In August I speculated that music may be the single biggest factor helping MySpace keep its commanding lead over Facebook in the U.S. market.
It’s not that Facebook hasn’t experimented with music over the years. Artists can set up pages and promote themselves, for example, although few choose to do so. Facebook also awarded iLike (the only music service with real traction on the site) with the cherished “Great Apps” designation over the summer, which theoretically gives iLike a level playing field with Facebook’s own applications.
Every time I’ve spoken with Facebook execs, they’re stressed that they have no intention of building their own music service to compete with iLike and other applications.
But all that changed a week or so ago when Facebook began an earnest effort to build a Facebook Music application (Venturebeat has some of the details, although parts of their story conflict with information we’ve obtained). They didn’t announce this publicly. Instead, Vice President of Business Development Dan Rose and his team reached out to 8 or 9 Internet music services to discuss what the service might look like. Facebook execs also met with major music labels in New York this week to discusss the project, says one source.
We believe, based on discussions with a number of sources, that Buzznet, iLike, iMeem, LaLa, Last.fm, Rhapsody and other services were contacted and provided with a document (sometimes referred to by sources as a RFP (request for proposal), other times called a term sheet) that outlined certain goals of the new Facebook music service.
The RFP requires the third party service to build and power a new Facebook Music Service that offers free music streaming and playlists, music downloads for a fee, and other music merchandising services such as ringtones, concert ticket sales and physical goods like tshirts (if this sounds like MySpace Music, it’s because it is exactly their model). The service must not only handle front end user requirements but must also be able to handle the very tricky tracking issues required by the labels to monitor music streams and fees.
The RFP also includes onerous termination provisions that allow Facebook to take ownership and control of the service and the user data under certain circumstances. In return, say our sources, Facebook will offer the third party a split on revenues generated from the service.
We’ve heard conflicting accounts of who will pay for the big up front fees labels require to get a music service up and running. Some estimates of prepaid royalty requirements are as high as $100 million, which Facebook is looking to avoid paying themselves. Other sources say that Facebook may be willing to pay these fees if they can’t force the third party to take them on.
It’s clear from our discussions that the third party music services are impressed by how one-sided the Facebook terms are. To do the deal Facebook requests, one source said, is “suicide.” But it’s also clear that no one wants to be left out of Facebook music, either. “It’s a no-win situation,” said one source.
The Facebook Platform Religious War
Facebook faces a problem – they can’t ignore music and expect to compete effectively with MySpace. But they’ve also promised their application developers, particularly iLike, a level playing field. Those developers have spent significant resources building on Facebook based on those promises. If Facebook now carves music out of that promise, developers won’t be able to trust them in any other area (rumor is Facebook has a similar RFP out for classifieds). The message will be clear: you guys can have all the niche stuff, but if something grows too big, we’ll come in and take it over.
There are three ways Facebook can go forward: (1) build their own music service like MySpace did and lose the trust of their application developers forever (plus it will take them a year or more to build the service and secure deals with labels and other rights holders), (2) partner with a third party to build out Facebook Music, and then compete on a somewhat level playing field with other third party developers, or (3) just acquire iLike (or another service) flat out, since they’re already a “Great App,” and show developers that if they really excel in their niche, they have a path to liquidity.
iLike isn’t the ideal partner for the service because they don’t have music label relationships (they stream music through Rhapsody). But they do already dominate the music scene on Facebook. And Facebook may be forced to forge those label relationships directly anyway, making iLike a good fit.
It’s far from clear which direction Facebook will go. Our understanding is that CEO Mark Zuckerberg doesn’t want to upset developers any more than they already have. Rose is supposedly championing a direct approach that leaves developers out in the cold.
The outcome of the battle will affect far more than Facebook’s music strategy – it will also signal if the company is at all serious about being a platform/operating system for the social graph, or if they just want to own everything of value on the Facebook platform.
Music will elevate Facebook in the rankings.
So will Video
It is an awesome example of marketing and reinvention how they have managed to increase their share in just a year.
This is a valuable lesson for others to follow
you didn’t actually read the post, did you?
Reading the whole post doesn’t make “PublicRelation” get to be the top comment… Reading the headline and responding does.
lol..ok guys take it easy on him, anyway ask him how is the officelive working with him for establishing his site! for free
No he didn’t
PublicRelations your website is the awesome one, not Facebook – you even do Advertising 2.0, Public Relations 2.0 and have your own ePromotion Division – now that IS awesome!
heh, sorry – and I personally think that Facebook should acquire some of the great apps and make them default, like Twitter has with Summerize.
you didn’t actually read the post, did you?
