Early this afternoon, Peter Fader, a marketing professor at Wharton, stopped by Fast Company’s offices to visit. We sat down for coffee and conversation, exploring Fader’s work in predictive and explanatory models for electronic commerce.
After researching predictive sales data for grocery stores, Fader had a “dotcom epiphany” when e-commerce hit the mainstream. “What if online CD sales parallel kids’ juice drinks?” he asks. “The patterns are the same, the behaviors are the same, online and offline.”
Having testified as an expert witness in the Napster case, Fader’s research these days is focusing largely on online music sales. Specifically, Fader is interested in the differences between downloading and streaming business models. His verdict so far? “iTunes is a cancer for the music industry,” he says. “Downloading is bad.”
Not that bold or brave a stance to take in these days of RIAA lawsuits and counter-lawsuits. But his reasoning is innovative and slightly counterintuitive: Downloading isn’t bad for the music industry; it’s bad for the future of online music. “Downloading culture only legitimizes bad stuff. Most people get their MP3’s from Kazaa,” he says. “The streaming and subscription model is better.”
In addition, the business models for downloading and streaming are quite different. And streaming is more sustainable, Fader believes. Whereas downloading approaches songs and albums as discrete products and objects to be purchased a la carte, streaming is based on a flat-fee subscription and a service model. Fader also appreciates streaming businesses’ lower overhead, higher margins, and opportunities to explore and learn about new music and foster community development.
But the two approaches to music sales are not mutually exclusive, he says. Right now there is a portability challenge — although Fader predicts the development of an MP3 player-like “celestial jukebox” that can play streams in the next five years. Think satellite radio, transistor style. And he thinks services should offer streaming audio for exploration — and then downloads for purchase.
Until that future is now, Fader plans to continue applying his rigorous data analysis to online record sales, as well as work on a project with Fast 50 winner Herb Sorenson. “What we need is our own equivalent to Moneyball,” he says.