CNN video coverage on South Korea's Cyworld(SNS)

Last week(10/18) CNN.com/Asia introduced South Korea's social networking service - Cyworld, which is considered Facebook of Korea. (Video clip below)

Cyworld, which means Cyber World, shows off 21 Mil. subscribers, almost 45% of total population in Korea. The web community site is a cultural phenomenon. Almost every young people logs on to the site on a daily basis or even more to make and decorate their own personal, virtual rooms-we call it minihompy!(mini-homepage) with photos or BGMs(BackGround Music) which is automatically played when somebody visits the rooms.



The thing is that Cyworld is one of the top music services in Korea as well. In the first half of 2007, Cyworld just passed 200 Mil. download mark for BGM since launching its paid BGM service and it made $ 100 Mil. in revenue. Unlike other social networking services which highly depend on ads sales, it has made meaningful success in creating big revenue source of music.

Now Cyworld is trying to expand their presence globally including U.S. But it is struggling to overcome cultural difference. More will be covered later...

Korean music market : 2000 to 2007

Korean music market has gone through as big turbulence as global or even more. Here is some numbers telling how offline CD sales has been dramatically slashed and this physical sales decline has not been offset by digital sales increase.

As for CD sales, it has marked all time high in 2000 with $450 Mil. like below. But afterwards it continued to decrease and finally last year reached the level of one-fifth of its peak. On the other hand, digital sales including online and mobile music grows by 26% CAGR, but still fail to compensate for drop in CD sales.


* Estimated 2007
(Related article written in Korean)

The thing is, unfortunately this trend would continue in 2007 and the market seems to be at a standstill. It is said that music is more popular than ever with fast penetration of music devices like music phone or mp3 player, but the industry is suffering due to piracy like illegal download and file-sharing.

Music industry won the digital piracy case...

In the last week, there was a symbolic event that the music industry won the first court case against piracy. Reportedly, of the more than 26,000 lawsuits that record labels have filed against alleged pirates since 2003, this case was the first to actually be tried before a jury. And also this shows that simply making the songs available, not an actual transfer of a digital-music file was a copyright violation.

I think it would make meaningful impact on customers' behaviour, combined with new ideas like selling some songs on iTunes and Amazon.com without copy protection or offering free music to people willing to watch ads. That is, we could expect that more users are willing to get out of black market and join the paid one. Of course, the piracy would never go away and these lawsuits might make people angry, but people would tend to think twice about downloading illegal music and turn to legitimate music of innovative service providers with greater user experience. If so, who will be the winner? A la carte download without DRM protection like iTunes or all-you-can-eat subscription service like Rhapsody or ad-supported free music like SpiralFrog.com?

More music buyers spend less...

I came across some stats showing annual music spending in the US over the past 3 decades. It tells the number of total music consumers is actually growing despite the popular belief that fewer people are buying music. It's just that they are spending a lot less.



Definitely falling music sales per capita would be big headache to the people in music industry. But I think market potential has not gone away yet, as shown in growth of % music consumers. The bottom line is how we could make up compelling reasons for them to each spend more. What would be the answer? DRM free or great user experience(like end-to-end offering) or legal action against piracy?

What values can digital music service provide for its users? : Network value(3/3)

There was a time when the traffic to the site was one of the most critical factors for almost every dot com companies. So-called category killer sites like Amazon(book), eBay(e-commerce) used to try to gather as much page views or unique visitors to the site as possible, by expanding its own product catalogue or developing the affiliate programs with partners. But as the rule of game on the internet has changed and the initiative in value chain has been transitioned from service provider to the customer, the ultimate goal becomes something more than just traffic. That is attention from users. In the economic sense, the supply side on the internet is getting abundant, but the demand side-attention from customer is getting more difficult to secure.

So in order to gather the scarce resource of attention, the service providers start to feel they themselves don't need to be final destination and instead it is good enough to let as many users have only the path to the site. I think that's why widget and rss, which give the capability of networking with the outside of the site, come up.



In the customer perspective, current users want to express themselves effectively instead of having their identities locked in the sites they visit. So major players start to focus on this Network Value. iTunes, which has been well-known for its closed eco-system(iTunes-iPod), recently launched widget service, My iTunes Widget, allowing iTunes users to publish their purchase history and artist preference to the outside. Basically the sites want to make everything managed inside their own service domain under their control. But giving network value to users seems against this. Let's see how big players would tackle this dilemma.

