Once upon a time, computer software companies developed software packages (such as Microsoft Word) and made their money be selling copies of their software to users to run on their own computers. Then along came companies like Google who changed the underlying business model. As we are all aware, Google doesn't charge for use of its products. And users don't download them to their personal machines. The applications (such as the Google search engine and Google docs) are run on Google servers. Google's income comes from the selling of advertising space to organisations. In 2008 quarter 4, it reported income of approximately $6 billion, up 18% on the previous year.
The music industry has been in need of a new business model for some time. The British Phonograph Industry (BPI) and the major record labels have suffered loss of income in recent years as many music consumers have used peer-to-peer networks to obtain copies of songs rather than purchase them from record shops. The BPI estimates the industry has lost £1 billion of income in the past three years. The online record stores, such as i-tunes, have had some success but these are still based upon the 'outdated' business model.
Now we are starting to see in the music industry a similar development to that which occurred in the software industry several years ago. Sites such as LastFM and Spotify are streaming music for free and making money from onsite advertising. A proportion of Spotify's income is distributed to the music companies. It is currently experiencing a dramatic growth. In just six months since it launched, Spotify now has more than one million users.
Will this new model work? Will it provide sufficient income for the music providers and will it tempt customers to convert from illegal downloading to streaming instead?
