Wednesday, April 19, 2017

Streaming Disrupting the Music Industry

Apple disrupted the music retail industry in 2002 when it began to sell digital music via iTunes. Allowing customers to easily pay for and download digital music and having a great success in iPod (and later iPhone and iPad) sales, Apple quickly gained market dominance in digital music sales. Apple contributed significantly to the dwindling purchases of albums from shelves in stores and continuous drop in CD-based revenues for record labels. In fact, in 2008, iTunes’ music sales exceeded the retail giant Walmart’s music sales in its physical stores and online store. Although the huge tech company’s established product seemed like it will have continued market dominance, the music industry was disrupted again with the introduction of Spotify in 2006.

As the article “Discovering New and Emerging Markets” discusses, Spotify was successful in forecasting markets for its disruptive technology. The online music subscription service was introduced to the market during the time when copyright owners for music began to actively remove their contents from illegal streaming and download sites. Spotify was able to identify an emerging market in the music retail industry at the right time; if it was launched a few years earlier, it may not have been so successful as illegal streaming and download sites allowed customers to easily get music for free. Spotify also utilized “plans for learning and discovery”, performing extensive customer data collection and analysis to gain important insights on how to shape their service and features around customer preference and behavior. The discovery-driven planning also extended to Spotify’s curated playlist feature that introduces lesser known artists to its customers, which many customers find attractive.

Spotify continued to grow, and its revenues exceeded those of Apple by 2015. Despite streaming being the disruptive technology shaping the music industry, Apple was late to adapt this technology. The article “Why Good Companies Fail to Thrive in Fast-Moving Industries,” which outlines five principles of disruptive technology, provides possible factors that could have played a role in Apple’s management decision. Principle #2 states, “Small markets don’t solve the growth needs of large companies.” Being one of the world’s largest tech companies and driving most of its revenue from iPhone sales, the music industry could have seemed less important and less profitable for Apple. Apple already had an established music download service, and “disruptive technologies is not a rational financial decision.” Principle #3 states, “Markets that don’t exist can’t be analyzed,” and such uncertainly could have discouraged Apple from quickly jumping into music streaming. The article “Discovering New and Emerging Markets” discusses that when some managers are faced with uncertainty about a disruptive technology, they “prefer to wait until others have defined the market.” This may have been the case for Apple, as it joined late into the game by launching its own music streaming service, Apple Music, in 2015, only after it was established that copyrighted music streaming can indeed be very successful and even more successful than Apple’s music download service.

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