Disruptive Innovation

Spotify’s Plan To Win Over Anxious Artists–And Win The Streaming War

8 June 2017
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From Fast Company:

Like a lot of musicians now, Scott Hansen was pretty skeptical of Spotify. To Hansen, the mastermind of chilled-out electronic music outfit Tycho, the streaming service and the new era it seemed to herald posed troubling questions: Am I getting paid enough to support myself? Is my craft doomed? Is this whole streaming model even sustainable to begin with?

Anxious questions like these remain unresolved for many artists as the music industry reshapes itself and streaming becomes its biggest source of income. Thanks to streaming, record labels are finally seeing their revenue grow after years of decline, but the gains don’t always trickle down to musicians and songwriters. Spotify recently settled a $43 million class action lawsuit over royalty payments that went unpaid to certain artists, likely due to a metadata error. In other cases, the royalties flow, but not always in large sums. One of Spotify’s own executives recently conceded publicly that streaming doesn’t pay artists “enough.”

But for an increasing number of artists, including Tycho’s Hansen, the advantages of the streaming era are beginning to come into sharper focus.

“I definitely think we’re in a better place than we were three years ago, that’s for sure,” says Hansen, by phone from somewhere outside Cologne, a stop on the group’s recent European tour. The tour’s been a big success, he says, something he attributes, in part, to an experimental marketing project at Spotify. (The group’s recent Grammy nomination likely didn’t hurt either.) By aiming email and web ads at listeners who seemed likely to care the most about their music, the program helped the group sell about 1,600 tickets in Europe, Hansen says, and a total of more than 4,000 tickets this year. “I see it getting better as more people adopt that way of consuming music,” says Hansen.

. . . .

As Spotify seeks to build better relationships with record companies and music publishers—and as artists seek new sources of cash—the company’s executives and artists say the efforts are already helping, providing precise data to help artists make smarter career decisions, and leading to bigger ticket and merchandise sales. Collectively, the company says, the relatively young effort has generated millions in additional revenue for musicians–results that, after years of industry upheaval, are hard to ignore.

. . . .

Of course, not every artist can realistically expect this kind of free marketing push from Spotify. In an attempt to build stronger personal ties to the recording industry, promote and develop artists on Spotify, and bolster the company’s artist-facing tools, Spotify hired investor and former Lady Gaga manager Troy Carter last year as its global head of creator services. Carter’s job, interfacing with artists, managers, and labels, is about being “better partners,” he says “whether it’s helping you co-market a product on our platform, helping you understand how the international market works, or how our playlisting works.”

Link to the rest at Fast Company

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A guide to developing bot personalities

7 June 2017

From Prototypr.io:

Conversational interfaces have reduced user experience down to a few lines of text. With bots, UX becomes conversational, products talk back, and personas now go both ways. Every bot has a voice — which means every bot needs a personality.

If conversational computing means personality is the new user experience, how do we approach the design of these nuanced digital entities?

. . . .

Chatbots and voice assistants are for humans. Conversational interfaces exist for better interactions between humans and computers. So then, how can we personalise these conversations to be more life-like, intimate, and representative of human interaction? Through personality. Building a rich and detailed personality makes your chatbot more relatable, believable, and relevant to your users.

Investing in personality informs every touch point of a chatbot. Personality creates a deeper understanding of the bot’s end goal, and how it will communicate through choice of language, mood, tone, and style. Seeing a bot as a lifeless piece of technology is a mistake. People project human traits onto everything — but now these objects talk back. Whether you like it or not, your users will still assign a personality to your bot if one hasn’t been explicitly designed.

Link to the rest at Prototypr.io

PG says Alexa definitely has a personality. However, he’s not certain whether she has moods or not.

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Japan e-book distributor Media Do to build ‘AI translator’

6 June 2017

From Nikkei Asian Review:

Japanese electronic book distributor Media Do will develop an artificial intelligence-based automatic translation system to make its e-books available for English-speaking readers.

The company hopes to reach a broader market and promote digitization at a time when Japan’s book market is shrinking.

