Identifying Where Your Company is at Risk. Using Industry Trends to Identify Disruption Opportunity

Written by on April 19, 2017

Understanding what your strategic value is also requires you to understand what the trade-off is. Once a company chooses a direction, many times it becomes difficult to change its direction. In today’s business climate, anyone can come from nowhere and unseat the number 1 company. We can find an example of this in the current battle in the music distribution industry taking place.

In 2014 Pandora (P) was the leading music streaming company. At the time, they counted 72.4 million active listeners with an 8.4% share of U.S. radio listening in November. Spotify, which had previously claimed 24 million active users and 6 million subscribers, didn’t make those numbers publicly available, but analysts believed Pandora held a firm lead, and Pandora claimed as much.

Spotify, which started in 2011, was clearly an underdog. The reported reason was Pandora’s search algorithms. At one time considered heads and tails the best in the industry. Yahoo News stated in November 2013 that this made them “unsinkable”. Hopefully by now you understand that no company is “unsinkable”. But in case you still don’t get it, let’s look at the Pandora killers.

In early December 2013 Spotify announced that they will be providing free on demand service for mobile users. What did that mean? It meant that you could now download the Spotify app and create playlists with specific songs that you like. What was the trade-off that Pandora’s strength had? They are reliant on their algorithm to pick songs for their subscribers. Spotify completely sidesteps their strength by offering their listeners exactly what they want. No more hoping the next song is one you like…You are guaranteed.

The reach that Spotify now has will allow them to eventually make Pandora, Slacker and possibly even iTunes Radio obsolete. They will either change to meet the new game or they run the risk of becoming the next Blockbuster Video. Now Spotify has stated that they aren’t trying to take away from those buying from places like iTunes. Just the opposite, Russ Crupnick, senior vice president of industry analysis at NPD Group says, “The thing that people often forget is that Spotify customers are actually the best iTunes customers out there.” Spotify executive Sriram Krishnan backs that statement up by stating that its customers spend twice as much as the average music consumer. It appears clear that they aren’t directly taking on Apple (AAPL) and for good reason. They don’t want to bite off more than they can chew. Little did they know that Apple was watching the field and looking for a way to score.

Enter Dr. Dre and Beats Entertainment. Beats was purchased by Apple for $3 billion US dollars. The acknowledged reason Apple paid so much for Beats? In 2013 sales of single track music slid by 6% while whole album purchases were flat at 118 million. The playing field is in constand shift. If Apple wanted to continue to dominate the music distribution industry it needed to adapt.

Beat’s model being the same as Spotify’s but they only claimed 250k paying members to its service. With Spotify valued at $4 billion the choice to purchase Beats over them was obvious. They didn’t buy Beats for the headphones. They bought them for the music that was going to be streaming out of them.

Fast forward to 2017. Apple is now the single biggest streaming service. (Still think of them as a tech company?) Some would suggest at the cannibalization of their iTunes service. I would suggest Tim Cook sees it as an evolution more than anything.Spotify is right at their heals in a strong #2. Pandora is the ninth used app as reported by the 2017 Nielson Rankings.

What are your rivals doing to change the game? Are you playing out of a play book that is outdated and under-performing? What can you do to update your playbook to change the game? Is your business reliant on a technology or service that is at risk of disruption? A better question, where is your strategic-trade-off?

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