Launching Tech Ventures: Death of the Customer

I wrote a thing for class that appears on the class blog: http://launchingtechventures.blogspot.com/2013/02/death-of-customer.html . My classmates have written a bunch of intelligent stuff there, too.

Here’s my post copied below:

Death of the “Customer”

petersel_josh_blog1

I’m really worried about this word.

Dictionary.com (above) seems to grasp what many tech founders conflate: the word “customer” can describe two very starkly different relationships. There’s a customer as someone you sell to, and a customer as someone you “deal with.” The site even highlights the critical differentiator for its vexed readers: Informal.

Perhaps, to be on the safe side, the word “customer” should be rejected out of hand in discussions of modern tech businesses—particularly those establishing multi-sided platforms, and most especially those in which one side of the platform is serviced completely for free.

For example: As an individual, I am with quite certainty NOT a “customer” of Facebook. I don’t give them money for anything. I don’t buy the gift cards, or the Farmville tokens, or click the ads, or anything. (I suppose, you might argue, that in this instance Dictionary.com’s “tough customer” moniker would actually be quite appropriate).

As far as Facebook is concerned, I am a user. In another lens, I might even be considered one small part of Facebook’s product, which it sells to its actual customers: advertisers, Zynga, data miners, and the like.

I think our discussion of the Aardvark case reached the right solution, but perhaps arrived there with entirely the wrong focal point. We agreed that Aardvark failed to achieve product-market fit, and talked about how despite the founding team’s best efforts in lean methodology, the resulting product never truly seemed to gel with its intended customer user demographic. Little energy seemed to be exhausted in resolving the product-market fit among the company’s actual customers: its advertisers. I don’t mean to stir a debate as to whether ads should have been implemented sooner or later. I mean to address the notion that it was never truly determined whether the product (the user base) and medium (Aardvark) being created would be desirable for potential purchasing clientele, and differentiated enough to be appealing in a market already saturated with a litany of advertising mediums.

Plastiq, through all its efforts to strike new business, seemed to have some better understanding of this notion. It sent sales reps across the country to try and strike deals with car companies. Not a single bite. There was a backup plan, luckily, and the company changed gears and eschewed the dealers as a customer base. Imagine if, on the other hand, Plastiq had focused exclusively on making a really nice, flashy, convenient, interface for individuals looking to buy new cars with their credit cards (these are the “customers,” right??), and only approaching the auto dealers after developing some fanbase. They’d be dead on arrival.

Let’s kill the word customer and avoid whatever confusion it seems to be causing. From now on, it’s “buyers” who spend money and “users” who don’t.

The Louis C.K. “C.K.-ase”

As a final project for my Strategic Marketing in Creative Industries course last semester, I wrote the first draft of a potential case on Louis C.K., a wildly popular comedian who’s currently employing some intrepid tactics regarding the sale of his recorded materials and of tickets to his live shows.

The actual case seems like it’s not going to get written for now—C.K. is somewhat notorious for being very particular about the projects he participates in, not to mention the fact that he’s probably impossibly busy these days. Still, the mock case was fun to write, and kind of enjoyable to read, so I thought I’d share it. Download a PDF copy at the link below.

The Louis C.K. “C.K.-ase”

Make Spotify Better

I guess alternatively stylized as Sp°tify

Per the Media Summit I checked out at the end of last semester, Spotify is the music listening service that’s going to save the industry and save the world. I definitely dig what they’re doing. Here’s how it could be even better:

Difficulty Level: Easy

I was a Spotify Free user for a while, then clicked an ad that said “Try 30 free days of Spotify Premium.” That was cool for a few months, but then recently I made the switch back to Spotify Free.

I don’t mind that all the ads came back. I do mind that a lot of the ads say “Try 30 free days of Spotify Premium,” only when I click them, I’m taken to a page that explains “Sorry, you’ve already used up your free 30 day trial.”

Why serve broken ads like this to users? Clearly there’s data on me somewhere that says “already used his premium trial.” It’ll also be tough to induce me to another run at Premium via a second 30-day trial (a tactic that Netflix seemed to employ heavily for its ex-users).

Difficulty Level: Medium

Tabbed browsing.

Really, with the ability to look up artists, switch between discographies and bios, flip between apps, and more, the Spotify desktop app is as much an Internet browser as it is a music media browser. If I’m in the middle of reading up on The Flaming Lips’ biography, and want to change tracks, why should I need to hit the back button a half dozen times to get back to what I was doing? Even the much-maligned Internet Explorer 6 has peripherals that allow for tabbed browsing. And according to Wikipedia, that was released in 2001.

Difficulty Level: Medium

Literally the only reason why I ever open iTunes anymore is to download Podcasts. Because for some dopey reason, as far as I can tell, that’s the only way to download anything from the ESPN audio library (you can stream it from their website otherwise).

