Feb 21

Tim O'Reilly

Tim O'Reilly

Radio Forgets to Pay the User First

Phil Torrone just sent in a pointer to a great editorial by Howard Kurtz in the Washington Post about XM and Sirius, entitled Satellite Synergy. The point of the article was that the proposed merger should go through because the two money-losing satellite radio networks aren't really competing with each other, they are competing with the iPod and internet downloads. Kurtz notes, "I just wish they had more competition from terrestrial radio."

As Phil noted in his email, the best quote in the article is this:

The reason these two companies have 13 million subscribers willing to cough up $12.95 a month for something we all grew up thinking should be free is that commercial radio has self-destructed.

All these folks (including me) are paying for satellite because they’re tired of cookie-cutter radio formats stuffed to the gills with commercials. They’re also fed up with focus-grouped music stations that play the same 60 songs until you keep hearing the chords in your sleep....

Really, can you think of an industry (okay, maybe American automakers) that has frittered away such huge advantages and sent its customers scrambling for alternatives?

I can think of several. Close to home, Microsoft and the PC software industry is a great example. Television networks and local stations are another. Cell phone carriers are still making money, but I'll lay odds that they will one day wake up to disruptive competition.

Each of these industries forgot one of the key principles of success in business, which is to focus on your customers. In our Web 2.0 Principles and Best Practices report, John Musser calls this "paying the user first."

Just remember how Google got their edge. It wasn't just pagerank and better search results, it was refusing to go the portal route, with intrusive advertising, and instead trying to figure out how to create a better user experience with advertising. Making ads non-intrusive and useful to their real customers was one of Google's biggest breakthroughs. (They will forget that at their peril.)

In a world where you get increasing returns from network effects, putting users second, or third, or fourth, in the hierarchy of your concerns is a losing proposition.

That being said, I won't claim that either Sirius or XM has a great track record here. Each of them tried to lock in all kinds of exclusive content and adopted incompatible winner-takes-all hardware approaches. That's why, despite the sad state of the competition from terrestrial radio, they've still lost so much money.

Today, you need to ride the wave of commoditization in both hardware and software, and build your value in new ways. Understanding those new ways is the heart of Web 2.0. And a big part of that is putting the user first.

tags: web 2.0  | comments: 9   | Sphere It

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Comments: 9

  daniel [02.21.07 12:35 PM]

Actually, for those of us who grew up working in radio this isn't quite true. Some of the great minds behind the satellite radio networks are partly responsible for the death of interesting terrestrial radio.

We used to play records that grabbed us and that we found interesting until consultants took over the rotations. I remember going from my college radio station that had thirty-thousand albums in the studio to my first professional gig which had three thousand and crying.

My colleagues warned me that this was actually an embarassment of riches. Sure enough, the next station I worked in had less than one hundred songs in rotation at any given time.

Combine this with the era in which one owner was no longer restricted to how many stations he could own in a market or nationwide and the guts of radio were ripped out.

It was in this light that satellite radio had a chance. Commercial radio didn't just self-destruct, the people selling you radio for thirteen bucks a month helped do it.

On the other hand, it is why I am so hopeful for online audio. I think podcasting has a real place for conveying passion and people.

  Josh Peters [02.21.07 01:51 PM]

Tim, if Skype has its way the mobile phone industry may face the crushingly disruptive power of software:

I for one believe that anything hardware can do, software can do (if not better than good enough) and when you mix in Internet Protocol, anything your proprietary network can do, the Internet will do it good enough.

  Dennis Linnell [02.21.07 05:48 PM]

Tim's point about putting customers first is paramount to success in any business. Note that this merger has been proposed because the (nearly identical) subscription-based business models of Sirius and XM aren't attracting enough customers and, as a result, aren't profitable for the companies. Regardless of the outcome of the merger, the companies ought to be thinking seriously about alternatives to their present business models. One of the hallmarks of successful Web 2.0 entrepreneurs has been innovation in creating business models that not only make money, but, first and foremost, benefit customers. Sadly, this ethic is lacking in radio and traditional media.

  John Dowdell [02.21.07 08:38 PM]

Funny that it came from the Washington Post, though....

(I read the first page, but didn't read the subsequent four that the article was spread across.)

  Joe Duck [02.21.07 10:28 PM]

Great 2.0 point about users ruling. However heavily capitalized biz models like Satellite radio or Cable or Cellular still don't necessarily need to worry about us(ers) to survive because there are few alternatives. This may not change for some time.

  csven [02.22.07 05:03 AM]

When numbers become more important than users, isn't this almost always the case? Perhaps someone should remind Clay Shirky that there's more to consider than only the numbers.

  Leo Klein [02.23.07 10:04 PM]

The structure of Broadcast Radio has radically changed in the last 10-15 years. It's essential to take that into consideration when talking about how an industry focuses on its customers.

It wasn't always like this.

  Kioly [06.09.07 09:44 AM]

It was in this light that satellite radio had a chance. Commercial radio didn't just self-destruct, the people selling you radio for thirteen bucks a month helped do it.

  Jason [09.30.07 12:11 AM]

I liked your Google example, and this is so true. You MUST always put users first. I have owned a few different businesses and this is the one think that has stuck with me, the user/customer always remains number 1 or face the consequences of your poorly misguided judgment.

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