The most important digital music developments of 2011 have a sum greater than their parts. When combined with the world's biggest social network, the "freemium" business model helped give music subscriptions services a much-needed kick in the pants.
A freemium model is quite mainstream these days. Companies have learned that allowing some level of freeloading helps get people in the door. The New York Times and Hulu, for example, both offer limited experiences for non-paying users and allow paying customers more access to content.
Subscription music works like a funnel. The goal is to pull people into the funnel in hopes of turning a fraction of them into paying customers. Portability and exclusive content are carrots dangled in front of free users. Just get them listening, Spotify CEO Daniel Ek says, and they'll get hooked. "If we can focus on getting people to listen to more music than they were before and they're building more playlists, they eventually will convert."
Spotify brought its freemium model to the United States in June. Free users get an ad-supported, scaled-back service with limits on listening time and no access to Spotify's mobile app. Unlimited Web and mobile access costs $4.99 and $9.99 per month, respectively. Similar services have the same prices.
Rdio and MOG soon followed with their own approaches. Rdio sets a moving limit on the time free users can listen each month. MOG treats its free version like a rewards program. Users start with a full "gas tank" that decreases as time is spent streaming music. Additional time can be earned as the user invites friends to join MOG, creates playlists and shares music with friends.
Rather than shy away, labels trust MOG's unusual approach will convert non-paying users, MOG senior VP of business development Drew Denbo says. "We all believe if we can pull down those barriers we can bring a ton of people into the funnel."
The freemium model got a much-needed boost at Facebook's f8 conference in September. The social network partnered with a host of music services to enhance their social capabilities. So when a user of Spotify, or another partner service, listens to a song, that activity is displayed in his friends' news feed. (Users can opt for a private listening mode.) "Putting it on the world's largest social network obviously makes sense-both for Facebook and for Spotify," Ek says.
Facebook sees music as a fundamental way people express themselves. With the upcoming rollout of Timeline, a new layout that chronologically details a person's life, Facebook wanted an ability to capture what people listen to over a period of time, Facebook platform director Carl Sjogreen says. "It's about you as a person on Facebook who cares about the story you're telling the world."
The early results are encouraging. Spotify claims that through Nov. 8 it has added more than 4 million new users, and Rdio logged a 30-fold increase in new-user registration. MOG claims it has had 375% growth in monthly active users on Facebook through Nov. 11. In all, the partnerships have resulted in 1.5 billion shares in less than two months.
"The more it shows up on the Facebook news feed, the more it explodes," Denbo says.