This seems like it’d be an easy thing to add, but I get why introducing Podcasts has some kinks. I think there are some premium podcasts which you have to pay for, which wouldn’t really jive with the current Spotify setup. Perhaps more importantly, the podcast might last 30-60 minutes without affording an opportunity for commercial interruption…so maybe it’s something exclusively available to Spotify Premium users? Is it better to pretend that Podcasts don’t exist, or drive customers to get their fix from 3rd parties? Wouldn’t you rather have your users camped on your application for as long as possible?

Difficulty Level: Medium

Spotify touts that it’s a tremendously powerful engine for music discovery. True, no question. But given that this is a focus, it seems a bit strange that you can’t really search for a music genre through Spotify’s search bar. A query of “hip hop” results in a few tracks (“Hip-Hop Saved My Life” by Lupe Fiasco, “Hip Hop Hooray” by Naughty by Nature, etc.), then a few user-created playlists, then a few artists (in this case, I guess, “Hip Hop Beats” and “Top 40 Hip Hop Hits” are listed as artists) and finally a few albums (Classic Hip-Hop, R&B: From Doo-Wop to Hip-Hop, etc.)

I suppose you can kind of do the music genre discovery thing by proxy of an app. The Soundrop app, for example, has a bunch of user-curated radio stations based around different themes like Electronica, Dub Step, Hip Hop, Indie Rock. My guess is that a Spotify Genre result page would look somewhat similar to whatever the top ranking user-created playlist is—a bunch of songs by various artists in the genre, just default sorted by popularity instead of by one individual’s whim. Is there some chance that Spotify doesn’t have genre information coded in? That’d make this harder. But generally, I just don’t see why Spotify should have to or want to depend other parties for this functionality. (H/t Casey.)

Difficulty Level: Hard

An extra $10 a month out of pocket, standing on its own, feels like kind of a big deal.

But bundled in and obscured under some other significantly larger recurring payment?

One of the biggest value-adds of Spotify Premium is that it enables the full-featured mobile application. What if the $10 to Spotify Premium was just baked in to the $100-whatever you’re already paying to AT&T for your phone+data plan? Only 10% more to have access to every song in the Spotify library? Not as daunting.

In addition, you’ve got the fact that cell phones generally lock users in to 2-year contracts, and have notoriously abysmal customer service. Once AT&T is Spotify’s operator, I’d imagine user attrition rates depreciating precipitously.

*UPDATE* I just saw an ad suggesting that I can route the balance of my Spotify Premium subscription to my Sprint bill. Which is neat, and it’s close to what I’m envisioning, but not quite. I was thinking more along the lines of opting for a type of Spotify account the same way you’d opt for a bigger or smaller data plan, or number of anytime minutes, or whatever the options are these days. This would give Spotify more of a consumer-facing presence on the carrier’s store- and web-front, as well as (hopefully) serve to really lock users in long-term.

Difficulty Level: Extreme

Same idea, bigger game.

Spotify could obliterate the car radio. Like SiriusXM, but way better.

Ideally, you’ve got a unit that replaces the radio, has a steady 3G/LTE/whatever connection, and lets you play whatever you want, whenever you want. If that’s too much into the futuristic/unfeasible end of the spectrum, then maybe just a hard drive that can download all the songs you ever want while the car is in the garage and connected to your WiFi at home.

Paying an extra $10 on the $X00 a month for the car, and utterly perfecting the radio? Knockout.

Difficulty Level: Extreme

On a preliminary level, it seems like there’s a pretty strict upward limit to the amount of revenue Spotify can generate on a per user basis: $9.99/mo. No matter how much music I consume, that’s the price of the Premium account.

How might Spotify upsell (price segregate?) its most avid fans?

Perhaps there might be some premium apps in the app store which users pay extra for. For reference, Apple generally takes a 30% cut of all sales made through the iTunes store.

Perhaps there are other goods that Spotify can sell. A custom poster based on my listening history over the past 12 months? Could Spotify traffic users to buy concert tickets and take a small cut of those sales?

Perhaps there are bigger subscription bundles Spotify might be able to offer. Competitor Rdio, for example, has family plans available—you can buy two accounts for $17.99/mo, or three for $22.99/mo. Perhaps this also addresses some market of people who share a single Spotify Premium account. I don’t know many friends who do this with Spotify, but then again, it feels like everyone I know does this with Netflix accounts (sorry I watched House of Cards using your account last week, Kevin).

I consider all of these options extreme, by the way, since they generally fundamentally alter the way users interact with the platform, rather than just offering marginal improvement like the easy and mediums.

JuiceDefender’s Business Model is Stupid

The battery life for my cellphone sucks.

I mean. To be fair, the battery is probably a modern technological marvel. But the phone screen is bright and ginormous, and there’s 4G running, and who knows what else is going on in the background and the phone can’t last the entire day.

Purportedly, there’s an app for that.

I downloaded JuiceDefender, which more or less says all the things I want to hear. Specifically, “extra hours of battery life,” and “runs by itself.” I guess it does some sort of hocus pocus magic in the background instead of me having to fiddle with Airplane Mode and data use settings and hacker mode and I don’t even know.

So I installed the app, and…haven’t noticed a difference at all.