-yes actually write.
Michael, you must be a noob. You don’t actually need to READ a post before posting an irrelevant and unintelligible comment.
Ah good one.
On a serious note whilst labels are stacked with their models, sites with music bring in more users.
I’ve always gotten the feeling from facebook, that they want to be in control and own everything. But I do hope that this isn’t true, but I guess only time will tell.
Who’s taking bets for options 1-3?
I would perhaps bet (1) is the way FaceBook will choose as they’ve shown before they step on whoever whenever, as long as they think it’s cool.
I could say a lot but here is a little.
Facebook contact/friend/fan management is awful, and content management and streaming is not good either.
I’m not sure users care – they have an ipod for that.
I have been experimenting with music on facebook for about a year (not an app) and have no illusions about building a business inside this environment.
(But I do love facebook)
azz kant ambamma en ken tampora. oof en ken tempe lombardi con too too. oof as tiki bampa vam stooki kant sisi az lom po konata.
Just acquire Rhapsody
%100 agree with u on this
I say acquire iLike.
If that’s the case, then I’m going to terminate my Facebook account immediately. I can’t possibly stand to see a RealNetworks company prosper any more than they have; they’re such a scam. If Facebook acquires Rhapsody, they’re going to put down to that level (in my mind at least).
Just try signing up for the Real Media Plater trial (yes, I was stupid) and canceling it. I’ve gotten two months of bills after I’ve canceled the service. Whenever I try to call their “management” they just run around in circles with my simple request of terminating the damn service. Ah, sorry ’bout the rant guys. I’ll stop.
yeah for PublicRelation , as you are trying to spread the word about your business…ur reply to emails suck!
I would love to see facebook acquire iLike and make it their own.
Facebook’s got it twisted.
They should be reaching out to indie artists instead of label execs to see what would make the site work FOR THEM.
The new music revolution is in the hands of the independent artist, not the mega-conglomerate luddite record execs.
Myspace knows this and built their service from the ground up. My new favorite app Soundcloud also knows this and will be huge in the market. Fuck Facebook!
SoundCloud might work well for Facebook, having a small player on their bottom application bar while you browse 10c songs. I think they are more likely to buy iLike though since they are more about “the social graph.”
It raises an interesting issue for those building sites, however, about how much to promise up front. Do we, in the search for initial growth, compromise our freedom to make changes later? Facebook has promised to keep the playing field level, which has in effect, limited their ability to grow. But isn’t growth what is necessary for application developers too?
Facebook should do what they do (social networking platform building) and let others handle music (or any other specific) apps. I’m a newbie, but music is the LAST thing on my mind when I’m going through what all my friends are writing and joining and posting. For music, I’ve got an iPod and iTunes, I’ve got Amazon music, what the hell do I need further market fracturing for???
Your perspective is interesting. I agree with you while wondering if younger people who still spend time on MySpace would want good music apps on Facebook. It seems like MySpace is catering to kids under college age and once they get older and move on to Facebook I bet they would start thinking more like we do and not looking for Facebook to be a source for music.
I’m an independent musician and I am completely frustrated by the poor interface of the music applications on Facebook. And that includes iLike, which I recently deleted . Neither seems to have been designed with the needs of the musician in mind. Facebook maybe cooler, but for music purposes Myspace is far better.
You must be mistaken. Since when has the music business been about music?
Pat, You hit the nail on the head. I was in the music business working in radio and for record labels for 15 years. It was always 99% business and 1% music. Sad, but true.
The more I think about Facebook as a music destination the more I rethink Facebook’s sustainability.
The more they extend the brand, the more careful they need to be.
Facebook jumping into music- and imeem simultaneously scrapping 25% of workforce and appointing a bank for a sale.
Rather curious timing no?
If imeem’s licenses with labels are transferable through a sale- could be the cheapest way for FB to get rolling with a fully fledged streaming service.
Hmm…
you beat me to it!. totally concur.
completely agree, fb should aquire imeem. makes the most sense. and fb is the only company who can pay more than imeem’s ridiculous DAG ventures valuation of $200MM. ilike makes a lot less sense at this point.
classic cathedral vs bazaar.
Facebook needs a music player if it really wants to compete. Said player needs to sit in the FB toolbar and let me listen to my music as I play around the site. So I think it is safe to say that this story makes me happy.
