For some time now I’ve been using the example of the recorded music distribution world as a metaphor for how organisations might change and adapt into the world in which we find ourselves. Initially I talked in terms of Spotify or iTunes, but this is the fuller-nuanced version.

There’s no one right way in which an organisation should organise itself to adapt to our increasingly digital world. Looking at what has happened in the music industry can provide some ideas for different pathways…

The Our Price model – do nothing

To be fair to Our Price, a shop in which I spent many hours of my youth, they weren’t around by the time that electronic distribution of music was about. They’d been taken over by Virgin, which in turn mutated into Zavvi. Zavvi died a horrible digital-related death.

Doing nothing in the face of how Internet, Social and smart devices are changing the world is not an option. Our Price (and its successors) couldn’t continue to be merely mass-market providers of all sorts of music in shops on the high street. That market disappeared.

The Record Store model – develop a niche, extend to digital

Record stores, small, independent operations selling CDs, vinyl, even cassettes, are enjoying something of a renaissance. There aren’t many of them left, and those that are whilst ostensibly doing much of what they used to, are now serving new markets. Vinyl is for the hipster collecting obsessive, willing to pay a premium for the physical object and the larger artwork. The store itself is an experience to be savoured, rather than merely a place to buy music. The store might specialise by genre. They probably have online presence to extend their service beyond their physical presence. They’re probably not “on the high street”.

This is the decluttering and repositioning of a form that is akin to how cinema shed newsreels and B-movies with the rise of television. And many record stores have closed along the way (as many cinemas did before them).

The Amazon Model – move the physical online

These days, of course, Amazon sell digital as well as physical forms of content. But it was the moving of physical distribution sales from the high street to the Internet, warehouse and postal service that saw the first great decline in record shops from the late 1990s onwards. Amazon took the selling part, made it cheaper, slightly less immediate, but maybe more convenient, and cleaned up.

The iTunes model – remodel the physical, digitally

Cleaned up, it has to be said, until iTunes really cleaned up. With the rise in broadband combined with the improved fidelity and compression offered MP3 and other formats, a pure digital model for music selling and distribution arose – typified by iTunes. You could still by an album, or just an individual track, but this time you’d receive a file over the network rather than a box through the post.

The Napster model – everything is free

The same dynamics of cheaper, faster networks combined with improved audio compression technology meant that Napster and other filesharing platforms arose with no business model. Once the cost of distribution and replication of something becomes practically zero, there will tend to be pressure for the price to become zero. Illegal filesharing (although Napster did develop into a legitimate business model later) became rife.

The Spotify model – free at the point of delivery

If you are competing with “free”, then new models need to emerge to balance off customers’ desire for low costs against IP owners desire to have a business of some sort. With low- or zero-cost distribution the free to play (if you want limited service or advertising or both), or subscription models that the likes of Spotify, Deezer and Rdio have implemented are a further step away from the record shops of old.

One thought on “Digital business models

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