The music industry is a fascinating example of the shift to services. It shows that shifting is not always a linear jump from product to service. Often the shift is dependent upon product innovations. Or other supporting innovations need to be widespread before the service can catch on.

And sometimes, a product innovation accidentally fuels an unstoppable final push to services.

Key takeaways

Gonna be your industry in motion; all I need is a pair of products and services.

Let’s draw a rough progression of the music reproduction industry (i.e. how we listen to music) throughout the ages. Be warned, I might play a little fast and loose with precise timelines for storytelling reasons. Take a look at Figure 1.

One thing to notice is that our story about shifting to services starts off at an unusual place: a service.

Early music listening experiences were services. People would sing to each other. Soon they had created instruments (products) and as well as singing they could perform. But still, music reproduction was very much a service. One where musicians would use their skill in playing instruments to entertain an audience. On our goods-services continuum we could see this as a “major service with supporting products”. Since the focus is the service that is delivered often using products.

If we jump forward in time a little to the medieval courts then we find music being reproduced by travelling bands of musicians. We are still talking about a service, though one that is mobile. But, it is not a very convenient service.

Delivery and consumption are inseparable in a service (one of the 5 Is of services). And that drives a problem here. You have to have the audience and performers together. Which in medieval times limited the service to rich people who could both afford the time and money required for this service.

The next breakthrough came by breaking this inseparability.

I want to break free…

There is a tendency, and the narrative of this site, to think that services are more convenient and better than products. We are after all hurtling towards service-based economies.

However, here in music reproduction, we see several attributes of a service that give us a challenge.

For a start, services delivery and consumption are inseparable. This certainly restricts growth – unfortunately we can’t all get Bruce Springsteen into our living rooms for a Sunday night concert. This is not necessarily a scalability issue. It is if we all want the live Bruce Springsteen, there is not enough of him to go around. But if we just want Bruce Springsteen music, we could hire our own band to play it. Of course, now we increase the inconsistency since it is not the real Bruce we are listening to. We also can’t store a Bruce performance (there is no inventory) and listen to it later.

But, what if we somehow could capture Bruce and the E Street Band playing. And if we could store that capture and replay at any time we wanted? Then we break the inseparability. It is no longer inconsistent. We could build up an inventory. And we open the door for scalability (assuming the recording and playing devices are cheaper than hiring your own band.

The invention of the phonautograph/phonograph – which are products – started this revolution.

Once they caught on, the quest was on for improvements in quality (consistency) and scalability (product profits). Leading to product innovations of wax recordings. And then flat discs. Followed by the invention of “negatives” and a world of mass consistent music reproduction.

And finally, for now, our (product) innovation story arrives at the innovation of mass-produced vinyl records and tape.

(The EMI archives have a comprehensive history of these product innovations and developments between the phonautograph (that preceded the phonograph by 20 years in 1857) and when vinyl became the worldwide industry standard in 1964).

I get by, with a little help from other industries…

So with vinyl and tape, we can now listen to music at home in a very product-based perspective. We can create an inventory of music we like listening to. Listening to the music is just a case of putting the record on the player and off we go. Although we have to have the player with us or go somewhere else where this is a player. The “performance” is pretty consistent give or take the odd scratch on the vinyl.

But, we are missing the interactiveness of a service (the involvement). Maybe, to solve that, we invite friends around. We sit there together listening to the latest album we have.

And now a new service starts popping up. Discos. A newer equivalent to the older days concerts. A DJ has their collection of music that they weave and mix to create a fun experience. The crowd has involvement. The set is inconsistent as the DJ reacts to the crowd and picks different songs to reflect the growing mood. If the DJ plays a bad song or changes tempo too quick, the crowd move off the dance floor. Although we can, we often don’t record the DJ’s night of playing.

An invention that has been around for a while started to be used for more than just broadcasting plays, theatre and the news. Radio shows with music started popping up. And those shows used the skills of DJs to mix songs to provide longer listening experiences. Soon the radio could be used by listeners to both enjoy their favourite music. And also explore new music they hadn’t heard before. The radio was a service diffusing new music to listeners.

We could also stretch the point and say radio, with its Top 40 songs of the week style shows became one of the first users of big data!

But, product innovation hadn’t stopped. In fact, it was about to make a big mistake (or success, depending on your view).

Let’s get digital, digital; Let me hear your CDs talk, your CDs talk…

Some people settle for good enough, and some seek out perfection. Searching for perfect reproduction leads to the product innovation of Compact Discs (CD).

(Philips, the co-inventor of the complete digital system together with Sony, have a very interesting article giving the background to the CD here).

Crucially, for our story, the move to CDs came with a move to digital data. And digital files. Music has become separated from the recording medium. Further, we can now start looking at music as digital goods.

Stand and deliver, your money and your life…

The music industry has historically been caught in a product mindset (also known as product dominant logic). They are only able to see value-in-exchange. By that I mean they see value is created for them at the point of sale. When you hand your cash over in exchange for the record or CD.

Whilst they could sell you a digital goods, they are very conscious of how easy that is to copy. (unless they managed to find a way to encrypt it and tie it only to you and your use) Digital goods are great from a service perspective. They are hugely scalable – creating another copy is virtually free.

“Customers” were quick to pick up on this and music sharing sites appeared (with the enabling innovation of the internet).

Customer power. 

Despite attempts to crack down on pirating, customers had signalled this type of service is what they wanted. Spotify moved in to fill the gap in a more legal manner and showed it could be a commercially viable business model. 70 million paying subscribers in early 2018. Now Google and Apple have similar services.

The profitability of Spotify and old artists complaints might suggest “success” is a hard to define concept. But news artists start gaining their following from independently publishing on Spotify, loading videos to Youtube, and creating direct links with paying fans on services such as Patreon.