Group 42: Jessica Arts (405053), Lilith van der Hulst (405346), Jesco Colsman (416165), Thomas de Vos (412155)
Platforms take a mediating role between the exchange of several involved parties (Eisenmann et al, 2009). For the music industry, the supply-side contains the artists and record labels, and the demand-side the customers.
Characteristics
- Same-side positive network effect: collaborative filtering. Music platforms offer suggestions based on user preferences and preferences of other people that are similar to the user.
- Same-side negative network effect: the more artists are active on the platform, the more competitive rivalry there will be amongst artists.
- Cross-side positive network effect: the more artists there are, the better it is for users as music variety increases. Contrarily, more users means more money for artists.
- Cross-side negative network effects: third party advertising might lead to customer dissatisfaction. (Eisenmann et al, 2009)
Long-Tail
Product variety in physical music stores are limited to storage space capacities. However, platforms offer digital products, meaning a larger variety of niche products to customers can be offered – the long tail.
Porter’s Five Forces
Music distribution was no longer limited to physical stores and their geographic location, meaning rivalry among existing competitors like Tower and Virgin increased as they tried to establish online presence.
The number of potential new entrants increased as newcomers were able to scale their online business quickly, as they did not have to make investments into physical stores to reach customers.
CD sales started to decrease as new ways of listening to music started to rise, and thus threat of substitute products increased rapidly, as music became available to consumers through both illegal downloads and legal streaming platforms.
The power of suppliers increased, as artists (and record labels) could now upload music on platform mediated markets and not be limited by physical stores as their only method of distribution.
Power of buyers increased as consumers could now access music through online stores, or download music for free. They are therefore able to demand cheaper prices and had multiple ways of accessing music.
(Gallaugher, 2015)
Business Model
Platforms such as Spotify operate under a freemium business model, with two distinct service options (free or premium). Spotify captures revenues from users without a subscription through advertisements, and captures revenues from subscription fees, meaning both service options are profitable for the company. (Spotify, 2017)
Pricing Challenge
Determining the right pricing structure is a challenge as platforms need to identify and subsidize the user group creates most value. For example, students are a valuable group of users, and can be subsidized by offering premium discounts. (Spotify, 2017).
Future Predictions
Since videos influence user opinions about music, and considering that adoption of Virtual Reality and Artificial intelligence is growing, music videos could be viewed through VR goggles. This could be part of a new premium package. Furthermore, music could be integrated into user’s homes by linking sound to lighting. This means more industries become connected, which opens up many opportunities.
These predictions need a focus on detail, including audio, movement, resolution and creativity, which will have implications on overall music experience if not captured correctly.
Video link: https://www.youtube.com/watch?v=PfRKVC3-koA&t=2s
References
Eisenmann, T., Parker, G., & van Alstyne, M.W. (2009). Opening Platforms: How, When and Why? Platforms, Markets and Innovation, Gawer, A. (ed.), Northampton, MA: Edward Elgar, 131-162
Gallaugher (2015). Information Systems: A Manager’s Guide to Harness Technology. Minneapolis; MN. University of Minnesota Libraries Publishing.
Nicolaou (2017). How Streaming Saved the Music Industry. [online] Financial Times. Available at: https://www.ft.com/content/cd99b95e-d8ba-11e6-944b-e7eb37a6aa8e [Accessed 2 Oct. 2017].
Spotify (2017). Available Subscriptions. [online] Spotify. Available at: https://support.spotify.com/us/account_payment_help/subscription_information/subscription-
levels/ [Accessed 3 Oct. 2017].
