I find myself in an almost unique position, running a tiny non-profit organisation that interacts with large companies and tiny start-ups alike. Unlike our for-profit competition, we're keen to build a network of partners, rather than fleecing our customers for every last penny.
This makes our product pricing challenging – a flat list price doesn’t work for all companies that enquire about our music metadata services. The start-ups squawk about the price and immediately ask for a discount, which I am always happy to entertain.
But, in order to be fair to our existing customers, I want to hear what the potential customers are planning to do with their upcoming products that use our data. What is the business model? Who is funding you? When do you expect to have revenue? Break even? The business model question always brings the most interesting answers by far. Quite a few companies have interesting models but, after a while, a class of company emerged that still perplexes me.
This particular business model answer always follows the same form: "Our product is XYZ with new spiffy gizmos and add-ons. We intend to fund our 20 developers from advertising and from affiliate income." Not even once was XYZ a product that had vaguely anything to do with advertising!
How arrogant or naïve do you need to be to think that you can create a product funded by advertising
How arrogant or naïve do you need to be to think that you can create a product that is funded by advertising? By being a middleman in advertising; a leech, nothing more. There is no way to sustain a business, with a team of people, and office and hosting costs, by putting banner ads on their nascent site.
In a world where the advertising business, like so many others in the face of the internet, is changing and struggling to reinvent itself, some start-ups hope this simplistic thinking will let them launch and sustain a successful company.
These fledgling start-ups typically have data at their disposal and knowledge of the tastes of users, yet often default to banal banner ads. If they used the knowledge at hand to identify gaps in their customers’ music collections and then deftly suggested music to fill the gaps or concerts to expand their users’ horizons, I would be less disappointed with these companies.
If you take a closer look at Beats Music and Songza, which both focus on heavily curated playlists, you can see a crafty way to apply this concept. Curated playlists give the creators the opportunity to intersperse music that they want to advertise with established music to provide a carefully crafted experience where the audience isn’t readily aware that advertising is playing a part. Any company that wishes to earn money from advertising should really carefully blend advertising with content, rather than tacking it on as an afterthought.
Robert Kaye is the founder of MusicBrainz
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