JuiceDefender has three different app versions: Free, Plus ($1.99), and Ultimate ($4.99). I guess the sell is “If you like the Free version, then upgrade to Ultimate.” But the free version doesn’t seem to do anything. Why should I be compelled to give these guys more money? This business model sucks more than my batter life.

On the other hand, it’d be a lot smarter if the Free version was just a 30-day trial of the Ultimate version. If the app was really worth its mettle, 30 days is enough time for me to settle in to the routine of (finally!) not having to perform battery-saving acrobatics and midday phone recharges, and JuiceDefender becomes something I truly can’t live without. Of course I’ll spend some pocket change on something that eliminates experiencing my small version of technology hell (#firstworldproblems).

Instead, I have no idea if the app is any good. And I used the $5 to buy a sandwich.

Spotify Mobile Playlists

I guess alternatively stylized as Sp°tify

My original understanding of Spotify’s value proposition is that it’s great because of its unique freemium consumer pricing model. You can get all the bells & whistles for $10/mo, or some of the bells & whistles for $5/mo, or some of the bells & whistles plus banner and audio ads for $0/mo. This free option and freemium model is particularly enticing—companies like Napster and Rhapsody have been doing paid streaming services since at least 2005 when I was a sales floor rep at Best Buy, but you don’t see those guys making headlines. Spotify, on the other hand, has amassed something like 15 million users (4 paid, 11 ad-supported), and were recently valued around $3 billion.

And that all said: I don’t think the freemium desktop model is where the lion’s share of Spotify’s value lies.

First, for context: I’m a Spotify Free user. I put up with the ads. Repeat: I put up with them. I’m surprised at how irrelevant the ads are to me, considering how closely intertwined Spotify is with Facebook and how much they should know about my interests.

To be fair, Spotify needs to sell ads first before they can be relevant. Feels to me like 75% of the ads I listen to are just self-bumps from Spotify. These all essentially say “Hey! These ads are annoying! If you give us $10/month, then we won’t subject you to this very ad that you’re listening to!” (Which, reading between the lines, I think essentially says “We needed to fill space but didn’t sell anything here!”) Which seems silly and disingenuous. Worse, the majority of these ads will tout a 30-day free trial for Spotify Premium…which I’ve already exhausted. Even when I click through the ad, I can’t have another 30-day trial. That’s very frustrating.

The other 25% of the ads, these days, are from Harley Davidson. I guess one sales exec closed a huge sale, and now for some reason I (a 25-year old city-based grad student) am reminded every four songs to go out and buy a motorcycle.

Second, as to value: Everyone’s going mobile. Internet traffic through cell phones is up something like a bazillion percent (exaggeration). And nobody seems to have any idea how to monetize it. Ads don’t seem to work. Facebook spent a billion dollars on Instagram (not exaggeration), and neither phone app appears to have any advertising present. Zynga’s company value is plummeting.

I think Spotify can monetize free-for-consumers on mobile without doing ads. In fact, I think they’re planning on it.

There’s one overwhelming difference, in my mind, between Spotify’s desktop and mobile experiences: Apps. And what’s ironic, with the Apple and Android phones being so app-centric, is that it’s Spotify’s desktop platform—not its mobile version—which is app-rich.

I’m not sure how Spotify’s desktop apps are monetized currently. On the iPhone, I know Apple takes a clean 30% cut of all app proceeds…but my guess is Spotify’s current app library is completely free. Maybe when I listen to a playlist on the Pitchfork app, Spotify sends the appmaker a small fee. Not sure.

How would this work on a mobile phone?

Can Spotify have its advertisers curate (and pay for) playlists, which I can listen to or even temporarily download for free for a period of time?

Here’s the thing with radio- and stream-based phone apps: They require ubiquitous connectivity to the network. There’s a crisis here. Internet radio is okay because I can relatively easily ensure that my laptop will remain in range of an internet signal for the duration of my listening session. The entire point of listening On-The-Go through my phone is that I’m actually on the go, and invariably will be passing through an elevator or a subway train on the way. My connection dies, the music stops, broken experience.

Let’s say Pitchfork, or heck, even Harley Davidson, now let me download a playlist which I could listen to for a week. Instead of ads after every other song, build in liner notes. “We picked Dawes / ‘That Western Skyline’ because  it reminds us of being out on the open road; troubles in our wake but still front of mind. This next track…” Sort of like a radio host who can add a bit of color and personality. His bits are catered so that they’re both relevant to the sponsor and to the music, so that all of a sudden the ads aren’t an apologetic interruption to the listening experience.

Here’s the best part: In Spotify’s original model, the ads are implemented in a way that they feel like a detraction from the intended good. I’ve actually casually spoken with members of the Spotify team who’ve brought up this sentiment, and suggested that it makes selling ads and building for the free product especially difficult. In my model, the advertiser is intrinsically adding value, both providing tangential content and affording me the ability to do something I couldn’t have done without their participation. Detracting is bad, adding is good.

As a result: One less reason for someone to say “I don’t have Spotify,” and one step closer to Spotify taking over the world.