This post is part of the How To Launch a Music Startup series by Brenden Mulligan, which focuses on building a company that creates online products for musicians. Mulligan founded ArtistData, which was recently acquired by Sonicbids, and can be found on Twitter at @bmull.
In the last post, we covered one of the first major metrics for your artist-focused business's plan: market size. We had an interesting discussion in the comments. Some thought 500,000 was way too much. Others thought it wasn't nearly enough.
Now we're moving on to figure out how valuable this market is from a revenue standpoint. The term "willingness to pay" basically covers how likely your customers are to pay you for the product or service you provide. Essentially, this is like asking yourself "Even if I build a kick ass product, will artists open their wallets, or are they too cheap/broke?"
The reason this is important is if there is a high willingness to pay, then the market size doesn't necessarily need to be huge. If there's a low willingness to pay, you need a larger market to make a real business. The goal of this post isn't to find an exact number, but to get a conversation going.
My hypothesis is that generally there is an extremely low willingness to pay in the music services area. Artists are having a hard enough time building self-sustaining music careers, so their willingness to pay for additional services is very very low. A key driver is the feeling of need.
You have an advantage if you build a service that musicians feel they need. For example, I don't know any artists who would not put their music on iTunes, even though we all know iTunes returns a much smaller cut of the actual sales price. But artists still put their music on iTunes because it's where most consumers shop, and thus a necessary evil. Email management services are also becoming a need in our business, as there is a big movement to own your customers (a movement I fully support). And to do this, most bands need an email management service to do that (FanBridge and Constant Contact are examples). Artists are a lot more willing to pay for these services now than 3 years ago, when they didn't seem so necessary.
If you build a product that is a nice-to-have, but not a need, it will be a harder sell. ArtistData is one of these products. It saves artists TONS of time, but it's not absolutely critical to their success, especially early on. It's workflow management, and by using it they can be more effective, more thorough, and more consistent in less time (leaving them more time to be creative, write songs, etc...).
Another example of a product that I'll rooting for but faces similar dynamics is Next Big Sound's Premiere product. I've never seen a better designed product made for bands. It aggregates all social media metrics and lays them out in an unbelievably clean and understandable dashboard. But the question is, will bands actually pay for this aggregated info? Or will they see this as a nice-to-have instead of a need-to-have? The NBS guys are obviously positioning it as a need, but will artists bite? I'm hoping they do and looking forward to finding out.
So if you can make your product solve a critical need, artists will pay for it. Not a surprise, but what's important is that they are much less willing to pay if it's not an absolute need. In those cases, they'll always choose free.
Before I end, I'd like to say that I'm trying to paint a realistic view of this market, and then once we have that, discuss ways to build profitable products and great companies for it. It's important to understand the foundational metrics that we face selling services to musicians though.
Okay! Hoping for a lot of comments on this one. Also always feel free to reach out to me on twitter. So fire away!