Back in the 70′s and 80′s a product war was waged between JVC and Sony over whose format would become the market standard. JVC created the VHS format and Sony the Betamax one. Betamax in many ways was the better format in terms of technical features and usability, but through a few smart maneuvers on JVC’s part customers choose the inferior VHS format as the market standard. Betamax was better, but VHS was “good enough” and JVC was able to hold onto their market lead when customers perceived the switching costs from “good enough” to “great” as too high.
We’ve seen the same thing happen when Sony tried to launch their Super Audio CD (SACD) format. The company’s label subsidiaries started releasing albums on this technically superior product, at an increased priced, but customers decided CD’s were “good enough” and the SACD format failed.
The same thing is happening right before our eyes in the music streaming market. The two dominant forces, Rdio and Spotify, are fighting for market share and I predict that Rdio’s superior product will lose out. Rdio has been in the US market longer, they have by far the superior product with a better user interface, better product design (see screen caps below), a cleaner client, a vastly better search, and a cleaner catalog. Spotify very recently entered the market and they do exactly one thing better than Rdio: customer acquisition. Spotify has a freemium model and offers a free limited version of the service. Rdio
requires customers to share credit card information to allows customers to try their service for free for seven days after which they’d need to pay.*
Subscription-based streaming music consumption is a radical shift for most customers, so the barrier to sample a product should be very low. The recent integration of both Spotify and Rdio with Facebook provides a huge boost to bringing streaming subscriptions to the mainstream. Spotify just took a massive leap by adding one million new members in the two days since their product was integrated with Facebook, and they’re probably off to the races through a snowball effect facilitated by the new Facebook sharing function indicating that your friends are listening to music through Spotify. This will lead to a situation where most people will try Spotify before Rdio, due to the lower barrier to entry, and then stick with it because it’s “good enough”. They won’t know what they’re missing, and even if they know about it, they’re already invested in using a dominant product that does the job ok.
I’ve personally had both a Spotify and an Rdio account for a significant amount of time, and only fire up Spotify for those rare times that Rdio might not have a particular album in their catalog. It’s frustrating for me to watch the better product lose out, and get their marketing strategy so wrong. Even if they changed it now it might already be too late to unseat Spotify, but I’d love to see them try. Otherwise it will be Betamax vs VHS all over again!
(As pointed out by HackerNews commenter Daniel Hunt, Spotify is available in many more regions than Rdio, and this article focuses only on the battle for US dominance.)
(* My friends at Rdio just let me know they never required credit card info for the free trial.)