A new on-demand music service arrives with a gorgeous app, a focus on editorial curation, and a lot to prove: the description fits Beats Music, which launches its service for $9.99 per month on Tuesday. (AT&T customers will be able to sign up for a $14.99 per month family plan, which allows up to five users full access to the service.) But it also applied to MOG, the service that became Beats after it sold to the maker of popular headphones. Four years after MOG tried and failed to knock off Spotify, Beats executives are confident they have the product — and the marketing dollars — to make streaming music go mainstream. But has anything really changed?
Interviews with former MOG executives suggest that for Beats to win, the company would do well to spend at least as much time marketing its service as it did building it. Spotify, with its utilitarian black-and-pea-green design, has long trailed competitors in looks and features. But by securing better deals with labels than its peers, and showing a genius for getting its app distributed, the company has galloped past its competitors to more than 24 million monthly users — momentum so strong that other companies are too embarrassed to reveal their own numbers.
While the company has yet to turn a profit, Spotify raised $250 million in November in an effort to outmuscle all its rivals. Soon afterward, it unveiled free artist-specific radio stations for mobile devices that none of its peers can match. It was exactly the kind of move that has made it so hard to compete with over the years — using its momentum to build free services that draw in new users by the millions. "Spotify had the marketing dollars that none of the other services had," one former MOG executive says, who, like others, spoke on condition of anonymity to preserve business relationships. "Ultimately, that’s what really put them head of the pack."
Ben Popper interviews Beats CEO Ian Rogers
The story of MOG
MOG, which began life as a network of music blogs, launched its subscription service on the web in December 2009. That was more than a year before Spotify, beset by negotiating troubles with the major record labels, launched in the United States. MOG earned some critical raves and was first to introduce a handful of features later adopted by its competitors, including personalized radio and high-bitrate streaming for audiophiles. "They were kind of the little engine that could, a little 40-50 person company building a great product with high fidelity," says Ian Rogers, the CEO of Beats Music, who was a paying MOG subscriber.
"The marketing team was a couple of people, and there was no money there at all."
But even though MOG had a head start on Spotify in the United States, the Swedish company founded by Daniel Ek quickly came to dominate the conversation around digital music. Its competitors were caught flat-footed when Spotify offered a free, advertising-supported version — something US record labels never would have allowed them to do, and which attracted several million people to try streaming audio for the first time. MOG’s marketing efforts paled by comparison. "The marketing team was a couple of people, and there was no money there at all," Rogers says. "They were reliant entirely on word of mouth."
The free tier proved to be the first of several marketing coups for Spotify. Another came in 2011, at Facebook's F8 developer conference, when the social network unveiled Open Graph, its system for letting third-party developers publish stories to the News Feed. Spotify, Rdio, and MOG were all launch partners with Facebook — but only Spotify got to put its chief executive on stage with Mark Zuckerberg, in a move that surprised MOG executives. Less than a week later, Spotify announced that it had added 1 million new users.
MOG finally introduced its own free tier that month, but it may have been too late. The company never reported how many subscribers it had, and it struggled to gain attention. And so few were surprised in the spring of 2012 when word got out that MOG was up for sale. In July, Beats announced it would acquire the service for $14 million — at a time when Spotify was fast climbing to a valuation of $4 billion.
Beats' big plans
So how does Beats plan to beat the competition? Spotify isn't the only competitor it has to worry about — there are also Pandora, iTunes Radio, Google Play Music, and Rdio, with Deezer set to arrive in the United States later this year. Notably, Beats will launch without a free tier beyond a seven-day trial. "If free is your only innovation, I think that’s pretty sad — that’s my review on that," Rogers says. "I think that people are willing to pay for a good experience."
"If free is your only innovation, I think that’s pretty sad."
The good news, if you're a Beats investor, is that the company seems to have learned from MOG's marketing mistakes. It raised $60 million to build and promote Beats Music. It signed promotional deals with AT&T, Target, and Ellen DeGeneres that are likely to introduce streaming music to a wide swath of music fans who are still paying $0.99 for digital downloads. And with music icons Jimmy Iovine, Dr. Dre, and Trent Reznor heavily involved in building the service, Beats can also leverage its relationships with top-tier artists into a powerful promotional machine. The launch promotions will culminate with an ad that airs during the Super Bowl. "Beats is a very established brand," Rogers says. "Almost half of the people we survey say they would install it just based on the brand. But we’ve also got these partnerships. And this game is going to be won with distribution."
Critics have generally scoffed at the sound quality of Beats Electronics' headphones, but there's no denying their wide reach. The company, which was founded by music mogul Iovine and Dr. Dre, began selling its headphones in 2008 for $350. Five years later Beats owned 59 percent of the market for headphones that cost $99 or more, according to NPD Group. The Wall Street Journal reported last year that Beats revenues increased fivefold between 2010 and 2012, to roughly $1 billion.
It got there in part through the bold design of its headphones and the imprimatur of Dre. But it has also been shrewd at promotion — securing a product placement deal with American Idol, for example, that put its headphones in front of millions of Americans every week. (Iovine served as a mentor on the show from 2011 to 2013.)
Slick design and cool features alone are no guarantee of success
In the run-up to Beats’ launch on Tuesday, its executives are spending most of their time talking about the app's extensive editorial curation, which features hand-built playlists for scores of artists documenting their influences and artists they have influenced. They're talking about Right Now, which lets you generate a playlist by creating a "musical status update" based on your location, current activity, who you're with, and what genre you'd like to hear.
But if MOG's experience proved anything — and as Rdio's struggles have highlighted as well — slick design and cool features alone are no guarantee of success. With most Americans still unsold on the idea of renting their music rather than purchasing it outright or downloading it illegally, streaming-music companies face an uphill battle. The most effective way to persuade them to date has been to give them music for free for as long as possible. Beats isn't taking that approach. And if it's marketing efforts don’t prove as effective as executives promise, its history may wind up looking a lot like MOG's.