Why power follows platforms
This is a story with huge implications for the future of the web. Even if you don’t use Facebook or Spotify – I don’t – and couldn’t care less, you can nevertheless start to see how business relationships will develop.
Last week’s alliance between Facebook and Spotify turns out to be a much better deal for Facebook than Spotify. While Facebook declined to anoint any one music company as its exclusive provider, and a dozen are signed up, it has extracted exclusivity from the music companies. Or at least one of them. New sign-ups to Spotify must be Facebook members – the non-Facebook world will have to go somewhere else.
Such is the power of distribution platforms. Facebook has got one, and if you want to be on it, you play by Zuckerberg’s rules. It has always been thus. There isn’t an industry in the world where this ancient rule doesn’t apply. And while people may get misty-eyed about the “open web”, or the “neutral net”, this kind of utopianism was always naive in the extreme.
Deals are made. It’s business, folks.
The Facebook music deal also opens all of your Spotify listening to Facebook users – your listening habits, playlists and history are all shared with a billion others, and you must turn this off manually to regain your privacy.
Spotify users are upset about this, and upset about being herded onto the Zuckerberg Reservation.
Spotify has put out an official explanation using recycled tweets from co-founder Daniel Ek yesterday. And from these, Ek seems serenely oblivious to the implications.
“There’s been a big barrier to sign-up, we wanted to remove that and make it a seamless experience,” he said in one tweet, apparently indifferent to the criticism that Spotify had just erected a barrier where there wasn’t one before.
“We want to remove barrier to sign-up and create a more seamless experience…” he confirmed in a follow-up.
And Spotify collated these into a formal statement, adding this:
Think of it as like a virtual ‘passport’, designed to make the experience smoother and easier, with one less username and password to remember. You don’t need to connect to Facebook and if you do decide to, you can always control what you share and don’t share by changing your Spotify settings at any time.
So what’s in it for Spotify?
Well, Spotify obviously needs the attention that Facebook’s distribution channel can bring. Spotify’s business is selling subscriptions, and to get people into the paying habit, it needs them to try the service first. And Spotify’s new users, who wander in from Facebook, will get six months of free streaming. Universal Music’s digital boss Rob Wells reckons it takes six months of free before users see the value of paying – after which they don’t get bombarded by adverts and enjoy higher bit-rates and mobile access.
(Although in my case, the opposite was the case: after six months of paying, I gained a Zen-like awareness that I could save a tenner a month by cancelling a service I didn’t really use. You can hear almost anything for free anyway, and then decide to buy it or not.)
While Spotify has paid a price for its prominence, it may argue (once it gets its shambolic corporate communications into gear) that, in the long-term, excluding competitors is more than worth it. Those rival music companies will have to work much harder, spending far more on marketing, to match Spotify’s profile.
Already, Spotify claims 1m new users from the deal in just a few days. The gains for the other services are much more modest: just a few thousand a piece, according to reports. So the dominant position is becoming entrenched. So far, so good.
But in the short to medium-term, this is an expensive gamble. Remember the most important aspect to the deal I highlighted last week: there’s no new money coming into the system. The pot does not become larger.
And there are other problems ahead.
Power follows Platforms
In the long-term, the deal confirms Facebook’s dominance over content providers. Remember it has the luxury of dumping Spotify and anointing a new best friend. That patronage is powerful and can make or break them. You can bet that Rdio or Soundcloud or Deezer or Mog (also Facebook music partners) would make the same kind of deal.
But they all face a future in which they’re squeezed, as a commodity supplier. They save Facebook an awful lot of work dealing with music licences and bearing the bandwidth costs. But at the end of the day, they’re less of a platform and just another interchangeable component supplier.
And look what else is emerging, slowly. Facebook is becoming the web’s de facto identity system – the Cabinet Office is mulling using Facebook IDs for authentication to Government services, as we exclusively reported back in June. Attaching credit cards to Facebook accounts will take longer.
Entire business sectors have only come to the realisation that digital distribution platforms matter very late, if at all.
Perhaps because they’ve been smoking the “open web” bong pipe for so long. Remember that the web can be technically “open”, while access to markets is tightly controlled. And doing the “open” thing with your angle brackets doesn’t auto-magically open those doors for you.
With this deal, we see the platform company already “picking winners”, and playing the upstream providers off against each other. Apple is already playing this game – because it can – and we must now add Facebook to the list.
Facebook is well on the way to being able to control the terms on which entire creative industries supply their goods. And these terms will always favour Facebook.
The games industry was smart enough to realise that platform control was important. It developed distribution platforms early, and now favours Steam (a vertically-integrated content company and channel), but not exclusively.
Hollywood’s UltraViolet is a platform play whose debut we’ll see quite soon. But the music industry has pointedly failed to develop its own. Hula is the exception, but that’s it’s just music videos.
There’s little point chafing about conditions on the Zuckerberg Reservation if you’ve handed him the future through your own inaction.
Tags: music business