Why The Music Industry Is A Model For Every Business

By Robert Safian February 26, 2017

This is the sixth essay in our series of 10 Lessons From 10 Years Of The World’s Most Innovative Companies.

When I first started listening to music, it was on vinyl records. Then we used cassette tapes—source of the first mix tapes—and, yes, we would copy each others’ albums without paying any royalties. Next came CDs, followed by digital downloads. And now, of course, we’re all streaming.

It seems like a natural progression, in hindsight. But it wasn’t. Each format shift was a battle, and no one knew how it would turn out. What was worth investing in, and what could you wait out? (My in-laws still have an 8-track player. Anyone want it?)

But the biggest change in the music business, by far, has been the most recent one. That’s because streaming required a radical alteration in ingrained behavior. In 2008, Fast Company highlighted Real Networks as one of our World’s Most Innovative Companies honorees; its Rhapsody business was an early proponent of music-as-a-service. Today, this sort of model is widespread—not only in music but in many areas, including software—but a decade ago most of us weren’t close to accepting it. We owned the music we loved, thank you very much. We could share it with whomever we wanted, pass it down to the next generation even. It was ours. And along comes an outfit trying to convince us that a monthly fee made more sense? Please. Then we’d be shackled to them.

What Rhapsody and its ilk did (most emphatically in the form of Spotify, which first appeared on our Most Innovative Companies list in 2010, before it was available in the United States) is not only turn that logic on its head but reconstitute our emotional relationship with music. Today, there are more than 60 million people who pay for music as a streaming service, and the number continues to climb. We have been enticed by ease of use, and access to an almost limitless supply of tunes.

Engineering this habit shift was never a certainty. Which is worth reminding ourselves, because many of today’s most exciting new businesses are predicated on a similar sort of behavioral change. Our evolution to a cashless economy, for instance, faces cultural and emotional hurdles that are at least as difficult as any technological or regulatory ones. The ecosystem in place from Square and Stripe, Venmo and AppleTouch ID, is increasingly robust—who needs cash to buy a Starbucks Frappuccino?—yet we still have paper money and even coins in our pockets.

Understanding the human motivations behind a fixed behavior is every bit as important as identifying the potential of new habits. Only by designing an experience that solves both challenges will innovators have a chance of altering our reflexive responses.

Think about Airbnb. Its entire business is based on a far-out notion: that we’d prefer to sleep in a stranger’s house than in a predicable hotel-chain room. That word, “predictable,” is both Airbnb’s obstacle and its opportunity. The concept of the modern hotel chain grew in the middle of the last century as a response to dodgy “roadside” inns that until then were the norm for travelers outside the city. Holiday Inn recognized that the prospect of a Bates Motel could be countered by a more dependable, safe, clean alternative. (Plus: You could bring the kids along for free!) The consistency of staying at such a hotel was the appeal—as it remains today, for many business and leisure travelers.

Airbnb recognized, though, that a new generation—more adventurous, interested in personal interaction and community—was bored with the established options. Taking on decades of standardized experience, Airbnb deployed modern technology and inviting user-experience techniques. And the extra kick: Airbnb’s sharing-economy attributes offered both economic benefits and a sustainability narrative that provided an emotional counterpoint to the more anodyne hotel industry. And the business took off.

Airbnb has tapped into an unmet need (and copycats have emerged), but its long-term success isn’t assured yet, particularly at the level that the company’s multi-billion-dollar valuation implies. To conquer the full market, it will have to meet the same need that Holiday Inn did: predictability. Our cultural habits have begun to shift, just as they have with music and cashless payments, but tough obstacles still linger. For all of our technological advances, the human element remains the ultimate challenge.

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Why The Music Industry Is A Model For Every Business

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