Innovate or...?

A recent techcrunch article tells a now familiar story. See if you've heard it. An early innovator in a market space has had its niche, more or less, cornered for a few years. It provides a service its users didn't even know they wanted but now can't live without. Competitors are few and unserious- their alternatives are inelegant and buggy. All is well.

Only, a couple more years pass and suddenly a few industry giants are getting their act together and targeting the innovator's niche. They're not necessarily producing a better product, all down the line, but they've managed to zero in on a few of the real value-adding aspects of the innovator's offering, while undercutting it in some way. The innovator experiences a slow, but steady decline, as customers gravitate to the Giants' vision.

This particular story is about Pandora , the music-streaming service which has shed just over a million users, 1.5% of its user base, in the last year while losing a tenth of its stock value. The problem? The success of rival services like Apple Music and Amazon Music, which offer radio-like music which is packaged within those companies' broader eco-system. Simply put, it's just cheaper and easier for an someone who stores his files in the Amazon cloud, watches movies on Amazon video, and buys everything from tennis shoes to groceries on Amazon Prime, to also turn to Amazon for his music needs.

Well, I'm a long-time Pandora user. I have probably a dozen semi-active stations and my Thumbprint Radio, which is basically a grab bag of all your frequently played stations, has 2883 thumbs. But I'm also a long-time Prime user who'd never, before this article, used the radio part of Amazon Music. So I gave it a listen, expecting to be unimpressed. But after about an hour of listening to two different stations...it works. Like Pandora it uses the thumbs system to guide and mold stations- unlike Pandora, you have to choose from pre-built, genre specific stations. Which was less annoying than I thought it'd be. When I popped on 80s pop, it didn't sound a whole lot different than my "Alone" (by Heart) station. Within a few songs I got a very pleasant surprise- somehow I'd never heard The Bangles cover of "A Hazy Shade of Winter". So, big library: check.

Now, maybe the Amazon algorithms which customize stations are less sophisticated than Pandora's. Certainly, I'd expect fewer frissons of pleasant surprise- like the one I got when my mid 2000s indie rock station started playing Louis Armstrong (as if it KNEW that hipster kids would want a little jazz thrown into everything). For the casual listener, however, (and most listeners are casual listeners) the Amazon experience is more than good enough. And it's effectively free if you're already invested in other parts of the Amazon eco-system and, as far as I can tell, ad-less.

The techcrunch article points to Dropbox as another product experiencing this disruption, as it faces pressure from other, evolving storage services, which also come with built-in user bases and an expanded ecosystem (think Google Drive or Amazon's Cloud services). But you can stay in the Pandora, multi-media neighborhood and find another big example- Netflix. Unlike Pandora, Netflix is still gaining users world-wide- like Pandora, however, it's stock is down significantly, nearly 40% from its 52-week high. Not only is it competing with Prime Video and Hulu, but it's fending off station specific services like HBO Go, which leverage a few popular, exclusive, products into small but devoted user bases. Add to that the increased ubiquity of live-streaming services and currated video content, and you have a recipe for stalling, and maybe eventually falling, subscribership.

None of this is to suggest that it's not worth innovating. If you're a broad-based tech company looking to create a new niche, or just a developer with a great idea, remember this- even if you don't stay on top, getting there at all can be awfully lucrative and exciting. And offering new takes on established markets (for instance, the Waze app in the GPS industry) can be just as complicated and comes with its own risks. But it helps to be mindful of the ways an innovator can lose its foothold.

Matthew Miller

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