Archive for September, 2005

The Queen is Dead, Long live the King

September 19, 2005

The Queen is dead; long live the King.  New platforms deserve new content types.  Master Ringtones are a derivative of a music file; currently priced at 2-3x of a music file, of  an inferior quality and at a fraction of the length.  Has anyone given this the smell test?  The concept of taking degraded music and repackaging it as NEW is not only disingenuous but a fundamental problem of the mobile/music business.  Content companies need to address a medium and deliver specific value for each vehicle.  Game companies do not re-purpose games from an X-Box to a phone, rather they develop from scratch.  This encompasses not only the actual code but the actual game experience as well.  This is not ONLY because of the horsepower required, but rather there is a different experience on a mobile device.  My stereo might require a 5.1 surround sound, my iPOD needs decent fidelity, what is unique to the ringtone?

If ringtones are JUST master derivatives, the market is done very quickly.  However, I am not down on the mobile market AT ALL.  On the contrary, I think content owners have a tremendous opportunity to sell video ringers, viral MMS messages, original works of art, etc.. Content owners, especially the majors, have a responsibility to their customers to stop following and start leading.  What do consumers want?  What is the unique experience on a mobile handset that drives value?  On the flip side, with about 10K master tones cleared, the concept of personalization is a joke in the mobile business.  There are millions of songs available, 1.2 million on the average DSP, and a market DRIVEN by personalization has only 10K choices and within those choices no choices (hence Xingtone).

The fundamental problem going forward in the mobile music market is that ringtones are considered by far too many people, and industries, as a separate P&L.  CD sales, digital music, ringtones, as derivative products should not be considered separate, rather they should be merchandised together, intelligently, to the benefit of the customer (and the industry).   In general, confusing a product line from a line extension is bad business; specifically when the product is the SAME across the board just delivered in a different way.  This spells long-term disaster for a market.

Digital music, as the future of the music business, needs to be defined as all content available for download regardless of where and how.  If the question above is how do I feel about the digital music business (and even this has many different angles), I would say, very positive.  But with the question of the future of the ringtone business, I have to say I am bearish.  It is not about a specific piece of content, the file format, the delivery and it is especially NOT about the DRM – it is about the experience.  Can the industry as a whole figure it out? – Probably not.  Will consumers and companies like Xingtone find a happy medium – YES – equilibrium in capitalism will always be found.

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An interview

September 12, 2005

I was interviewed for www.npost.com - I think it reads pretty well:

http://www.npost.com/interview.jsp?intID=INT00122


What is Xingtones.com?
We develop expertise in delivering media files to mobile phones without the need to go through the typical carrier infrastructure. We monetize this in a number of different ways. We sell directly to consumers, which allow people to take content off their desktop and send it to their mobile phones. It is currently focused on ring tones, but we plan to launch with complete songs, videos, etc.
Is this a subscription model?
We are currently selling software that enables this type of service, but we will soon be launching in Germany, UK and Ireland on a per transmission basis. In September we will be launching a subscription service through a private label partner.
From what I understand you also have a Business to Business model as well.
This is the model that I am most excited about. It is really a Yahoo Shops for mobile phones and we have named it mStore. An independent content owner can self publish, set pricing, create a store, and be in business.
Why are you most excited about that model?
The exciting part is both based on enabling many different partners to grow the business as well as philosophical is the democratizing effect, from podcasting, to social networks, to blogging. It is really the industry admitting that they don’t know what the market wants. They may provide the tools, but they don’t know how people will use them. We don’t know what’s cool or what they want to do, we just know that they want to do stuff.
How many employees do you have?
We currently have 15 employees.
With a small organization, I would assume that you have to be very flexible in allocating time and resources in order to meet a very dynamic market.
There are two sides in working with customers. One is to listen to them and to make sure you deliver against what they need. The other one is to not listen too much, especially when you are dealing with bleeding edge stuff. This is simply because they don’t know what they need. The music industry felt that they didn’t need to do anything with digital music, because they weren’t listening to their customers. On the flip side, Napster came about out of nowhere. Customers weren’t clamoring for a file sharing service before it came along…
It sounds like more of a balance of the two.
You have to sometimes lead the customers. To that end, we aren’t so far ahead of our customers that we are out of touch. We don’t want to provide more tools and services than they could hope to expect. We are going to do things poorly in grand scheme of things, and with consumer feedback we will continue to make it better moving forward.
One could say that the Apple Newton was an example of a company launching a product very ahead of its time. It was out of touch with consumer needs as well as consumer understanding.
That is a great analogy. One of their flaws was in saying that there was a need for mobile technology, with a product that cost $900 per unit, a difficult interface, and many other issues. We are coming at it from a much more remedial standpoint. We know there is blogging, podcasting, and social networking so there is a market for this type of interactivity. Ringtones are big and continually growing, so we gone about creating tools that enable consumers to play with the big boys.
Have you created your software to be flexible as well?
We offer a turn key solution. There are a number of businesses and environments that require a turn key solution. They may only require one aspect of the business. We have just published our internal API to a few partners, who are then able to sell to end consumers by having us complete the service side of the transaction.
This is all very interesting, but one question I have is why do customers want to change their ringtones?
Personalization is interesting. There are a couple of very powerful elements that are working in mobile that have never been there before. We are now carrying computers in our pockets. When you have something with you at all times, it becomes much more a part of your life, hence the need to personalize. It has become very pop culture, like the Crazy Frog phenomenon in the UK there is the initial mass interest, but there is also the backlash as well. People are aware of the possibilities, now they simply want to make it their own.
What is the difference between customization and personalization?
A million people with an MnM ringtone is the exact opposite of personalization. That type of service is more of a customization. Personalization is having whatever the end users wants on their phone. It could be a friend or loved one’s voice, a bird watchers favorite bird, whatever the wish. Even to the point of being the exact piece of the song that means something to them. There is a very powerful aspect of having ownership over something so simple, and yet prevalent in consumer’s lives.
So, it comes down to being flexible.
To be completely honest, we don’t know exactly why it resonates so well with consumers. This goes back to our strategy of providing a flexible service that consumers can use as they see fit. We can’t predict everything that they will use it for, but we can provide an innumerable ways in which to use the service.
How do you incorporate a feedback cycle into your business to be able to capture these changes that I assume are happening very, very quickly?
There is no silver bullet for capturing feedback and usage patterns. I do believe that it comes down to relationships. I am always listening to our customers, and when they start telling me what they want I insist that they conceptually tell me what they want. If I were selling a computer I wouldn’t sell the capabilities. I would first try to understand how a potential customer plans to use it, how they are going to integrate it within their lives, how they would extract value from it, etc. This would give me a very good understanding of how I should build it to meet these needs. Through that, we can understand their expectations for the service, how it should work, and what they should get out of it.
Is it an iterative process?
It is really a trial and error. You have a hypothesis; you build against it, and receive feedback in both structured and unstructured environments. Understanding what customer’s true goals and intentions are is when you have developed a relationship with these customers.
How do you sell the service to your corporate clients?
Our customers (corporate) don’t care what technologies we support, which file formats, which systems, etc. They care whether it works or not, for a wide percentage of their market and it is easy. Some clients will ask me the technical questions relating to the service, and I politely sidestep them simply because they are irrelevant. They should be asking me how many of their subscribers can use our service and how many can use it easily.
What is the growth potential within this market?
Based upon basic demographics and growth in technology, I see this market growing to 100%. My father will never change his ringtone, but every kid is doing so. If not, they will be. Our demographic is 14 to 25 and is an evenly distributed bell curve. We hit all the same people who play Xbox. In 5 to 10 years, you are looking at 100% of users wanting to do something; whether changing their ringtone to viewing ESPN video, we simply don’t know.
You are currently looking to secure Series B venture funding. What is your elevator pitch?
The market is broken because the carrier’s and the major’s limited shelf space restricts growth. The democratization that we provide can expand this whole market considerably. There is limited shelf space on the phone. I would be doing exactly what they are doing. They simply can’t carry an entire record label within the phone. It is the same way Wal-Mart cannot compete with Amazon.com. That is simply due to the law of limited resources. What is required is for more people to be rewarded within the value chain, not less.
So more people will have an ownership within the market.
If we can empower retailers and our partners to make money in the mobile market. At the end of the day everyone will make more money. It may not be in the way they initially thought, but the reality is it never is.
How did this work with your software sales?
We are the only ones who earn any money off a sale. In theory this is good for me, but because no one else earned any revenue other than us, no one was willing to put the resources forward to deal with us. Now with our distribution through retailers, the retailer gets paid, the distributor gets paid, and we get paid. Now I have a value chain that wants Xingtones to succeed, because they get paid.
How would you expand this network of interested parties?
This is where I see the mobile market. Right now, only a few companies earn any money on a ring tone. There are many other organizations that would love to get paid as well, such as iTunes, Yahoo, MSN, AOL, MusicNet, etc. This would reward them for driving this market forward.
The deals have to be enough to provide an actual incentive for the corporations.
When people call me with deals at 5% of sales, I simply do not get excited. I am not going to waste my time training my sales reps on additional products and services, if all I am going to get is 5%. It is necessary that people within the value chain be rewarded for putting the effort forward to growing this space.
What are two or three insights you have into entrepreneurship?
Relationships are the most important thing. The key is to develop a rapport. Not because you want something, but because you want to understand that person better, and they may help you out or you may help them out in the future. I think of things very much in the long term. It is important not to always be closing a deal, but to instead get to know someone and determine if there is an opportunity for business to be done at some point or another.
How much effort goes into being an entrepreneur?
There is a limitless amount of work and you have to be committed to doing it. Being an entrepreneur requires a severe amount of work. You cannot be an entrepreneur if you aren’t committed to working all the time non-stop. The reality is you simply need to have that type of constitution. If you get tired and take a break, you will fail.
Is it necessary to stay focused?
You need to be able to select a vision, knowing you might be wrong and realizing that you probably are wrong but are willing to fight for it. Every meeting you go to, someone is always going to disagree with you. If you feel you have to go back to the drawing board after each positive and negative criticism then you simply don’t have the ability to maintain your focus and commit to it. You have to believe in yourself more than anyone else possibly could because it is all you got.
What do you look for in potential employees?
I am actually not very good at hiring people. I trust people implicitly and when someone says something I tend to believe them. This is not always beneficial in terms of hiring, as people will exaggerate and people will convey certain things that may not be the truth. What has worked for me is to hire people with passion and that I can trust. I don’t require experience within our industry. Two individuals on my executive staff had zero experience within the mobile market and are very successful.
Do you hire people that complement your capabilities, or that bring different capabilities to the organization?
I know what I am good at and I need people who have other experiences and are great at what they do. They need to be able push me beyond the scope of my experiences and can keep me grounded. There is something that I can learn from virtually everyone.
Another key to entrepreneurship is to know your limitations.
That is exactly right. There have been a number of times when I look to my board for advice and assistance. You have to have people who are better than you in some areas and more importantly don’t look down on you when you ask them for help. I surround myself with people who know they don’t understand everything.