I do not see the hype. Facebook has a good backer and that is about it. The hype will die soon. Facebook is just a fad as far as I see it. No big deal. Myspace has held its space and Facebook blew their chance to carve it up.
When I look at Myspace is looks so web1.0 ish, so old, so childish as if a high school student designed their site. Facebook is boring actually. All these SN sites are quite boring. I cannot see what the fuss is all about. Is it because there is no real viable alternative. When there is where will facebook be?
lol now wake up and smell the coffee. Facebook is here to stay. It has long term traction because a lot of older people use Facebook to keep in touch with there children. The older generation of user is less likely to play this fad game and are not what you call website sluts. They tend to find a couple of websites they can use and stick to those. Facebook is one of those sites.
You don’t have to see what the fuss is about. 80 million people is all that you should care about.
I’ve got two people in my head right now. One is a crotchety old coot who wishes all these high-falootin’ brands like Facebook could just leave well enough alone. Stick to what they do best and let sleeping dogs lie. The other is Rocky Balboa. Oh, you don’t think we can do music? Yo Adrian, cue up the Final Countdown.
why don’t they find something unique to do? why just copy what MySpace is already doing well? There are tons of other things FB could focus their energies on. It’s already become de rigueur for bands to promote their myspace pages – radio, interviews, etc.
FB should broker an ilike/imeem partnership.
Leverage the imeem label deals, while maintaining developer confidence and existing ilike FB reach. ilike lacks label deals or a viable future, imeem lacks real FB reach and ticketing but can scale. Together a real threat.
Not sure what FB’s intent is, maybe to become another Myspace after they denigrated Myspace’s shortcomings for years?
So I guess a service that can bring a Myspace and a facebook to user could casue some problems. Like a Nader effect you think? Who is Al Gore? facebook or myspace?
So I guess a service that can bring a myspace and a facebook to user could cause some problems. Like a Nader effect you think? Who is Al Gore? facebook or myspace?
Another clear cut example of why Facebook has dropped the ball in the second half of 2008. Along with the redesign and the blatant disregard for their users’ opinion and rejection of it, this will really stagnate their growth.
It’s sad to think that Facebook was in the position to eat a large chunk of MySpace’s market share in the first half of 2008. They shot themselves in the foot with the redesign (which ultimately decoupled the Facebook Application Platform from the user’s home and profile pages). So in the process, they lose the accessibility of their applications while at the same time moving away from the simplicity that made Facebook so popular and exchanged that for clutter.
The reluctance to take music seriously has essentially given that precious market share back to MySpace.
Elitism and self-importance are counter-productive in the world of Web 2.0.
“being a platform/operating system for the social graph” web 2.0 speak lives on.
All it will take is one good launch and facebook value drops by half after massive user uptake. Add insult to injury and they may be obsolete within 3 years. Zuck should have sold before the market tanked. facebook is toast.
Making music as prominent as it is on MySpace would ruin the Facebook envrionment. Facebook is cool because you DONT have shitty bands asking to be your friend and trying to promote yourself to them. There’s no indicator that the new myspace music service has helped MySpace at all. It’s funny that Facebook is so scared of this service when its not helping MySpace.
i hope the music doesn’t autoplay
I wonder how many people Facebook is going to have to layoff? Anyone have any guesses? I bet its a LARGE number!
Facebook should do none of the above. Launching Facebook Music would be the beginning of the end for the company.
They need to remember who they are, a TECHNOLOGY company. So what does that mean?
You continue to focus on building the platform that will allow the iLike’s of the world to flourish.
technology in what department?
for entrepreneurs: own the platform
Sigh…does anybody really think about the margin in this new venture… Facebook is chasing topline with no weight to the bottom line.
Let’s take the historical example of MTV…MTV used to have GROSS PROFIT margins on 30% or less because they had to pay 70% of the revenue to the music labels. Not much has changed in the business models today. Imeem and related businesses fall under the same deal terms and also have to put together huge revenue guarantees ahead of actual revenues (more CAPEX type expesses at Facebook, over the $200million they are spending this year). In addition, it will be difficult for them to get the terms that MySpace has given how the equity structure was setup at myspace, which has been the main reason full lenght content hasn’t hit Youtube and has went to Hulu. So, lets do the quick math, they need $300million in revenue to produce $100million is gross profit, ($1per active user), which will then have operating costs and infrastructure costs…
They are looking to the wrong part of the internet, there are much better businesses for Facebook to be starting…i.e. secondary ticketing, auctions, classifieds, jobs, real estate (mainly rental), etc. Facebook should be thinking of being a bigger badder IAC (which has been neutered because it doesn’t have a captive user base) not the next Google.
