don't charge you for using their search, or a number of their other services.

So what's the big deal about the record business? We hear alot about how they're going after 'theives' and 'pirates'. Just to clarify in case anyone's confused: No galleons have pulled up to the RIAA headquarters and no men with peg legs made off with N'Sync albums. The crimes are people grabbing a copy of the song for free, via the Internet. If you listen to them, this is a new, terrifying thing.. But it's really just the latest refinement of many years of this stuff.

Home-taping is killing music. Betamax will destroy profitability. I'm sure, somewhere, someone argued the printing press would destroy the written word. None of these dire predictions came to pass, and it probably won't do so for the music industry. The Recording Industry Association of America's earnings and costs are public; they've never lost the billions they claim to have. So what are they so afraid of? The equivalent of a new era of copying your buddies tape?

The problem is that while the method for getting new music on the sly has grown, changed, and improved by leaps and bounds, the RIAA is selling to you the same way they have before. The shift between LP, cassette, and CD really wasn't that big from their perspective. They can cram a few more songs on each time, and the quality is a little better. But mostly, they cram between a dozen and two dozen songs on there, they market it to you, you buy, they divvy up the cash.

This worked fine for a while. There was a big snit when it was discovered that tapes could be recorded from other tapes; suddenly, the ghost of a million unauthorized copies of songs snapped into existance. But despite the fears, the end of music never came. A few years passed, CDs came out, and we moved on. CDs, for years, were used on the fledgling internet to transmit songs.. But without the broadband service, convenient searching technology, and compact files, it was never a big thing. So no one cared.

The big bomb was probably Napster. File-sharing(As it's called) existed before it, and continues to exist after it. But Napster was big, loud, and was a juicy target for the RIAA. They slammed it around with legal threats and drove it down for several years. Now they're trying to rebuild their popularity as a pay service. In a way, that's good; a legal source for digital music on demand is not only a terrified source for music for people who are tired of paying far too much for CDs that have only one song they like, but it's shown that yes, you can turn a profit from this.

Is it perfect? Not yet. In a wide effort to 'protect their products', the downloaded songs come with stuff falling under the broad heading of 'DRM'. That means 'Digital Rights Management', and it's basically a catch-all for software and hardware that limits what you can do with stuff you've purchased.

Most people will blink a bit now. Limits what you can do? But I've bought it; it's mine now. I make that choice. I didn't shell out money for something that only half works! And I'd agree with you. Completely. But DRM isn't new(Perhaps the most spectacular failure of DRM was a Sony scheme for CDs.. That was completely ineffective if your computer didn't run Windows, or if you held down the 'Shift' key when inserting the disc into the computer), and it's getting everywhere. In 2006, we'll all be getting introduced to a 300 million dollar(American) ad campaign around what's collectively called 'East Fork'.

'East Fork' almost definately won't be called that, but we'll have time to get to know the name. What it is, is a media server; basically, a computer designed to keep track of your home entertainment. Microsoft's Media Centre is an integral part of all this, and you may have noticed that being shown off. Alright, we say. All well and good. Some cool things can be done here; amatuer film creators can post their films on the web, you download it, you play it on your TV.

The problem comes with DRM, of course. The only group able to be run on this technology at present(And they sell next year), is Microsoft's DRM, and it's designed to add this to anything it touches. It will limit your ability to copy, transfer, and use any media it converts. What's worst of all this is, of course, that you're expected to shell out for this. The cost of creating, testing, manufacturing, and updating this technology is given to the consumer, and it is the consumer who loses out from it.

If people knew this, it would probably not matter if they tossed a full billion at the ad campaign. But people don't. And thus alot of people are likely to buy a product whose main purpose for being is to restrict them. It sounds insane. It definately is, from my perspective. I don't like piracy; as someone who has friends who have dabbled in music, losing profit is bad. But the answer isn't and should never be to punish everyone.

There's something called Fair Use. It's basically your legally guaranteed right to do certain things with other people's copyrights. It says I can rip out a few pages from a textbook via scanner, post them, and discuss what it says. It says Wierd Al can take the tune someone else makes, strip out the vocals, and record a witty set of silliness, and proceed to make a profit. But with the current trend, while you could legally download a song from ITunes, strip out the vocals, record your own(You could sing about how bad the traffic is, for example), and proceed to sell it for profit, but you should be stopped from making copies for all your MP3 players and CD players.

We spoke of Napster earlier, and I return to it briefly to end this bit on the music industry. A recent study by Entertainment Media Research showed that legal music download services like Napster and ITunes now make up 35% how music listeners are getting their tunes, and increasing. Illegal downloads are at 40%, and slipping. It becomes obvious, with this, that the answer was never to throw around attack-lawyers. It was never to limit what you can do with what you've bought. It's always been to offer a better product for a reasonable price.

Now we finally move on to the other example, Google. Google's odd, from a business-model sense. Where does the profit come from, you ask, as you type in 'Tivo' to try and find the best prices for one. Then, on the right side of the screen, up pops some listings for cheap Tivos. And perhaps the realization dawns. What does Google do? Before corporate logos or stocks ever came into mind, Google was about finding the page you wanted quickly, easily, and accurately.