What values can digital music service provide for its users? : Social value(2/3)

In analog era before music is fully digitalized from the stage of its creation like now, music had been very personal content for a long time. People used to purchase albums of artists they liked as a type of cassette or LP or CD and listen to them in personal space with home audio system or portable music player like Walkman. The only way of getting information about other people's musical taste is to watch or listen to tradition media channel like TV or radio. In addition, music-related magazine like Billboard could provide chart information only as statistical output of listening-behaviour of the masses.

As web 2.0 world is coming up, which usually brings with some keywords like participation and openness, digital music space starts to make meaningful turn-around in terms of 'socialization'. That is, we came to be able to see and even have experience of other people's musical tastes on the web with the help of tagging.

Most of web 1.0 sites have so-called hierarchy for site visitors to browse and navigate. Music sites have had usually 3-depth or more of hierarchy for its vast catalogue.( 1st depth is genre, 2nd depth is style and the 3rd is sub-style or first is artist and second is album and the third is track) iTunes still has this kind of classification - its own taxonomy. Of course this has some merits like clear edges by expert and predictability. But as active users with their own tastes get in and tagging system is added for supporting them, new user-centric hierarchy, so-called folksonomy, comes up and users are able to give multiple facets to the music according to their own preference and categorize their own music collection for themselves as well.



On top of that, tags( or tag cloud) give another way of browsing and make people have serendipity. Also tags can make users experience new social connectivity to other people linked with certain tag.



Just think about it! If you have special interests in the niche like Korean pop or Buena Vista Social Club in Cuba, you could meet somebody with similar tastes from the other side of the world. Isn't it amazing?

What values can digital music service provide for its users? : Personal value(1/3)

Not only traditional(?) online music service providers like iTunes but new music 2.0 sites like Last.fm are competing with each other in terms of giving more values and greater user experiences to the customers than ever before. I think there are basically three types of values all the music services should focus on.

First of them is personal value. Unlike offline cd store, online music store is supposed to have no physical limitation for archiving its catalog and in iTune's case it has over 6 million tracks. So in customer's perspective he/she can now browse and search any music content he/she want to listen to in online store. Consequently very 'Long-tail' can be seen, which has never been expected in offline. But users came to feel it not so easy to find out new music and even certain type of music they prefer among vast catalog.

That is, very important value proposition on this area comes up : personalized recommendation for target users. I know this is not a new story. Some big players like Amazon.com in products or contents recommendation area has been already out there. But the thing is how elaborately product or content could be recommended for target user.

To do that I think we need three components like well-organized product or content data set and user preference information in data perspective and recommender, a sort of recommendation algorithm or engine, which can effectively combine those two data sets.


(source : ChoiceSteam's Technology Brief)

Moving forward, how to balance these three components could be important factor in designing recommendation system. Each music service provider has its own recommendation system geared to its business model. iTunes and Pandora has adopted content-based recommendation system and Last.fm, on the other hand, is well-known for user-based collaborative-filtering recommendation by capturing massive users' behaviour. Well, in the long run a sort of hybrid system of those two would be final winner, I think. Who will run for it?

Music is utility?

iPod has been a No.1 digital music player since its debut in 2001. It takes over 70% market share, overwhelming other competitors in the table below. Reportedly, over 100 Million units of iPod have been sold cumulatively and at the same time sales of songs through iTunes(which has crucial role for accelerating the sales of iPod) have hit a new high, 3 billion downloads and more as of first half in 2007.

It could be read that every iPod has 30 songs on average inside which are supposed to be directly downloaded from iTunes. Well, it looks not so big. It means there have been so many activities for accessing digital music including illegal piracy in spite of big success of iTunes.

All the actions to get music looks so pervasive as it could be considered almost utility. I think utility business model in tap water and electricity might be applicable for this digital music. Some idea on this will be posted later.

Deals on Digital Music Players - WSJ.com

The Biggest Bite
The iPod has captured the biggest chunk of the market for digital music players
Company	Market Share
Apple	71%
SanDisk	10%
Creative Labs	4%
Microsoft	3%
Samsung	2%
Source: NPD Group

What is the core in consumer electronic Device?

