How Steve Jobs convinced audiences to pay for freely-available content
Around that time, Apple had entered the music industry. Their strategy focused on the insight that people create unique mixes of songs to suit their interests, mood, and situation.
They marketed this as “Rip Mix Burn”. They encouraged users to acquire songs, mix them into playlists, and burn them onto a CD.
First, they launched the iTunes software, enabling people to rip songs from CDs purchased in stores, create playlists, and burn them onto CDs to listen to on their walkmans (portable music players).
Secondly, Apple released the iPod to replace the walkman. However, people still had to purchase music from physical stores or download illegally shared songs from Napster.
What is Napster? In 1999, it was created as a peer-to-peer file-sharing network, allowing people on the Internet to share music files. It quickly gained popularity, but also caused copyright infringement, leading to its shutdown. However, the concept was carried on in other products like Limewire.
In their third and final act, Apple sought to replace both options and get users to purchase music directly from the iTunes Music Store.
A key challenge, however, was convincing people to pay for music that was already available for free.
Why should news products bother
I was reflecting on this piece of history because many 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 earned money through display advertising. However, in the last few years, most news products have implemented paywalls with varying degrees of success.
The root product and marketing challenges for news products are convincing audiences to pay for something they are accustomed to getting for free.
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 understood that buying CDs from physical stores was a declining but still existing business for their partners – record labels. Competing against them would not be beneficial, as they could deny access to the music licenses. Therefore, Apple concentrated on competing with services like Napster.
You get the same convenience as Napster.
Jobs noted that Napster was an immediate hit due to its convenience. People could buy or access a song in an instant, rather than having to drive to a music store and buy a CD.
Napster had a far wider music selection than any physical store. Moreover, there were no limitations; users could use the songs on as many CDs, iPods, and computers as they wished, and it was free.
Apple offered all of these.
Use iTunes because you are responsible.
However, Jobs highlighted the moral issues associated with the culture of free, i.e., users were stealing. He argued that people pirate music on the Internet because there is no convenient legal alternative. This is 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 just 99 cents per song. In 2003, 99 cents was equivalent to $1.51 in 2022. To illustrate the value of the songs, Jobs compared them to the cost of a Starbucks Latte.
But why should you pay at all? Because you are smart.
When searching for a song on Napster, you were presented with 50 options, but no previews. This could lead to a lot of time wasted finding the right song, downloading it, and then realizing it wasn’t the right one – only to have to repeat the process.
Back in 2002-2003, the average Internet speed in the US was 880kbps. Fast-forward to 2022, and the average speed has increased to ~100 Mbps – a whopping 11,000% increase!
Jobs calculated that it typically takes 15 minutes to download one song. Therefore, it would take an hour to download four songs that cost less than $4 on iTunes. Jobs concluded that pirating music instead of buying it on iTunes would be working below the US minimum wage.
Use iTunes because it is better than Napster.
Other challenges with Napster, particularly concerning the quality of music, were addressed by Apple through the implementation of AAC encoding, which offers Digital Dolby quality.
Use iTunes because it is useful and not convoluted.
Apple understood that purchasing media was not like buying a laptop, where you would spend a long time making a purchase decision. To make impulse purchases possible, it had to ensure that:
- Bob Dylan’s and Tahir Shah’s songs cost the same.
- Music was also a demand-pick marketplace. Hence, the user was responsible for selecting the right song. Thus, iTunes allowed users to browse the entire universe of music by genre, artist, or album. Apple also provided immediate 10-second previews, eliminating any chance of dissatisfaction.
- Finally, Apple implemented one-click shopping (shop, pay, download).
The rest is history
According to a Rolling Stone article, iTunes sold one million downloads in its first week and quickly became the top online and offline music retailer, surpassing Walmart and Best Buy. In 2013, Apple announced that 25 billion songs had been sold on the iTunes Music Store.
What can News Product learn from this?
What would the news version of this be?
What are the other examples where businesses have convinced people to pay for things that they can get for free?