Finding the product you want, for a good price, quickly. It should be obvious, but for a long while, business models were based on the opposite: You get shown what people decide to advertise. Now, Google is building a business online using those little ad bars: Advertisers pay Google to show their ads to people who are searching for related things. Google shows it on their web-searches, and also on sites which sign an agreement to have one of these bars on their site. For that site, Google serves up ads that seem relevent to the page's content. Say, if you plop one on your page all about swords throughout history, you might get a link to 'knightsedge.com', a company who makes replica swords and ships them acorss the US.

That ads aren't huge, flashy, ugly things that make noises or suck up the connection speed to load, either. They're little, discreet text ads. Those tired of online ads that try to burn out their eyes from being so bright can find something elegent in the simplicity.

This is a major source of revenue, and it makes so much sense it's shocking we never thought of it before. But that sort of common-sense application of technology is becoming Google's standby. They've developed a 'desktop search' application. You can download it, and it can find stuff on your computer quickly. Microsoft is quickly pulling together to release their version. Hard to tell which will be better, but they're still making new stuff.

The next Big Thing is called the Search Appliance. Think a widget that you plug in, scans through what it finds in your network, and makes sure you can find everything very quickly. Again, it makes alot of sense; alot of companies have huge stacks of documents in their systems, and need a way to sensibly search them. With the release of both a big, costly version for big businesses and a cheap, easy to set up smaller version, they're finding a sensible service and not playing by the normal rules.

Will Google's model work endlessly? Maybe. Doubtful; something better always comes along. But they've been changing and twisting. The Recording Industry, on the other hand, is using it's money to try and stop change and keep things to their tune. Adam Smith, the guy who came up with Capitalism, talked about the importance of competition to keep businesses from becoming wasteful and abusive. Competition from some of the biggest and most successful companies of all time, like Microsoft, is keeping Google lean and forcing them to offer good services reasonably. But the record industry has almost no legitimate competition, and are now entering a stage where they try to make their customers pay to limit themselves even further. That may or may not be 'abusive'. It is most definately wasteful.

******

Comments, threats of violence, flames, fire away...

[Lord of the Abyss]

For another bit of good commentary on this sort of thing, check out the Baen free library. So far, the authors involved are doing quite well.

For that matter, David Weber and some other Baen authors have been including CDs with their hardbounds that contain electronic versions of many of the author's books. So far neither Baen nor the author's finances have collapsed.

Baen ( and these authors ) have figured out that the rules have changed; the recording industry doesn't want to hear it. Judging from history, if they refuse to change they'll go the way of the buggy whip. Good riddance.

[Ninja of the North]

Personally, I believe that the "downfall" of the music industy has been the death of the single. Sure albums are good, but only if they are done good. Most people would buy the new Nine Inch Nails Willie Nelson, or Jay-Z ablum if they knew that the CD they were buying was a work of art in itself. However, people are not gonna spend $15 just so they can have a copy of "Milkshake" and 11 other crappy songs. There are still groups who are one-hit-wonders, but record companies expect them to make a whole album that people will want to buy, which really isn't possible.

Google, however, seems to be on the leading edge of everything. However, that, I predict will be their downfall. The dudes at google have this problem with making everything to the best of their ability. However, sooner or later, people will find a way to do exactly what they do, only faster, cheaper and with less overall quality, but still usable. If, however, through some stroke of genious they manage to do this, then they will be on top of the internet for quite a long time.

[Kuja]

Did you write that yourself, Nitram? That was fantastic.

[Xon]

I wouldnt blame Microsoft for DRM in thier products, the Big Content producers refuse to deal with the digital world if there isnt some type of DRM involved. An Big Content is Big Business.

[SirNitram]

Did you write that yourself, Nitram? That was fantastic.

Straight-up asspull. One sitting. I could do more on the subjects of...

THE FUTURE!!!!

But we'll see.

[Mr Bean]

Good read, quick note, Google has a second strength you left out.

They play all sides and all options, and do it all discretley. Witness Google Earth, agian no charge, agian calling it "Beta" even though from most companys it would be "Gold".

Taking it slow and testing the waters with freebees unlike its competitiors who jam their pages with every single widget thier invetors can think up.

[PainRack]

I agree with this, especially for music. Maybe movies are an exceptional case where they can argue that piracy has hurt movie ratings, although in the case of Asia where the trend is most prominent, it occured in a period where the film industry was already on a creative and finanicial decline with the exodus of funding and talent to Hollywood, retirement or death. However, music isn't something that you watch once, or twice only. You like to hear a good song over and over again. Maybe you like an entire album, but that's rare. Mostly, its just 4-6 tracks at most. Sure, there're hidden gems on a album, but even then, that's isn't worth the 20 bucks or so to purchase it without hearing it first.

Downloaded music acts as a "preview". Considering that music artistes don't really survive based on good music but rather on their popularity, there shouldn't be any restrictions on how to generate publicity for them, be it online or radio or anything.