Innovation enriches music industry

We often think that innovation is about the Eureka moment. It's about the sudden spark of creative mind. Despite high unpredictability, innovation is a major driver of wealth creation. Right now, the entire world is trying to capture lightning in a bottle through innovation. Starting from startup campaign, policy reform, high-tech park development, massive investment in education to channelling billions of dollar risk capital finance -- numerous measures are being taken to capitalise this potential. Human creativity is a natural and infinitely renewable resource. Leveraging this resource by innovating smarter, cheaper solutions in getting the job done better is crucial for continued development progression. But are there certain patterns underlying innovation dynamics to guide us to take rational decisions in making investment and undertaking policy reform? Here is a review of innovations in the music industry to detect such patterns.

Although the music is an art, it has become the target of technology-led major transformations over the period of more than 100 years. The debut of Spotify at $19 billion valuation in the capital market, or remarkable success of Steve's iPod making sale of 304 million units just over a span of 10 years raises the issue of innovation, entrepreneurship and investment opportunity. Why could not companies like Sony having remarkable history with Walkman sustain its success? On the other hand, why did Apple launch iPhone causing destruction to its own successful creation---iPod? Are these just random events? Or, are there certain repeatable patterns behind such remarkable transformations?

The technology-led transformation in the music industry started with the invention of Edison's rotating tinfoil-based recording and playback machine in 1877. Despite attracting strong interest to this invention from the diverse sections of the society, Edison could not come up with a product around this invention. Upon doing some demonstrations and prototyping, Edison put it on the shelve and became busy developing other ideas, including light bulb. But the potential of this invention pervaded in the community, leading to drawing interest of Volta laboratory. The Alexander Graham Bell and his two associates took Edison's tinfoil phonograph and modified it considerably to make it to reproduce sound from wax instead of tinfoil-giving birth to the recorded music industry. After almost a decade, Edison returned to the race of improving the technology and innovating better products around it. Competition intensified around vinyl industry producing profitable revenue. But the radio technology being developed for maritime communication started to grow as a strong disruptive force to this recorded music industry.

Although developed for Morse code communication, the concept of radio as a medium for mass communication and music hit the airwaves in 1920, when it immediately became a national sensation in the US. In 1920, there were two radio stations in the USA. The next year, there were over 600. During the 1920s, the early record business suffered with the growth of radio-leading to ease of production of records by Edison in 1929 forever. But magnetic tape-based recording and playback gave the 2nd life to this segment of the music industry in 1970s. The introduction of a compact portable music player known as Walkman by Sony in 1979 brought a new sensation in the recorded music industry. As of March 2009, 385 million units of this remarkable innovation were sold, making it a household name across the world. The core technology, magnetic tape-based recording, was also changed during its journey. To overcome the limitation of quality of sound of tape-based recording, laser-based compact disc (CD) technology was adopted. Sony's CD-based Walkman was initially launched in 1984. The emergence of low-cost micro magnetic disk and subsequently flash memory-based storage opened a new era of innovation in portable music playing industry-giving birth to iPod and causing disruption to the Walkman industry.

The growing penetration of internet and availability of flash memory-based portable, affordable device opened the opportunity of bringing a change in music distribution. Instead of physical storage-based distribution, the opportunity of internet-based on-demand distribution became the real opportunity. The MP3 standard simply made this possibility as a disruptive innovation in music distribution. As a result, CD and tape producers along with some label producers lost the business. Among many innovations in this new era, Apple's iTune and iPod are remarkable innovation success stories. Just over a span of 10 years, since iPod's emergence in November of 2001, 304 million pieces of this gadget were sold. Growing popularity of smartphone, having MP3 playback feature, significantly contributed to the democratisation of music consumption.

Increasing the download speed over cellular network, streaming is getting popularity. With streaming content, the user does not have to download the entire digital video or digital audio file before they start playing it-reducing waiting time to virtually zero. The option of tap in the song to be listen has grown as a disruptive force. To offer such streaming service, apps like Spotify, Apple Music, or Pandora have become quite popular. For listeners, streaming platforms present the final word in accessibility with huge volume of music available within a split second. The externality effect like growing bandwidth of cellular network reaching several megabits per second has been addressing the issue of intermittence in the content playback-caused by inadequacy of speed. This music streaming is also experiencing natural tendency of monopoly due to extremely high scale and network externality effect.

There have been six major technology waves shaping innovation, entrepreneurships, jobs and investment landscape of the global music industry over the period of more than last 100 years. In such a dynamic transformation, often innovative firms fail to monitor and assess implications, leading to major business failure. For example, upon failing to assess the implication of internet on music distribution, Sony failed to sustain the success of Walkman. On the other hand, Steve Jobs predicted the likely threat of the growth of smartphone and mobile internet to the success story created by iPod. To counter as well as to take advantage of that threat, Steve pursued the strategy of creative destruction. iPhone was Apple's response to counter the invasion of smartphone in the new segment of the music industry created by iPod and iTune. Apple's such creative destruction strategy created significant larger fortune than what iPod could have created for Apple.

The transformations with successive technology waves tapered certain innovation outlets while opening new ones. Visionary innovators like Steve predicted it early, and pursued the path of creative destruction. But many others could not do so. Discontinuity created by successive generation of technologies should be carefully predicted and innovation pathway should be adjusted accordingly to leverage it, instead of getting marginalised by it. Although innovation has significant Eureka moments, but there appears to be underlying patterns of transformation, which should be detected and carefully taken into consideration in taking rational decision to traverse through unexplored territory in the midst of uncertainty.

M. Rokonuzzaman, Ph.D is Academic, Researcher and Activist on Technology, Innovation and Policy. [email protected]