They have to think $10billion in market cap before they think $50billion. This will be a messy distraction that will look much like Yahoo!Music…remember that?
Why does Facebook need music? Because MySpace has it? I love these also-ran approaches to business building that floods the blogerati. Let’s face it, the only company to really make money on digital music is a rag-tag outfit in Cupertino. They (or he) seemed to figure out that the margins of music are sh!t and hardly worth building a business on. Folks like Imeem and Pandora are on hard times because its a crap business. Arrington, you yourself have said many times that the price of a track is going towards free. So why even bother?
So the more facebook tinkers with its product without consulting the users the more they begin to look ordinary. Just another website.
Imagine (1) The simplicity with the original portal, ease of use and privacy (short term hype) (2) Developers paradise/translated to extremely cool and innovative apps that resulted in a unique feel for the user hence possible massive user uptake (3) both 1 & 2 are gone.
So what do you have? Just another walled garden where the plants will die of stagnation and the insects will migrate to more lush areas. Facebook is toast.
No real dominance in China, Japan, Korea, Germany, and still second fiddle to Myspace in the USA. The remaining 100 million users (except the UK & Canada market) are freeloaders and will not really contribute much to sales (my guess of course).
They are chasing these ridiculous ideas because they do not have a business model that justifies their valuation and this economic downturn is going to smoke them out of their hole. They are screwed if they don’t quickly come up with some great ideas.
Maybe Facebook should just throw in the towel on the app platform and consider it a sunk cost. It’s been a net negative for many users. And with the redesign, most apps appear to be screwed anyway.
It would be a shame to see Facebook dither about new, potentially lucrative features just because it fears pissing off developers even more than it already has. The value that these developers add to Facebook might simply not be worth it in the end (no offense to them, of course, since the platform restricts their efforts in many ways).
Yeah why are more commenters not talking about developers? My impression as a developer was that the facebook platform was a gold rush to destroy the user experience. Facebook had to take drastic measures to cut down on the spamminess, and the general pace of facebook change has resulted in the ground shifting constantly.
Look, the facebook platform is very impressive. Technically it’s very well thought out. It’s super easy to develop for and provides a lot of built-in scalability. But I think any startup focusing their strategy on facebook is making a big mistake. There’s wayyy too much risk that facebook will screw you at any time for any reason, and it’s proven to be damn near impossible to monetize.
Facebook is in a desperate position to find a business model that works, which is why they’ve screwed over developers so many times, and chase braindead ideas like beacon. Developers have no reason to trust that Facebook will help them make money when they can’t even make money themselves.
Why is facebook competing with MySpace?
Let MySpace die… FaceBook should be careful of Twitter imho.
FB should do Less, not More.
why? myspace is kicking facebook azz in marketshare in the usa.
I’m kind of surprised that no commenter has brought up the fact that allowing developers to play in the niches and then coming in and taking over when the niches are no longer niches are straight out of the Microsoft playbook and developers still work with Microsoft. They don’t have much choice.
Why doesn’t Facebook quire the second best music app. and in the process attract a whole lot of developers to work on similar model for other apps.
Facebook acquiring one of the apps. gives them legitimancy!
Music Labels should not sign with Facebook… They do have a choice.
If they begin to feel left out, they could always forge a partnership with Facebook (if they are a big enough label). If Facebook isn’t granted rights to stream music, even from just one major label, they’ll be forced to partner with another service.
Facebook has shown that they want to monopolize the internet, and the record industry doesn’t need to fall into their trap. Doing anything with Facebook will ONLY benefit Facebook — the recording industry will take an unnecessary blow.
Fuck Facebook, go labels!
I don’t like the idea of Facebook acquiring iLike. iLike is ok, but not my choice of service. They really need their own app, but can’t lose developers, as they have a huge hand in FB’s success. If they must acquire, they should go for something else, something simple and better.
Oh, and it is completely true that music is the only huge thing that’s keeping FB behind MySpace in the US market. Music is a huge part of American culture.
On the whole royalty fees thing… I’m still waiting for the music revolution of the digital age to begin…
No matter what they choose, I hope that they manage to make a deal so that the service works in international markets. It gets quiet up here in Canada, sometimes…
(By the way, I am a big fan of Last.fm, which does work up here, and I can think of a dozen exciting things that they could do with Facebook if they each agreed to play nice)
where is mongomusic when you need them?