Case Studies

In Harmony

At eMusic, the IT and business teams work arm in arm to thrive in the competitive world of digital music retail.
This story appears in the March 2008 issue of BizTech Magazine.

 


Photo: Andrew Kist
eMusic CTO Cedric Deniau (left) and CEO David Pakman set IT plans based on business forecasts.

If you’ve been out of college for a few years but still like to listen to your own music wherever you go, eMusic has a song for you. So far the service has attracted more than 400,000 subscribers, particularly from the over-25 audience, to become second only to iTunes in sales of digital music.

 

“The question that we asked was why there were no retailers that catered to the musical tastes of adults,” says eMusic CEO David Pakman. “Adults don’t really want to buy the music that’s featured on the iTunes home page or that’s heavily promoted on Amazon. They’re looking for classical, jazz, blues and a number of other different genres and styles that don’t sell all that well except in the aggregate on a site like ours.”

And while other services may satisfy the tastes of young listeners well, it’s the adult segment of the music market that’s showing dramatic growth.

“Six years ago, adults were 35 to 40 percent of the digital retail music market, but that has totally flipped,” Pakman says. “The adult market is now responsible for more than 70 percent of all music sales.”

In the Beginning

Targeting adult music buyers is a strategy that grows out of eMusic’s MP3 format. Entrepreneurs Gene Hoffman and Bob Kohn founded the company in 1998 as GoodNoise, the first retailer to sell digital music in the MP3 format. They changed the name to eMusic in 1999, and a year later the startup, now based in New York and London, launched the first digital music subscription service.

MP3 files are compatible with almost all playback devices, including the ubiquitous Apple iPod. To improve the fidelity of its variable bit rate MP3 files, eMusic boosted them from 128 kilobits per second to 192 Kbps. But these files are not copy-protected, which means that customers own the songs they download and can pass them on without restrictions — not the case with rival subscription services, such as Rhapsody and Napster, whose formats block unauthorized file-sharing.

Even so, the independent music labels that largely supply songs to eMusic view the service’s older customer with more sophisticated tastes as a low risk for file-swapping.

“EMusic gets appropriate kudos for not only preaching MP3 as the best format but creating a business model based on MP3 that works,” says analyst James McQuivey of Forrester Research. “They represent a watermark in the history of digital music.”

But keeping its hefty subscriber base in download heaven isn’t easy. The company’s 20-person IT staff has scaled eMusic’s technology infrastructure to stay ahead of the expansion of the business, says Chief Technology Officer Cedric Deniau. “Supporting growth from an IT perspective means constant communication with the business people and knowing what their forecasts are,” Deniau says. “Once I know the projections, I build 100 percent beyond them. If David says we’re going to have 400,000 new subscribers, I build a Web site for 800,000 subscribers.


"We want to reach millions of subscribers, and we see many other products we could add to our mix to become a much broader digital-entertainment retailer," says eMusic CEO David Pakman.

“We evaluate whether we can handle the traffic the business throws at us by performing tests in the technology environment. It’s the only way to know. We test our systems to see what capacity we’re currently handling and our potential capacity growth with our current infrastructure.”

Deniau’s staff includes corporate IT specialists who handle Microsoft Windows, network administration and other IT help-desk tasks. Running the Web site takes an array of skilled workers, from network operations specialists to software engineers to content management specialists who load music (and now audio books) on the site.

The eMusic catalog currently offers more than 3 million tracks of music from more than 20,000 independent record labels, as well as more than 1,000 audio-book titles in MP3 format — and those numbers are increasing daily.

Another Take on E-Discovery

With its enormous and varied offerings, one of the main features of the company’s service is “discovery,” the process through which eMusic helps its customers find new music and artists by providing written reviews and tools for exploring the catalog on the site, says Pakman.

“We believe that there is long tail of music that is very interesting and that doesn’t get exposed over the radio,” Pakman says. “Our success speaks to the number of customers, we think millions of them, who want to find and buy music and entertainment that’s not in the mainstream.”

Those potential customers are also looking for value as they shop for music and entertainment, Pakman says. Unlike the pay-per-track model of retailers such as iTunes, eMusic customers pay a monthly fee for a designated number of downloads. Depending on the plan they sign up for, subscribers pay as little as 27 cents per song — a bargain compared with the $1 or more per song charged by some competitors.

“We think customers have bought a lot less music than they might have because it’s priced wrong,” says Pakman. “Our customers can pay a lot less, and in exchange for that, they buy a lot more music.”

The low pricing supported by the subscription has contributed to eMusic’s success. “To the extent that online music sales are booming, it’s among adults, because adults have money and are willing to pay for music,” says Forrester’s McQuivey.

To sustain the growth, Pakman plans to diversify eMusic’s offerings. Last year, in addition to offering MP3 audio books on its Web site, eMusic partnered with AT&T to launch eMusic Mobile, a wireless download service.


"Supporting growth from an IT perspective means constant communication with the business people," says eMusic CTO Cedric Deniau.

Let the Good Times Roll

The company will continue to expand its music catalog with new labels and artists, and it’s exploring other forms of entertainment, including video, games, movies and e-books, says Pakman.

“Our big task is growth,” he says. “We want to reach millions of subscribers, and we see many other products we could add to our mix to become a much broader digital-entertainment retailer. The goal is to be the largest and most successful standalone digital-entertainment retailer.”

The IT department will be crucial in making this vision a reality. A more diversified eMusic catalog will further complicate Deniau’s delicate bandwidth calculations, balancing cost with quality of service as he spreads the company’s business among multiple Internet service providers. Deniau is exploring the potential of the BitTorrent peer-to-peer file-sharing protocol as a way to deliver files to eMusic’s customers using their own bandwidth.

The entire eMusic catalog resides in mirrored data centers in New York and Amsterdam, each of which holds a full version of the site — a total of 160 terabytes of storage in all. As the company expands, Deniau is considering more mirrored sites, both to add extra layers of business-continuity assurance and to move servers closer to customers.

“My job is to communicate with the business side and be able to tell them where technology is going — what we can do with technology and what we can’t,” Deniau says. “The technology can help define the direction of the company.”

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