Media Do has teamed up with two Tokyo-based AI startups for the project — Internet Research Institute and A.I. Squared. Media Do will invest about 1.1 billion yen ($9.82 million) to acquire about 20% of each company through a third-party share allotment at the end of this month.

Both startups have developed unique technology for summarizing and translating text. The summarization technology analyzes the relationships between words and sentences in a given piece of text and extracts key sentences to create a summary.

The translation technology “learns” set phrases in both Japanese and English — on top of vocabulary and grammar — to enhance the quality of its translations, a process known as deep learning.

Link to the rest at Nikkei Asian Review

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Newspaper circulation at 77-year low

2 June 2017

From The Washington Examiner:

Circulation of daily newspapers has dropped to a 77-year low, signaling an end to print and a shift to all-digital delivery, according to a new industry review.

The Pew Research Center said that circulation has reached a new low of 34.6 million, six million less than papers sold in 1940.

. . . .

The estimated total U.S. daily newspaper circulation (print and digital combined) in 2016 was 35 million for weekday and 38 million for Sunday, both of which fell 8% over the previous year. Declines were highest in print circulation: Weekday print circulation decreased 10% and Sunday circulation decreased 9%.

Link to the rest at The Washington Examiner

But readers will always prefer their books on paper.

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J.Crew’s Mickey Drexler Confesses: I Underestimated How Tech Would Upend Retail

27 May 2017

From The Wall Street Journal:

 Millard “Mickey” Drexler, the fashion genius whose ability to spot trends reshaped how Americans dress, has a humbling admission. He missed what might be the biggest trend of all—how quickly technology would change the retail industry.

“I’ve never seen the speed of change as it is today,” the 72-year-old chairman and chief executive of J.Crew Group Inc. said in an interview at his New York office. “If I could go back 10 years, I might have done some things earlier.”

The retail veteran, who redefined Gap Inc. in the 1990s and then transformed J.Crew into a household name, is now scrambling to keep the company he took private in a leveraged buyout from ending up in bankruptcy.

Sales at J.Crew Group stores open at least a year have fallen for the past 10 quarters—the kind of slump that got Mr. Drexler ousted from the Gap in 2002. This time he owns 10% of the company, and it is lenders, not the founding family, that are putting on the pressure.

For decades, fashion was essentially a hit or miss business. Merchants like Mr. Drexler would make bets on what people would be wearing a year in advance, since that’s how long it took to design and produce items. Hits guaranteed handsome returns until the next season.

Now, competitors with high-tech, data-driven supply chains can copy styles faster and move them into stores in a matter of weeks. Online marketplaces drive down prices, and design details such as nicer buttons and richer colors are less apparent on the internet. Social media adds fuel to the style churn—consumers want a new outfit for every Instagram post.

“The rules of the game have changed,” said Janet Kloppenburg, president of JJK Research, a retail-focused research firm. “It’s not just about product anymore. It’s also about speed and pricing.”

Mr. Drexler’s plan is to emphasize lower prices, pivot toward more digital marketing and adopt a more accessible image. “We became a little too elitist in our attitude,” he said.

Many visionaries focus on doing what they do best, even when the ground shifts beneath them. From newspapers to television, successful companies have been upended by disruptive technologies. Facebook Inc. is now the world’s largest publisher; Netflix Inc. is worth twice as much as CBS Corp.

“The incumbent leaders never see it coming,” said Clayton Christensen, the Harvard Business School professor who introduced the theory of disruptive innovation 20 years ago. “They focus on their best customers and try to provide what they need, but the customers who first defect [to new technology] are usually the least profitable.”

. . . .

The New York City native, who doesn’t have his own Instagram, Facebook or Twitter account, was sharing thoughts with employees on a loudspeaker—hooked up through his phone—before Twitter was launched. He paid attention to firsthand shopper feedback on frequent visits to stores long before Amazon.com Inc. was collecting user data. He was also selling clothes online before many other specialty retailers. Nearly half of J.Crew’s sales now come from the web.

