I just read a great article in "Bloomberg Businessweek" on Adobe. It used to sell its Creative Suite, which includes Photoshop and Illustrator, for $1300-$1600. But then it switched to a subscription model and its user base went INSANE! They started a Change.org petition, 50,000 people signed it. And in the following year, 2013, Adobe's revenue shrank 8% and was flat the year thereafter. But last year, revenue was $5.9 billion, up from $4 billion in 2013, and 80% of that came from subscriptions.
You see Adobe was sick of reinventing the wheel. Having to come up with whiz-bang products every year or so to convince people to fork over that $1300-$1600. But if they could get them to pay $50 every month... Voila! Revenue increase! Just like the music business.
Now if someone buys a CD or a file, they can play it to their heart's content and the purveyors, the label, act and writers, never get another penny... FOREVER! Sure, you get a lump sum immediately, but Uncle Sam takes a tax bite and you think the gravy train is gonna last forever and you end up broke. But what if you could get paid every time your track was listened to for the rest of your life, and beyond. Wouldn't that be great? They call that streaming. And the key to streaming is the more people who subscribe, the more revenue goes up. So if we could just force people to sign up for streaming services...
There's no reason to sell CDs, other than to generate revenue and placate rearguard consumers. And in business, when done right, consumers are always behind the curve. If you're following your consumers, you're screwed. You've got to get ahead of them, confound them, that's what great business leaders do. First consumers are confused and angry, then they embrace that which they did not know they wanted and you become RICH!
You can't even find a CD drive in a car. My two computers?? No CD drive. But some jerk boomer manager insisted on sending me his act's CD, he refused to put the music on SoundCloud or Spotify, he needed to feel good about sending me physical product, got angry when I said no, BUT WHERE WAS I SUPPOSED TO PLAY IT?
Oh, I've got a CD player at home, but I'm rarely there, you've got to make it convenient for me. And I tell you this story not to denigrate this jerk, although his hubris pissed me off, but to tell you you've got to get out of the hole you're in, embrace the new paradigms, it's where the revenue comes from.
So we stop making CDs in three months. Give it six. OF COURSE WE'RE GONNA LOSE REVENUE! But where are those people gonna go? Do you really think they're gonna stop listening?
And same deal on files. You can't even buy an iPod anymore. MP3 stopped supporting the technology. They take up too much space. Don't tell me you need them in case you're out of cell signal range, that just demonstrates your ignorance, you can synch thousands of tracks to your mobile device, as long as it has juice you can listen in the Sahara or at the top of Everest.
Once again, we're fighting ignorance, we're fighting history, we're moving our entire audience en masse into the future, where is here NOW!
Believe me, when they can't buy CDs or files, people will check out streaming services. I don't care which one, Apple, Spotify, Tidal... They'll want in on the action, the same way everybody signed up for AOL in the nineties, the same way oldsters embraced Facebook. And with a larger subscriber base, more money comes in! As for Spotify's free tier, the only reason it exists at all is conversion. Do you think rights holders like free tiers? Of course not, but Daniel Ek demonstrates they cause conversion to paid subscription. And, the free tier on mobile, the platform of choice, is crippled, so it incentivizes conversion. And once you're hooked...churn is low. You get addicted to hearing all the music.
That's another thing that gets Adobe customers hooked. They don't have to wait a year for new features, the software company rolls them out on a regular basis. The same way music is released on a regular basis. When it's all available you get exposed to new stuff, and embrace it. And want to listen more and go to the show and buy merch and...
This is not a new paradigm in the music business. It's killed old formats on a regular basis. Played your cassettes recently? And please don't bore me with vinyl, that's a fetishistic sideshow. Keep making it, I don't care, it doesn't affect the business. As for sound quality, it keeps improving, you can listen in CD quality on Tidal and Deezer Elite, assuming you're willing to pay for it, but expect prices to come down and for more outlets to offer it. So if you're complaining about sound, you're either cheap or ignorant.
You want revenue to go up, don't you?
This is basic economics, this is Digital Disruption 101. You forgo profits today to reap rewards tomorrow. Getting that ten bucks from more people every month, whew! Think of all the cash!
I implore everybody in the rights business to take this seriously. To kill files and CDs. When did this business become so rearguard, so fearful, so safe? Used to be music was the bleeding edge, now you find that in television, which takes much longer to make. When you lead, people pay attention, and they PAY!
"How Adobe Got Its Customers Hooked On Subscriptions - The switch to the cloud was risky, but revenue is way up":
bloom.bg/2sMfJq7--
Visit the archive:
lefsetz.com/wordpress/ --
www.twitter.com/lefsetz --
If you would like to subscribe to the LefsetzLetter,
www.lefsetz.com/lists/?p=subscribe&id=1 If you do not want to receive any more LefsetzLetters,
Unsubscribe To change your email address
this link
