After sipping a few cocktails in the excellent Callooh Callay bar in London, I discovered that the bar’s bathroom is decorated with cassettes as you can see in the picture. Followers of my Twitter stream will know that I get my best ideas while enjoying a good glass of red wine or a whisky and so in a lightly alcohol-infused state I started pondering over the events in the past two decades or so in the music industry that shaped my view on the concept of ownership.

From CDs to MP3s

I remember back in second grade in high school the day that a friend came to school with a recordable CD. Geeks as we were, we were gobsmacked. His uncle had a computer company and recently bought a 2000 Euro single-speed CD recorder and his nephew just wanted to show off. Little did we know that we were looking at something that would dominate our teenage life for the following 10 years.

One of the things I did in high school was converting my whole (and my dad’s) CD collection into MP3. That quite changed my perspective (and especially my dad’s) towards ownership of music. I remember having several discussions with people back then that they didn’t like this whole MP3 concept. Arguments going from “you’re not appreciating music anymore”, “the sound quality is rubbish”, “I don’t like it that I can’t grab it”, “what do I have to do with all my empty shelves now?”, etc.

In hindsight, I learned some valuable lessons back then:

1. Good is good enough: yes the sound quality was in the beginning not as good as you’d get from a CD, but little did we teenagers care. Instead of having a wall with shelves full of CDs, we had it all stored in a 3.5″ hard drive. We were happy with the quality. This is the same lesson we’ve learned now with YouTube. In the rat-race to the highest pixels and HD quality, we tend to forget that the majority of the people are perfectly happy with the quality of YouTube. It works and it gives instant entertainment.
2. The economic law of diminishing returns (or in this case value add): When you have 15 CDs and you’ve saved every week some money to buy after 5 weeks finally that new CD, then the added value of having that extra CD is pretty high and very satisfying. When you have 5000 MP3s and you get 1 extra, it’s more like “meh”.
3. The long tail: When you have to save 5 weeks to buy a new CD, then you will most likely go for something that you’re sure about. No risks because otherwise you’re stuck with that CD for a long long time. You really weigh your choices and a lot of people end up with a CD that they are sure about (read: the ones that are heavily pushed by the record labels on the radio and commercials). Having easy access to thousands of songs, gives you the freedom to listen to some unknown artists just because the cost of failure (= you don’t like it) is pretty low, so why not give it a try?

The most disruptive life lesson we learned back then was the redefinition of ownership. In a world where acquiring a juke-box worth of music is nearly zero, how do we look towards ownership of that music? Think about it, very groundbreaking stuff happened on the playground, way before some smart people wrote books about this phenomenon.

From iTunes to Spotify

After giving up the notion of physical ownership, many youngsters happily embraced the model of meticulously categorising every MP3 song in folders, often in a tree structure with Artist and CD name as levels.

How shocking was it to embrace the iTunes model that took care of the categorising and completely screwed up your own folder structure. As with Google’s GMail, iTunes disrupted the market by focusing on searching and discovering your content, rather than relying on the old manual folder categorisation mechanism. That concept worked well when you have 25 CDs, but didn’t scale very well when you have 20 000 songs.

This slow change where people gave up the physical ownership and then gave up the management control over their digital assets, neatly prepared us for the next step in this “head shift” (no pun intended ): “consume all you want subscription model”.

Enter Spotify, a subscription-based model where you can consume all you want for a monthly fee (there is a free version as well with some limitations).

I’m using Spotify for five months now here in the UK and by paying 10 GBP per month, I get unlimited access to their music library (hosted in their cloud) and all my music choices and playlists get automatically and wirelessly synced over my iPhone, work laptop and private laptop. A very convenient way to satisfy my music needs without the hassle of manually syncing devices and being legit with all my digital media.

By embracing Spotify, I’ve essentially given up the ownership of digital assets as well. Whilst you still kind of owned the MP3s that were stored on your computer, with Spotify you just rent them as long as you want to pay your monthly fee.

When you look at the process I’ve described, I’ve essentially sacrificed ownership and control to gain convenience.

Lessons for the enterprise market

The reason why I started this post was to understand what implications this trend in the consumer market can have on the more traditional enterprise market.

Could it be that one day a large organisation completely gives up control and ownership of their IT assets to a company like Google to gain convenience and agility?

It wouldn’t be that impossible given the huge web infrastructure Google is building:

• Google Apps with Google Mail: unified communications and office productivity
• Google AppEngine: development platform for bespoke application development in the cloud
• Google Chrome OS: desktop access to the Google (web) applications
• Google Android & Google phones: mobile access

When you start mapping out the requirements to run your company, you start seeing a few holes, with the main one: ERP. With an ambitious giant like Google, what would stop them from building a cloud-hosted ERP system that will compete with SAP?

It won’t be long before the Spotify-generation will become the next generation of managers that will run large multi-billion dollar organisations. People that grew up with the fact that they can get 7.5 GB email storage on Google’s GMail for free, instead of being limited to 100 MB on the company’s mail server.

I’m telling you, the success of this cloud computing nirvana won’t be driven by cold financial calculations but it will be rather pushed by a new generation of “Spotify-hippies” that just doesn’t know any better…