But Mr. Drexler didn’t appreciate how the quality of garments could easily get lost in a sea of options online, where prices drive decisions, or how social media would give rise to disposable fashion. Online, price has more impact than the sensory qualities of clothing. “You go into a store—I love this, I love this, I love this,” he said. “You go online and you just don’t get the same sense and feel of the goods because you’re looking at a picture.”

. . . .

“The days of people wearing head-to-toe J.Crew are over,” said Carla Casella, an analyst at J.P. Morgan Chase & Co.

Zinniah Munoz, a 20-year-old makeup artist in New York City, said she would rather buy a style at a lower price than pay extra money for a brand name. “I’m always vigilant of not posting the same style twice” on Instagram or Facebook, she added.

. . . .

TPG co-founder David Bonderman recently acknowledged J.Crew and its peers are struggling with declining mall traffic and the shift to online shopping. “The internet has proven much more resilient and much more important than most of us thought a decade ago,” he said at a conference earlier this month.

Link to the rest at The Wall Street Journal (Link may expire)

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Coke Is Hurting From the Switch to Online Shopping, Too

10 May 2017

From Bloomberg Technology:

As Coca-Cola Co. Chief Executive Officer James Quincey settles into his new job, he’s facing a challenge that most of his predecessors never worried about: digital disruption.

Consumers are increasingly shopping online, spending more time on mobile apps, and getting groceries delivered to their homes. And that’s hitting Coca-Cola in ways you might not expect, Quincey said in an interview from his office in Atlanta.

When shoppers skip trips to the local mall and get their clothes at Amazon, they also forgo buying Coke at a vending machine or food court. So while the decline of retailers has mostly focused on bankrupt apparel chains and shuttered storefronts, a brand like Coca-Cola is suffering as well.

“Digital is changing the way you behave,” he said. “It affects other categories that are not the primary reason you thought about making the shopping trip.”

Turning Coke into a winner of the digital age — rather than another brick-and-mortar victim — is a key priority for Quincey.

. . . .

The disruptive power of tech has been especially pronounced in some overseas markets, including China. When Quincey was chief operating officer in early 2016, he saw sales in that country slump — hurt by a decline in sales to noodle shops and other restaurants.

The shops themselves weren’t the problem — they were still selling large quantities of food — but more customers were ordering online and having their meals delivered. The problem for Coca-Cola: The restaurants offered glass bottles and sizes that weren’t suited to being transported via scooter.

Link to the rest at Bloomberg Technology

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Brick-and-Mortar Stores Are Shuttering at a Record Pace

22 April 2017

From The Wall Street Journal:

American retailers are closing stores at a record pace this year as they feel the fallout from decades of overbuilding and the rise of online shopping.

Just this past week, women’s apparel chain Bebe Stores Inc. said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations.

“There is no reason to believe that this will abate at any point in the foreseeable future,” said Mark Cohen, the director of retail studies for Columbia Business School and a former executive at Sears Canada Inc. and other department stores.
Through April 6, closings have been announced for 2,880 retail locations this year, including hundreds of locations being shut by national chains such as Payless ShoeSource Inc. and RadioShack Corp. That is more than twice as many closings as announced during the same period last year, according to Credit Suisse.

Based on the pace so far, the brokerage estimates retailers will close more than 8,600 locations this year, which would eclipse the number of closings during the 2008 recession.

. . . .

The seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time.

“Thousands of new doors opened and rents soared,” Richard Hayne, chief executive ofUrban Outfitters Inc., told analysts last month. “This created a bubble, and like housing, that bubble has now burst.”

. . . .

As retailers rushed to expand their physical footprint, the internet was gearing up to do to apparel companies what it had already done to booksellers: sap profits and eliminate what little pricing power these chains commanded.

Despite the view that shoppers prefer to try on clothing in physical stores, apparel and accessories are expected this year to overtake computers and consumer electronics as the largest e-commerce category as a percentage of total online sales, according to research firm eMarketer.