Nowadays so many electronic devices, especially capable of playing digital content like music, video, photos and etc., have been boasting their excellence, saying wide screen, touch pad or touch wheel(in iPod), big storage, internet connectivity, slim, fancy design and so forth. But it is definitely hardware-oriented perspective. Thing is it seems not so easy for 1st-tiers among device makers to maintain their technological leadership in terms of hardware performances. On top of that, convergence inside device domain is getting fierce. For example, iPod was launched as a music player, but it is evolving into Video iPod and then iPhone. Likewise, Sony's PlayStation was debuted for just game console, but now Sony is trying to re-position it as a media server at home, helping connect all home devices.

So I think it is no meaning any more to classify the devices with its functionality only but we have to turn to the content itself. That is, device makers start to think of user experience about diverse contents played on their devices, including how to simplify the whole process for content delivery to the devices or how to give end-to-end offering to users. In this context, I believe Nokia and Sony and Samsung have decided to recently launch their own content store along with their devices.

Especially Sony case looks quite interesting to me. it is reported that Sony gave up its own music store called Sony Connect. Instead it is trying to direct its attention to movie download. I think it is quite smart approach. Video download market looks less competitive compared to music download area where iTunes already covers almost 80% of market. and its device line-up embedded with video-playing function is quite broad and powerful. (Let's see its PS3 and Bravia TV!.) It is worthwhile for the time being to keep watching how Sony is going to shape its future in this area. Good luck, Sony!

Focus on time-share, not market share

Nokia and Google and Sony Ericsson and Apple have finally started to run for one destination - just end customers' attention itself whatever situation they are in wired or wireless environment. There are so many alternatives out there for any product and services and likewise competition area is being overlapped more and more. That is, Only blur exists.

But one thing is clear, customer is always there, who sometimes feels it difficult to evaluate which product or service are good and right for him/her in this over-abundant world. In the long run, the company which will be able to provide great user experience and end-to-end service would be a winner. For example, so far there has been traditional value chain in digital music area from content creator(or owner) through content syndicator via platform provider and network operator to finally terminal(or device) in end customer's hand. But nowadays the whole chain is getting shorter and shorter. So smart guy like Apple has been successful in controlling this entire process in this convergence era.

Music is one of the most important sources among entertainment contents for taking attention regularly from almost everyone. So I think other big players have no reason to pass over this potential. Who will be next to Apple?

Gadget Maker or Service Provider? Firms Start to Overlap - New York Times

Sony closing down their Connect digital music store

Well...Sony, which has been well-known for its Walkman series in music domain, gave up its own music store-Connect and its own file format - ATRAC in the long run and instead, it is trying to make partnership with MS to focus on mp3p itself. I think it would be not so easy for big device maker like Sony to deal with digital music. In this context, Apple is terrific... they already went beyond some limitation of hardware-oriented perspective. What about Nokia? Its starting point seems not so impressive so far!

Sony closing down their Connect digital music store

Nokia unveils Nokia Music Store

Tech Digest: Nokia unveils Nokia Music Store, its iTunes rivalling digital music store

Welcome Nokia for joining this digital music space! I really want to see its upcoming PC client.

Story-telling is crucial in even digital music.(eMusic's case)

eMusic has 200 editorial staff to create some story and context behind artist and album.(Dialogue: More with eMusic's Pakman ) They are trying to conveying some message to users for why this would make sense. I think it's another way of music recommendation by expert. but it seems that cost a lot!

Long tail is not only Long, but strong in digital music space(eMusic's case)

The average iTunes customer buys one song per month, spends about $10 a year on iTunes. The average eMusic customer buys 20 songs per month and spends $168. Is this model for everybody? Of course not. But we’re not trying to appeal to everyone. (in Dialogue with eMusic CEO Pakman)

>>> it means there must be a meaningful niche market for indie music in US. What a interesting! He want to go beyond music category and reach other entertainment area because he believes eMusic could and should be direct marketing entertainment retailer. Long-tail knowledge could be transferred in other areas?

No. of Unique visitors in music services

Net effect: That's Real-ly entertainment

It contains unique visitor information among top music service including iTunes, Rhapsody and etc.