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iTunes Phone

September 5, 2005

The iTunes phone is being announced, so it seems.  I am not a skeptic; I believe it will come out, if not tomorrow, at some point in the not too distant future.  I think it will be quite interesting how the phone is launched and rather what features and functions it comes with.  Let me be very clear – Steve Jobs and the people who run Apple are very VERY good at what they do.  However, what Apple has always delivered has been created and functions in a vacuum.  Apple has never been good at creating a value network, Apple has never been good at working in partnership, Apple has never been good at aligning their interest in the greater market.  As much as Microsoft has been slammed time and time again, there are many more companies who are successful because of Microsoft then in spite of them. 

The question on the table in my mind is how well will apple play with others?  Apple’s strength has always been delivering what users want, an experience second to none.  They have been able to accomplish this because they have focused on the end-user and NOT the value network – the iTunes phone puts Apple in a very unfamiliar world – a white box world where they are delivering to a constituency rather then the end user.

In the mobile music world there are three SPECIFIC transactions that labels want to be paid for:

1)       a Ringtone – (wholesale price of $1 – 50% of gross revenue)

2)       a full music download to the phone (same as above)

3)       a full download initiated on the phone but delivered to the computer (is this a $.99 transaction – 70% to the label – or $2-$3 with a 50% rev share)

This obviously begs the question; what is the retail price of all of these combined? If we add up their individual values we are looking at a price of $5-$8 retail depending on territory for a user to buy the media files necessary to listen to a piece of music on their computer, on their phone and to utilize it as a ringtone.  This obviously is absurd – but yet this is what the majors have been pushing for. 

Obviously to deliver what the user wants Apple would have to make a very clear pricing structure that gives users not only real value but PERCEIVED value.  If Apple had its way it is my belief that they would sell music for $.99, maybe less, without DRM, and available for use in any personal use a user requires.  However, playing in a value network with carriers, content owners and phone manufacturers, Apple can NOT deliver what consumers demand but rather ONLY what their partners allow.

If Apple delivers what their partners want (as I outline above) I think they are making a critical mistake and one that will have reverberations in their overall ‘Halo’ effect.  Apple users are committed to apple because the Company has always delivered to them what they know they want.  If Apple sells their users out to grab market share their loyal base will rebel.  Apple users are early adopters, they are bloggers, they are social netwrokers, they are the users that companies dream of.  However, Apple users also have a strong voice that you do not want to turn-off to your product or your brand. 

If Apple sells a crippled phone – the online community will crush them.

Since I believe Mr. Job’s and his team to be as good as they get, I have to believe they know the concept listed above, far better then I do.  It is for this reason I am looking forward to not only the announcement of the product, and not only getting it into my hands, but to see how the Apple community reacts.

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