Disclaimer: This blog post is was prepared in collaboration with The Hype Machine. I listened to its Popular ‘Last Week’ playlist through the writing of this post – just as I have tuned into its music pretty much every time I’ve been working over the past five years.
The Hype Machine, started in 2005, is a music aggregator which compiles and streams music from hundreds of different blogs on its site. The website created to solve a common problem with finding new music – conventional new music sources were often heavily influenced by those with the greatest ability to pay, while independent music blogs were widely scattered and time-consuming to keep up with. It enables users to find, listen, rate, and engage with new music and other new music listeners and dialogue in a single place. Users like myself can ‘love’ songs, saving songs to personal playlists, with the site producing the Popular List for the last three days and the previous week using the ‘loves’ given by its users. The convenience of this, along with many other features, creates value for its users by providing up-to-date with new music and acts with minimal time and effort.
The Hype Machine is free – another value add to users – as all the music being streamed is publicly available. While this creates low costs, it also means that Hype Machine can’t charge for the music its streaming, and so relies primarily on ads and affiliate revenue in order to capture value. It employs banner and side ads, and takeovers where an artist or advertiser advertise on the wallpaper. Consumers appear to be broadly fine with this advertising, so long as the content on the site is not ‘gamed’ – that the delineation between advertising and content remains clear.
For affiliate revenues, it tracks concerts, lets users know which musicians they listen to are playing near them, and provides links to tickets. It also has links to purchase tracks alongside the streaming, enabling users to easily buy songs on multiple platforms. Hype Machine receives a share of revenue for track and ticket sales under these affiliate arrangements. It also sells merchandise associated with its branding and community.
Over time, it has increased its content to generate further page views and, as a result, page views and affiliate revenues. It now aggregates music videos and does events, including a Mazda-sponsored curated show at SWSX. It also has an app which it charges for because of the limited ability to capture advertising revenues.
Underpinning the Hype Machine’s business model is a lean operating model, which enables it to keep costs low and reinforces its competitive advantage. It requires virtually no labor costs, having barely surpassed five staff. It takes advantage of the work of its chosen bloggers, who are compensated with additional traffic driven to their content and, ultimately, their own ad and affiliate revenues. This creates a virtuous cycle where bloggers are incentivized to create more content to be aggregated and drive even more traffic in return.
It also requires virtually no physical assets. Originally, streaming was routed through the blogger’s website, placing the additional traffic, streaming and hosting costs on the blogger, and meant that the data on streaming went to the blogger, rather than the musician or label. This placed significant burden on bloggers to have adequate bandwidth for the additional streaming being generated. In 2010, Hype Machine partnered with Sound Cloud to stream the songs from its site. This mean that bloggers spent less time worrying about hosting files, and artists and labels – who see and control the content on Sound Cloud – gained access to the stream analytics. Doing so created value for Sound Cloud, with more content being put on their service along with more views and data, but also placed the streaming burden with a sustainable long-term partner. Further, intellectual property is effectively fully outsourced – to the bloggers and to musicians, who are paid only with page views, streams and data.
This ‘page view’ payment on which the operating model is based reinforces value created by the company for consumers – the authenticity of the content. By operating in this way, the Hype Machine continues to create both real and perceived value for its entire community. The authenticity in its content – something competitors Pandora and Spotify haven’t been able to achieve, and have had to move to music product placements, inter-song advertising and subscriptions – and in its operating model is what provides its sustaining competitive advantage.