Business Strategy

Why customer engagement—not Taylor Swift—is key to music streaming success

Why customer engagement—not Taylor Swift—is key to music streaming success

During its Q3 2015 earnings report, Apple trumpeted the success of its new music streaming service. “Millions and millions of customers are already experiencing Apple Music,” said CEO Tim Cook. “That number is growing substantially every day.”

While Cook sounds very optimistic about Apple Music’s prospects, there’s an important caveat to his statement. All Apple Music users are currently accessing the service for free. Its first real test will come once free trials end and users need to pay $10 a month for the service.

What is becoming clear very quickly is that Apple Music’s success is by no means guaranteed. Despite Taylor Swift’s participation, Apple Music has received negative to mixed reviews from critics and Apple customers when it launched in June. And, more crucially, the music streaming war is heating up, with market leaders Spotify and Pandora defending their market share. The marketplace is getting more and more crowded, with over 100 players.

No company has cracked the winning formula, although that’s not due to lack of experimentation. Some services focus on human-curated playlists, while others rely on algorithms to predict what listeners would like. Companies like Apple Music and Spotify give customers control over the tracks they listen to, while the likes of Pandora automatically create playlists for users. Many offer advertiser-supported, freemium models, while others are strictly paid services.

There’s a lot of dollars at stake. In 2014, revenue from music streaming subscription rose to $1.87 billion in the U.S. alone—a 29 percent increase from the previous year. Demand for streaming is also accelerating, increasing 50 percent in the last year.

With billions of dollars on the line, winning the music streaming war hinges on three critical factors.

Customer loyalty

Coinciding with the launch of Apple Music, we asked 1,020 adult Americans about their behavior and attitudes towards music streaming services.

Our study confirms what many music business experts know: streaming is hot. Over half of Americans already use or subscribe to a music streaming service. However, customer loyalty is practically non-existent in this market. Over half of Americans use multiple services. For example, market leader Pandora is used by 40 percent of the people we talked to, but 28 percent of these customers also use iHeartRadio, 24 percent use Spotify and 16 percent use Google Play Music.

Music streaming - U.S. market share (Apple Music, Spotify, Pandora, etc.)

The promiscuity of music streaming customers suggests lack of satisfaction with what’s in the market. Despite the wide range of options available, users seem to want more. Companies haven’t found the right mix of services and features that will attract a great majority of the market.

To drive innovation, differentiation and (ultimately) loyalty, companies need to better understand the changing wants of music streaming customers and deliver on those wants. The company that best understands today’s music customer will deliver the right mix of features, offers and business model.

Seamless user experience

A recent Time article evaluated 102 music services and concluded that, to stand out in a field of nearly-alike competitors, winning “comes down to brand.” The article called out brand awareness and listener penetration as key factors for success. I don’t think it is that simple.

Of course brand is important, but many streaming players have excellent to good enough brand equity. It doesn’t take much for users to switch, so trying new services isn’t a big deal. There’s no guarantee that Apple, Amazon or Google would triumph over smaller players just because they have a more established brand.

And in fact, our study suggests that Apple Music has some work to do if it would like to catch up with market leaders. A week after the launch of Apple Music, about 15 percent of Americans had used it, according to our study, while another 9 percent want to try it in the near future. That said, a large number of Apple Music trial users also use or subscribe to iTunes Radio, Pandora, iHeartRadio and Google Play Music. These users indicate that Apple Music is fun and they like the selection and quality. Initial reports of Apple’s service are positive but not overly glowing—many are testing it out but unsure if they will continue once they need to pay.

Ultimately, what will keep users coming back for more is an enjoyable and seamless experience. They need to be able to find their favorite artists, and the selection needs to be current. The experience on mobile will have to be just as superb on desktop. And discovering music needs to be fun. To deliver on these, companies must be user-centric and leverage customer insight as they shape the user experience in their platforms.

Market expansion

The real magic would be to figure out how to capture the attention of music streaming laggards—people who love music but haven’t transitioned to this new way of consuming music yet.

Take my husband, for example. He is in his 40s and he loves all types of music. And yet he hasn’t tried streaming. (He still owns thousands of CDs, which I find puzzling because we don’t have a CD player anymore.) He could afford to pay for a music streaming service but has no interest in doing so.

Our study suggests that most Americans are not like my husband—most people actually have used or subscribed to a streaming service. But in the increasingly crowded space of music streaming,  getting people who have zero experience with music streaming—and keeping them as customers—will become even more crucial. As more companies compete for market share, increasing the size of their market will be critical to the survival of many streaming services. Companies need to figure out what it would take for customers to abandon their MP3s and CDs, and give this new service a try. Companies won’t be able to do that unless they develop a deep understanding of the music listener.

Conclusion

Our study shows that the race for music streaming supremacy is still wide open and no one service is destined for victory. However, as the market quickly reaches saturation, there will be bad blood, and winners and losers will soon emerge. In order to avoid churn and earn the loyalty of as many customers as possible, companies need to commit to engaging with their customers now. Companies that fail to be in tune with customer demands will find themselves losing the race.

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