On persuading users to pay for a product that was previously free
Their music strategy was centered around a behavioral insight that each person mixed and matched their songs uniquely to match their interests, mood, and situation.
They marketed this asThey encouraged users to acquire songs, mix them into playlists, and burn them onto a CD.
First, they launched the iTunes software that allowed people to rip songs out of CDs purchased from stores, mix them into playlists, and finally burn those playlists onto CDs that they could then listen to the playlist on their walkmans (portable music players).
Second, Apple introduced the iPod to replace the walkman. However, people still had to buy their music from physical stores. Or they would download pirated songs off the Internet via Napster.
What’s Napster, you ask? In 1999, Napster was born. It was a peer-to-peer file-sharing network that allowed random people on the Internet to share music files. It became an instant success. However, it also led to copyright infringement, and it was eventually shut down. But the idea lived on as other products like Limewire came up.
However, a key challenge was persuading people to pay for music they already had available for free.
Why should news products bother
I was reflecting on this piece of history because, at many levels, news products are attempting a similar transition.
Since the birth of the Internet, audiences have accessed digital news for free. As a result, news companies have been earning through display advertising. However, most news products have started implementing paywalls with varying degrees of success over the last few years.
How Jobs persuaded you to pay for music
Below are some notes from Jobs’ presentation on April 28, 2003.
Choosing the battle to fight
Apple knew that purchasing CDs from brick-and-mortar was a diminishing but existing business for their partners — record labels. Competing against them wouldn’t be productive as they would cut off access to the music licenses.
Hence, Apple focused on comparing with Napster-like services.
You get the same convenience as Napster.
Jobs explained that Napster became an instant success because of its convenience. It gave people near-instant gratification of buying/accessing a song compared to driving down to the music store and purchasing a CD.
Napster had a much more comprehensive music selection than any brick-and-mortar music store. Also, there were no restrictions. People could use those songs on as many CDs, iPods, computers as they wanted to. And of course, it was free.
Apple offered all of these.
Use iTunes because you are responsible.
However, when it came to free, Jobs highlighted the moral bad associated with the culture of free, i.e., users were stealing.
Jobs said that people are pirating music on the Internet because there is no other legal alternative that provides the same convenience. And that’s where the iTunes Music Store comes in.
Use iTunes because you are dollar smart.
The iTunes Music Store would provide the convenience of Napster without the downsides for only 99c per song. Author’s note: 99 cents in 2003 is worth $1.51 in 2022.
But is 99c low or high? Jobs compared three songs to one Starbucks Latte.
But why should you pay at all? Because you are smart.
When searching for a song online on Napster, you did not find one song. You found 50 options. Napster did not have previews. So you’ll spend time finding the right song, downloading it, and then realizing that it isn’t the right one. And then you repeat the same process.
For context, back in 2002-2003, the average Internet speed in the US was 880kbps. In comparison, the average Internet speed in the United States in 2022 is ~100 Mbps, some 11,000% higher.
Jobs calculated that it typically takes 15 minutes to download the right song. And hence, you’ll need an hour to download four songs that are available for below $4 on iTunes.
Use iTunes because it is better than Napster.
There were other challenges with Napster, especially when it came to the quality of music. Apple solved this by implementing AAC encoding (Digital Dolby quality).
Use iTunes because it is useful and not convoluted.
The rest is history
As per a Rolling Stone article, “In its first week, iTunes sold one million downloads and soon became not only the top online music retailer but, displacing Walmart and Best Buy, the top music retailer.”
In 2013, Apple announced that it had sold 25 billion songs on the iTunes Music Store.