"Arguing in My Spare Time" No. 2.06
by Arnold KlingMay 12, 1999
May not be redistributed commercially without the author's permission.
When I was about 12 years old, my parents bought me a guitar. Within a few weeks, I could play a passable version of the then-current hit song, "Snoopy vs. the Red Baron."
This did not indicate that I was a musical prodigy. What it showed was that the song was so simple and mediocre that anyone with a few weeks of experience could have written and performed it.
In the pop music industry, at least in the 1960’s, the minimum level of talent required for success was extremely low. Some hits, such as "Snoopy," relied on just three chords and eighth-grade level poetry.
The number of groups capable of writing and performing songs that had the characteristics required to become hits in the 1960’s probably was enormous. For every hit record, there may have been hundreds of other songs that could have been equally successful.
In 1960’s pop music, with thousands of groups producing songs that were roughly equivalent to one another, the critical success factor was airplay. If you signed with the right record company, and that record company convinced disk jockeys to play your record, it would sell. Otherwise, it would not. Indeed, in the early 1960’s, when the importance of disc jockeys was recognized, somebody quickly came up with the concept of "payola," or paying the DJ’s for airplay.
While "payola" was outlawed, there was no way to legislate that the most talented groups and highest-quality songs would be the most successful. Hence, with enough airplay, "Snoopy vs. the Red Baron" took off.
There are many parallels between the Internet business today and the pop music business in the early 1960’s. Just as in the 1960’s there were a lot of songs written with similar chord progressions, today there are a lot of businesses being started with similar concepts. The groups getting rich are the ones that are getting the most airplay.
Web sites that sell medications have been around in large numbers for a long time. One entrant, drugstore.com, was neither particularly early nor particularly distinguished. However, articles about drugstore.com started appearing in the technology and business magazines months before the site even launched. In that sense, drugstore.com received far more airplay than all of its competitors put together. Eventually, it was bought by Amazon.com for a large premium.
Stories like this are becoming quite common. I know of several entrepreneurs who have sought out venture capitalists not for funding but for publicity. They want to sign up with Kleiner-Perkins or Draper-Fisher in order to get airplay.
What is wrong with this picture is that the underlying economics of the Internet do not necessarily mirror the underlying economics of 1960’s pop music. In both cases, the cost of entry is low. However, there the similarity ends. On the Internet, there are no DJ’s who control the songs that get played. There is no requirement to achieve mass distribution in order to be profitable. There is no scarcity of stations from which to broadcast.
Look at what the Internet is doing to the music industry itself. The traditional music intermediaries, such as record companies, music publishers, radio stations, and MTV, are under siege. My guess is that communities of listeners will become the dominant intermediaries on the Net. Musicians will audition their material to the most relevant communities, and the community members who hear the auditions will determine the popularity of the music within that community.
Similarly, I believe that ultimately traffic on the Net will be driven not by portals but by small communities. When I want to plan my vacation in the Northwest, I will not be asking Yahoo where to find a travel site. I will be looking for recommendations from people who have vacationed in the Northwest who have tastes similar to mine. Their recommendations may be for specific attractions to see and places to stay. Or their recommendations may be for the best web sites to use to book my vacation. Whatever form they ultimately take, the recommendations of a niche community are going to mean a lot more to me than the impersonal e-commerce offerings of a big portal.
The picture of the Internet today is very distorted, because of the stock market. Investors are acting as if the McKinsey business plan (lose lots of money early in order to have market share that you can exploit later) is a winning strategy. They continue to see the Internet as evolving toward a mass-market medium rather than into a collection of niche-market communities. As long as investors continue to take this view, then companies that get a lot of airplay will succeed by going public or getting bought out.
However, my view is that the underlying economics do not create as much real value for mass-market strategies as the McKinsey business plan presumes. Instead, over time we will see the collaborative filtering of niche communities replace airplay as the determinant of success. The portal strategy and other current fads will be forgotten. I cannot remember the name of the group that recorded "Snoopy vs. the Red Baron."