The one thing Steve Jobs got wrong Guest contributor Arzan Raimalwala - September 11, 2018

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Guest blogger Arzan Raimalwala about the subscription economy, timing and execution.

I’m currently in the middle of reading Isaacson’s biography of Steve Jobs and had to put the book down to digest and contemplate, what is to me, probably the most surprising revelation from the book.

Apple launched the iTunes store in 2003. The success that Apple had with iTunes and how it saved the music industry is well known and part of Silicon Valley folklore. What is probably less known (certainly I had no idea) is that the music industry wasn’t broken for a lack of trying. Its not as though the incumbents were trying to hold on to the physical world at all costs and refusing to embrace technology. On the contrary, all members of the “Big Five” had embraced digital music.

Two subscription-based digital music services were launched in 2001, 7 years before Spotify was born. UMG and Sony came together to create pressplay. BMG, EMI and AOL-TW signed up to MusicNet. Both were disasters by any measure. The fact that I recall having no memory of either despite being a core target high-school- and college- going consumer is probably an indication of how awful their traction was. PC World ranked the two services collectively as the 9th Worst Tech Product of All Time (just one notch ahead of IE 6 at #8, ouch Microsoft) and touted that while “digital music is such a great idea”, the sorry state of available features such as limited downloads and limited CD burns “showed that the record companies still didn’t get it.”

Of course, who apparently did “get it” was Steve Jobs. While launching the iTunes Store in 2003, Jobs had this to say:

“The internet was built for music delivery.
They’re (pressplay & MusicNet) both subscription services.
You can’t just got get a song and play a little.
You can play downloads as often as you want as long as your subscription is active.
These services treat you like a criminal.
And they are subscription based.
We think subscriptions are the wrong path.
Now one of the reasons we think this, is because people have bought their music for as long as we can remember.
We bought our music on LPs.
We bought our music on cassettes.
We bought our music on CDs.
And we think people want to buy their music on the internet by buying downloads just like they bought LPs, just like they bought cassettes, just like they bought CDs.

Well, the rest as they say, is history. Ultimately, the subscription model emerged victorious. The global music industry didn’t in fact return to growth till just 3 years back in 2015. A full decade after iTunes was introduced. Streaming now represents the single largest revenue source for the recorded music market. Today iTunes is a shadow of its former self and music consumption is primarily consumed as a service. On demand and anywhere. Apple has been forced to play catch-up with Spotify.

Yet despite ultimately being proven wrong, Jobs was right for long enough to build a Trillion dollar company. The iTunes store was critical to the success of the iPod, from which we eventually got the iPhone. 

When it comes to technology and consumer markets, timing is everything. Much has been extolled about the benefits of first-mover advantage. There is probably as much to be said about the perils of going to market too soon. Going before consumers are ready for what you have to offer as a product or as a service is probably much worse than entering too late. At least in the latter case, you have the opportunity to eventually catch up, much as in the case of Apple Music vs. Spotify. 

There is no doubt that we are moving more and more towards a “Subscription Economy.” But many things needed to happen before the Subscription Economy could take off. A fundamentally altered approach to our lifestyles centered around mobility, ubiquitous connectivity and cloud computing has freed us from the need to hold or own things, knowing that content can be accessed and consumed when we want, where we want and how we want. 

We should fully expect that a consumption-based model will gradually creep in to every facet of our life and alter the way we interact with all sorts of products. In fact, I am surprised we haven’t seen more elaborate changes in our lifestyles and consumption patterns already. 

Why, for instance, are we all still lugging around laptops on our backs and shoulders? Today literally everything we need is available on demand independent of the physical device in our backpacks or pockets. All my frequently accessed content is stored on OneDrive and all my large long-term content is backed up on a 1 TB external hard drive. It has to be only a matter of time before compute power as a service creeps over from the Enterprise and Business world in to our personal lives. 

Falling valuations of auto companies are indicative of another industry facing gradual transition to the Subscription economy. Its very unlikely that us Millennials and the Gen Z cohort following us that are so obsessed with instant gratification are going to want to buy and own cars in the same way that previous generations did in the 20th century. The annual product release cycle made popular by cell phones has spoiled us permanently. We no longer want to wait five years for model revamps and makeovers to our vehicles. Software driven mobility enables companies like Tesla to distribute the latest capabilities and technology to consumers instantly in an iterative manner. I fully expect eventually that consumers will be able to swap vehicles on demand. 

Even furniture isn’t safe. The aptly named startup Feather lets you rent out furniture from well known brands on a subscription basis removing the hassles of ownership and large upfront payment. 

Ultimately, we are slower adopters of new technologies and business models than we may necessarily realize. Fundamental shifts that make sense purely from a technology or social lens are countered by economic motivations. Habitual changes can require a generational shift. We wanted to buy and own our media content for decades until a new generation decided it didn’t want to or need to anymore. 

This is why technology is fascinating. Spotify and Netflix succeeded a decade later with a business model that Rhapsody and pressplay originated because they were there at the right time with the right product. In the case of Spotify, a start-up was able to out-think and out-compete the incumbent giants while in the case of Netflix, the company was able to disrupt itself before anyone else had a chance to. 

Often when a new product is launched that consumers don’t know they want or need, unless you can package and sell the product in a way that helps consumers traverse the self-discovery journey, there is a high chance of failure. Timing and execution are everything. You must perceive where the market is going and deliver what it wants at the right place and the right time. Skate to where the puck is going but not too fast that you get intercepted on the way there. Luck probably has a lot to do with successful timing. But luck is what you get when opportunity meets preparation.

This article was first published on Medium.

(Caption image by Ben Stanfield on flickr)

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Guest contributor Arzan Raimalwala

Arzan is a Vice President in the Technology IB group at Rothschild & Co where he focuses on Enterprise Software and Consumer Technology with a focus on Retail Tech. A lifetime...

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