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What Groupon Owes Rock and Roll

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NOW THIS IS HAPPENING
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David Lowery is the frontman for the bands Cracker and Camper Van Beethoven. He also happens to be one of my favorite songwriters, so I was pleasantly surprised when I stumbled upon this letter from Lowery to music theorist Bob Lefsetz about how rock concerts were partially responsible for Groupon’s early success.

The letter is in response to Lefsetz’s excellent post on why the music industry has suffered from risk aversion, whereas the tech industry has benefited from it.

Here’s Lefsetz [abridged]:

When Google starts from scratch, it’s a disaster…But when they acquire a company, watch out. Look at YouTube. A category killer as well as a cultural phenomenon. And then there’s Android. Which is growing phenomenally. Now Groupon? People want their Groupon. Tie it into Google search and watch it truly blow up.

This is like when a label signs an already successful band, as opposed to starting one from scratch.
So anybody with any creativity, anybody who wants to get rich quick, is in tech, not music. All we get in music are the uneducated wanting to make it on bravura.

But what if those taking chances in tech got traction in music? What if the rights holders stopped saying no and started saying yes? Then what? Spotify might become ubiquitous and sell for billions.

Lowery responds with some context:

In 2008 I was appointed to the board of advisers of a small web startup called www.thepoint.com. The site the brainchild of Andrew Mason was a ” tipping point” mechanism, a social networking site that allowed people “commit” to take group action. In particular the hope was they would take group action for social change. The investors quietly noted there was not a clear way to monetize Andrew’s experiment. However they hoped that by watching the way users used the tipping point mechanism, a viable way to monetize this website would present itself.

I was asked to start a campaign on www.thepoint.com.”To get a feel for it”. Not being very socially conscious I decided that I wanted to use The Point for my own narrow self interests.

Cracker and Camper Van Beethoven have a festival, The Campout. It’s rather remote and since we produce the small festival ourselves we take considerable financial risk. While the previous years had been marginally successful we were worried about the rapidly deteriorating economy (I believe Bear Stearns had just gone bankrupt). So I started a campaign to get a “break even” amount of CVB and Cracker fans to commit to attend the festival. In this way our fan’s promises to attend would become a sort of promissory note. no pun intended. While you couldn’t exactly peg it’s value, these collective promises to attend at some point seemed to be worth enough to go ahead and book the flights, PA, lights, and port-o-potties.

Other successful “campaigns” on The Point also involved similar commitments for group purchasing. It wasn’t long before The Point became Groupon.

Turned out that Groupon's founders were also big music fans.  They had the idea to demonstrate their new services incredible power by organizing a series of concerts.  Lowery remembers:

There was a significant element of altruism in their efforts, but it had not gone unnoticed that most concerts have a lot of empty seats. And Groupon works best when the “incremental” cost of adding clients/patrons is very low. Adding concertgoers to a half full arena is a perfect example of low incremental costs. So concerts were seen as a natural fit for Groupon. I was enlisted to try to get a Groupon only concert going. Twice! Both times artists agents managers promoters all failed to understand the concept.
And so it goes, the music industry fails to grasp another tech opportunity. At least it makes for a good story.
POSITION:  No positions in stocks mentioned.
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