Helena Cawley, 37 years old, said she used to be a “die-hard” department-store shopper. But with two small children, the Manhattan entrepreneur doesn’t have time to visit physical stores the way she once did. “I buy much more online now,” she said. “With free returns and free shipping, it’s so easy.”

Link to the rest at The Wall Street Journal (Link may expire)

As PG has mentioned before, he takes no joy in bookstore employees or anyone else losing their jobs. However the rapid and continuing reduction in the number of bookstores is part of a very large trend throughout physical retail.

By reason of its high density, mass transit options and (for many) high incomes, Manhattan should be almost the ideal location for physical retail to survive. In many parts of the island, billions of dollars in personal wealth are within a ten-minute walk of a store.

If online shopping is becoming more attractive than physical stores in Manhattan, traditional retail will have an even more difficult time in less densely populated urban areas.

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Where Have All the Shop Clerks Gone?

19 April 2017

From Strategy+Business:

We often talk about software and robots taking over jobs and eliminating the need for human labor. It’s common to hear these concerns center around jobs in factories, or in the trucking and taxi industries. Some of these changes may be far in the distance, or may not come about at all due to social and cultural resistance (and the fact that sometimes sci-fi-tinged ideas just don’t come to fruition). In fact, there are lots of jobs open in areas that you would think would be negatively affected by automation. For example, 364,000 manufacturing jobs were open in the U.S.  at the end of February 2017, up 58,000, or 18.9 percent, from a year earlier.

But the reality is that machines — in the form of software, e-commerce platforms, and payment systems — are already destroying jobs in one massive sector: retail.

Retail sales are rising in the United States — up 5.3 percent in February 2017 from the year before. And overall, the U.S. labor market is in very good shape, with unemployment at 4.5 percent and 78 straight months of job growth. The monthly JOLTS report shows there were an impressive 5.74 million jobs open in the U.S. at the end of February.

. . . .

However, the job market in the retail sector is behaving as it would only in times of recession, when retail sales are falling, or when the labor market is weak. In March, when the economy at large added 98,000 payroll jobs, the vast retail trade sector lost 29,000 positions. In February, 30,900 retail jobs were cut. In fact, retail employment is off in four of the past six months, and the sector employed fewer people in March 2017 than in it did in August 2016. According to the JOLTS report, the number of open jobs in retail has fallen significantly over the past year, from 612,000 in February 2016 to 542,000 in February 2017 — a decline of 70,000, or 11 percent.

What’s going on here? In a word, technology. But not in the way you’d think. Algorithms are not yet replacing salesclerks at the mall, and software is not stocking shelves in grocery stores. What is happening is that technology-enabled retail platforms, recommendation engines, and payment systems continue to grow and improve. And as they do, they are making it more convenient and more compelling for more people to do more of their shopping online. Non-store retail sales, which is mostly e-commerce, were up nearly 13 percent in February from the year before. In short, technology and automation are pushing a great chunk of retail sales through channels that are not physical stores. It still requires plenty of human work to fulfill all the orders. But the jobs will increasingly be in warehouses, in logistics and delivery — not in strip malls.

Link to the rest at Strategy+Business

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Writers’ Strike II and Digital Ad Growth

19 April 2017

From The Wall Street Journal:

 Hollywood is bracing for a sequel that no one in the industry wants to make: a writers’ strike.

Almost 10 years after a four-month writers’ strike over DVD residuals and digital-platform compensation nearly split the entertainment industry, a new battle is brewing between the Writers Guild of America and the Alliance of Motion Picture and Television Producers, or AMPTP.

The key issues dividing show business this time around include exclusive contracts between writers and television shows, and the guild’s health-care plan, which the television and movie studios feel is too exorbitant.

The current contract is set to expire May 1 and talks have broken off until next week. The WGA membership is expected this week to vote for a strike authorization, which allows its negotiators to call a strike.

The labor tensions are exacerbated by the so-called peak TV era. There is more scripted television in production than ever before thanks to the growth of streaming services and more original programming by cable networks. There will be nearly 500 scripted shows produced this year, according to research by 21st Century Fox ’s FX Networks unit. WGA members say they aren’t benefiting from that growth.

