Guest post by Ryan Faughnder - the Executive Editor of Neon Tommy.
The Echo Nest might be one of the few companies to have figured out how to cash in on the music business. Only it has little to do with selling music. Instead, it gives developers the tools to create the next brilliant music discovery app.
Jim Lucchese, Echo Nest’s chief executive, believes on-demand apps are the future of the music industry and wants his company to be the glue that connects app developers with listeners.
Echo Nest’s application programming interface, or API, compiles enormous amounts of internet data on how people are talking about music and what songs and artists are popping up on the web. It automatically analyzes everything from the beats-per-minute of 17 million tracks, to which artists are trending across hipster music blogs, to which drummer is described as “funky” the most times. It uses that data to make recommendations.
The platform is the “special sauce” that makes new app ideas possible, said Echo Nest operations director Elissa Barrett.
This heralds a new phase in the music industry’s evolution. Consumers are becoming less interested in owning music than in having access to as much of it as possible. Plus, they want to hear bands they’ve never heard. The Echo Nest helps music fans do both by connencting with companies like VEVO and powering apps such as the radio function added to Spotify late last year.
Echo Nest’s API is like steroids in the hands of developers, allowing them to create apps that they never would have had the power to pull off on their own.
Last year, the platform powered the Music Mine iPad app by South California indie radio station KCRW. Not only does it let users glide through top music picks, but it also curates artist info from Last.fm and relevant blog posts from around the web, giving an interactive, immersive experience.
We Are Hunted, the Australia-based development house that produces the buzz music index charts, started with Echo Nest in October 2010 and signed a three-app deal.
Its first effort, the Pocket Hipster app, featured snarky cartoon characters who sneer at users’ music and suggest other bands, but a lot of people didn’t get the joke.
Their second attempt, an iPad app called Music Hunter, took off and stayed in the top five of music apps in almost every country for weeks after it launched in late April.
The biggest risk of such sites is that some of them exist in a tricky legal grey area. But, Phillips said, they are all in the same boat of figuring out how to make money in music. “If you’re on the team of trying to solve this problem that everybody’s got, you’re going to be okay.”
The Echo Nest has been actively tracking data on the web since 2005 and has amassed acoustic data for over 10 million tracks. Pandora’s Music Genome Project has taken over 10 years to manually curate 1 million tracks.
The company works with more than 7,000 independent developers, social sites such as Twitter and large companies like the BBC, MTV and MOG. So far, the company has produced more than 200 apps through its platform. The company would not disclose its revenue figures, though it received $7 million in second-round funding orchestrated by Matrix Partners in Oct. 2010.
Accessing licensed music can be a roadblock for developers. The Echo Nest’s partnership with Rdio in May 2011 gave independent developers access to fully-licensed content, giving them the tools to create commercially viable apps. Consumers must subscribe to Rdio for the content, however. Other licensing partners include 7digital and Island Def Jam. These deals provide a legal way for apps to access a vast catalog.
The industry is still looking for effective ways to make money from music, and there have been many false starts. Record companies once thought ringtones would be their saviors. "Freemium" models from online music services like Pandora and Spotify are popular, but they're unproven as money makers. The music industry is looking for something - anything - with traction in this ever-shifting market.
By chasing app developers, The Echo Nest hooked into a valuable niche, said Eric Garland of Big Champagne Media, which analyzes online trends. The company has staked territory for which few others compete. “I think they made the fundamentally smart move by becoming a platform for solutions for the market of developers rather than just being focused on interior market strategy,” he said.
They’ve also latched onto a market that may be poised to dominate digital music consumption. U.S. music transactions numbered 1.5 billion in 2009, according to Neilsen. Compare that with the number of times top-charting artists’ music videos have been streamed on YouTube: 25 billion. The 200 most popular official music videos have been streamed almost 11 billion times. Streaming is becoming an essential way for people to consume music. The problem is monetizing it.
“The sector they serve is now responsible for the overwhelming majority of impressions in the online music market,” Garland said.
Though they’ve staked out unique territory, The Echo Nest exists in a fast-moving economic space where a competitor could come out of nowhere.
Also, some predict that the group of startups changing the industry will be swallowed by larger companies entering the market, such as Google, Amazon and Apple, which have made moves toward a cloud-based system of digital content. Indeed, some of this is already happening. Still, the Echo Nest is well-positioned, Garland said.
The digital music industry is fragmented between content providers, recommendation services, license holders, etc. APIs are one possible solution. The question, says Michael Papish, product developer at Rovi Corporation, a company that specializes in APIs for the entertainment industry and sometimes competes with the Echo Nest, becomes “how do you create a single layer where all those things come together forå the consumer?”
Papish has seen multitudes of startups rise and fall, largely because of fundamental problems in the music economy. If the industry isn’t making money in the first place, it becomes hard for anyone to succeed in that “ecosystem,” he said. “If Echo Nest succeeds, we all succeed, because someone has turned music into a money-making enterprise.”