Facing the Music

My close friends know all too well why I came to this country.  It was to chase my dream of following in the footsteps of my countrymen and founders of Atlantic Records, Ahmet Ertegun, Nesuhi Ertegun and their legendary producer Arif Mardin.  They became the guys who revolutionized the music industry in this country, and made it one of the biggest exports with the label “Made in USA.”  I wanted to be in the music industry, and make a name for myself just like them.  Though my life with the legends would certainly have been more eventful, when I look at the state of the music industry today, I am happy to be in the software industry.

In the recent years, the music industry has gone through a wrenching change.  After benefiting from the sales of CDs for years, the major record companies have witnessed their fortunes change dramatically as revenues have plummeted.  The Internet hasn’t only enabled music lovers to download music easily, but to exchange it, for free, through P2P file sharing; today, “more than half of the music acquired in the U.S. isn’t paid for.”  The percentage of unpaid music rises dramatically for younger groups under the age 21.  Music is very important in the lives of young people.  In fact, purchasing of music is one of the first commercial transactions in the lives of the youngsters.  Around the globe, there is now an entire generation of young people who are growing up accustomed to receiving music, for free, through the use of P2P file sharing from their networked communities. 

It used to be that record labels made money by signing up artist with iron clad contracts.  Record companies provided the space, technology, distribution, promotion while artists created the content.  In return, musicians received 3% to 6% in royalty payments from the sales of records, and the rest of the time they had to go on endless tours to earn money from concert tickets.  All of this changed with Napster.

It introduced the concept of P2P file sharing through the use of the Internet technology.  People around the world could log on the Napster community of users, share their music library with the community and freely exchange files at the speed of their connection.  Napster had caught the music industry napping and the Internet technology enabled communities to create their own way of finding and receiving music, albeit illegally.

Record labels are now fighting back on numerous fronts using legal and creative means.  On the creative side, they are offering artist alternative ways to earn a living through ring tones agreements with major telecom companies, concerts, promotions and Web 2.0 sales/marketing.  Parts of the music industry, namely music stores, have disappeared forever.  The rest is trying to survive.

I think that we in the software industry can learn a lot from the changing landscape of the music business and avoid their mistakes.  First and foremost, the youngsters, who are growing up accustomed to receiving intellectual property for free from their peers in their community, are our future customers.  Second, we need to look at the new and successful players in the music industry to analyze their ways.  I am mainly thinking about Apple with its I-Pod platform through which the company offers numerous products.  Last but not least, we need to adapt to our new economy which is fueled by knowledge, interest based networks, collaboration and speed.

In the near future, it will become harder and harder to sell proprietary software solutions to a generation of people who are not accustomed to paying for intellectual property.  Software companies who rely on open source business model will be better positioned to tap into the buying habits of this new generation.  All open source companies, regardless of their business model, rely on revenues to stay afloat or grow.  This is true for RedHat as well as the Apache Foundation.  The key to success, now and in the future, is to offer choices to the customers.  We need to provide our software offerings in deployment options that users desire.  We also need to create platforms that enable the exchange of knowledge and products with ease.  Lastly, we need to leverage the new economy by taping into the collective knowledge of people globally.  Citizens of this world are now more and more motivated to participate in narrowly defined interest groups in order to collaborate with their peers and create value faster than ever before.  Linux was only the first major product of this new economy and it will not be the last. 

My three heros from the Atlantic Records are all gone now.  Ahmet Ertegun was the last of “Grand Messieurs” of the music industry and he died, fittingly, at a Rolling Stones concert in December of 2006.  I never got to meet them in person.  To touch and feel the 3 legends now, I will have to go to The Rock & Roll and The Jazz Hall of Fames in Cleveland and New York respectively.  I am afraid that companies failing to adapt to the realities of our new economy are destined to end up in the Software Hall of Fame.