Writers must “participate in the windfall we have created in the last five years,” said “Mad Men” creator Matthew Weiner in a WGA-released video urging members to vote “yes” for the strike authorization.

Executives who were at the helm of the networks 10 years ago warn that a prolonged strike would drive viewers away from television as well as do great harm to the business.

. . . .

A strike would come at a very precarious time for the television and movie industries. Most television networks are struggling to hold on to viewers and adapt to new technologies. Ratings are down for most cable and broadcast networks this season in viewers and the key 18-49 age demographic.

. . . .

While there are more shows than ever, the guild, which represents around 12,000 members, said the average salary of TV writers fell by 23% over the past two seasons.

. . . .

Another WGA bone of contention: Some programs force writers to remain exclusive to a show, making it impossible to compensate fewer episodes with other gigs throughout the year—a requirement also on the negotiating table.

Link to the rest at The Wall Street Journal (Link may expire)

And, for a different view of video consumption, here’s a story from Barrons:

Watch for two key milestones for advertising this year. Digital venues will overtake television as the top draw for ad spending. And mobile, for the first time, will make up more than half of digital.

That bodes well for companies that pull in massive audiences online, especially over smartphones. In the U.S., two stand above all others: Facebook and Google parent Alphabet. Together, they control 54% of digital advertising, up from 44% a year ago. We recommended shares of Facebook five months ago, a few bucks below where they recently traded. Now it’s time for a fresh look at Alphabet, whose shares look likely to top $1,000 in a year, for a gain of over 20%.

In 2017, digital ads will bring in $202 billion—40% of all ad spending, according to industry forecaster Magna. That compares with 36% for television. It’s just a start. Digital spending will continue soaring and will capture a 50% share by 2021, while TV spending will barely expand and its share will shrink to 33%.

. . . .

Nearly all of the recent growth in digital ads has come from search and social media, especially social videos, and small screens are playing a big role. Mobile will reach 52% of digital ad spending this year, according to Magna. By 2021, mobile’s share will balloon to 72%.

Link to the rest at Barron’s

PG says traditional publishers aren’t the only ones being disrupted by developments in the digital world.

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Retailers look past apps to the next frontier of digital shopping: Chatbots

19 April 2017

From The Washington Post:

Artificial intelligence is being touted as a tool for addressing some of humanity’s most pressing problems, including climate change and cancer.

But starting this week, you can put it to work for something a little more prosaic: ordering a hoagie.

On Tuesday, Mastercard announced it has partnered with Subway and two other major merchants to launch “chatbots,” which are robots that simulate human conversation. The Subway iteration allows you to order a custom sandwich for pickup, something of a digital version of walking down the chain’s sandwich assembly line. There’s another from Cheesecake Factory that allows shoppers to purchase and send out gift cards, and a third from online grocer FreshDirect in which customers can place orders for groceries and meal kits. The bots will be found within Facebook’s popular Messenger app, and will be powered by Masterpass, the credit card giant’s digital wallet.

These big-name brands join a growing group of retailers that are experimenting with how chatbot technology can be leveraged for digital shopping. The debut of the bots will provide a fresh test of shoppers’ appetite for what the industry has dubbed “conversational commerce,” the idea of making a purchase or other customer service transaction through A.I.-powered messaging.

. . . .

Consumers are spending more time online, and yet they are concentrating those minutes in a very limited number of apps. Retailers — along with hotels, rental car services, and other businesses — are realizing that the best way to snare your interest online might not be with a killer app of their own, but by creating bots that live in the apps that you already use.

. . . .

Subway, for example, essentially tried to re-create its in-store experience on the small screen. In a demonstration of how the technology works, the bot asks what kind of cheese you prefer, how thick a coat of mayonnaise you want, and so on — all in a very chatty voice. (When it wants you to indicate whether you want your sandwich toasted, it asks, “Wanna get toasty?”)

Link to the rest at The Washington Post

When Amazon starts doing this for books, please send PG a note through the Contact page.

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