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The law of the land grab

January 4, 2012

Putting the word oblivion in the name of your business is a bit of a hostage to fortune. So it has proved for Beyond Oblivion, the music start up that was meant to take on the likes of Spotify and iTunes.

Over two years, the company raised $87 million from backers including News Corp as it proposed a download service that would be included in ISP and device makers customer propositions. Late last year, it said it was close to rights agreements with the four major music labels and would soft launch early this year. Instead it has run out of cash, and with little prospect of raising more has quietly folded its tent and left the field.

The company has pointed the finger at the vastly complex rights market that eventually defeated the concept of true one-stop shop. This will be ammunition for the proponents of single markets in rights and digital exchanges etc, but it isn’t the real reason Beyond Oblivion lived up to its high risk sobriquet.

There seems to be a law in most things online; no matter how brilliant the idea, no matter how vast the market, one player will dominate (often, but not always, the first in), leaving room for a trailing (but still sustainable) number two (often, but not always, the offspring or adopted child of a massive corporation), and not much else.

Amazon dominates international retailing, Google dominates search, Facebook dominates social networking, eBay dominates auction, and Spotify, alongside iTunes, dominates music choosing and using.

During their development each one of these in turn has reached a tipping point and gained the Big Mo, to borrow a phrase from American electioneering; the Big Momentum. Normally this has come before the other Big Mo of Monetisation, but has meant they catch-on big time and simply roll over their nascent competitors – even when some of those competitors were actually making money. Remember Bebo, remember MySpace, remember NetScape, or Boo? No, nor does anyone else.

This is possible in the online world because shrewd investors recognised share was everything. The bad companies burned cash and gained no audience or revenue in return. The good ones burned cash but turned it into audience – often for free – believing they could monetise it later. Being right about that is what has created the titans we know today. Not all succeed in the transition – the jury is still out on Twitter for instance – but mainly it has worked. Build the audience and the money will come.

The phenomenal growth that has lead to domination for a few has two other drivers. Those shrewd investors haven’t had to put too much on the line – the amount of capital employed is intrinsically low. This feature separates online from other sectors – no one could ever invest enough, fast enough, to dominate the market in cars, or fridges or anything else that needs plant and supply and distribution lines and mass marketing.

Secondly, the manager/founders of these businesses are uniformly aggressive in their outlook on the market and specifically in their attitude to competitors. They have understood that land grabbing counts, and that includes denying territory to your enemies, sorry, competitors. These guys cannot see a lawn without wanting to park their tanks on it.

Again the low cost of capital employed helps, particularly when allied to their already captured mass audience. In the old days a corporate might see a ‘new thing’ and think: “That’s interesting, it might work, and if it does we’ll buy it just before it gets really big”. Think Time Warner and Bebo or News Corp and MySpace. But these new players think: “That’s interesting and even if it doesn’t work it might take a slice of my market for a while. The hell with that. We’ll start something right now that’s much the same and it might work, and if not it will kill the other guy stone dead”.

The bottom line is unless you have the world’s smartest and newest idea and you can keep it secret right up to the moment it becomes a global phenomenon, the current online giants will shut down your gap faster than you can say first round funding. Beyond Oblivion, indeed.



Categories: Blogs, Business, Content, Nick Snow