40 Years of Music Industry Sales
The record industry has seen a lot of change over the years.
8-tracks took a short-lived run at the dominance of vinyl, cassettes faded away as compact discs took the world by storm, and through it all, the music industry saw its revenue continue to climb. That is, until it was digitally disrupted.
Looking back at four decades of U.S. music industry sales data is a fascinating exercise as it charts not only the rise and fall the record company profits, but seismic shifts in technology and consumer behavior as well.
The Long Fade Out
For people of a certain age group, early memories of acquiring new music are inexorably linked to piracy. Going to the store and purchasing a $20 disc wasn’t even a part of the thought process. Napster, the first widely used P2P service, figuratively skipped the needle off the record and ended years of impressive profitability in the recording industry.
Napster was shut down in 2002, but the genie was already out of the bottle. Piracy’s effect on the industry was immediate and stark. Music industry sales, which had been experiencing impressive year-over-year growth, began a decline that would continue for 15 years.
The Ringtone Era
While acquiring music was as easy opening Limewire on your desktop computer, transferring that new T-Pain track to a flip-phone wasn’t a seamless experience.
This brief gap in technology – before smartphones hit mass adoption – brought us the ringtone era. Distribution was controlled by mobile carriers, so ringtones were a comfortable gateway for the record industry to get a taste for digital-based revenue. In 2008 alone, they injected over a billion dollars of revenue into an industry that was getting used to gloomy forecasts.
Though services like Spotify and Pandora haven’t replaced the money pipeline that CD sales provided, they have reversed the industry’s tailspin. For the first time this millennium, record industry posted an increase in revenue for two consecutive years (and likely a third in 2018).
It took a while for consumers to warm up to paying for a premium music subscription, but today, there’s a solid basis for optimism. Music streaming is now the most common format for music in the United States, and the RIAA reports that streaming now makes up nearly half of the market.
The End of Physical Format?
Gone are the days when people would line up at the music shop for a hot new release. In fact, CD sales are down 80% in the past decade. Today, physical format sales only account for 17% of the industry’s revenue.
There is, however, one bright spot in physical format segment: vinyl. In 2017, vinyl sales hit 25-year high after making a slow and steady comeback.
Vinyl is written in stone. I think if it’s made it for 120 years now, it’s here forever.
– Jack White
Visualizing the Size of Amazon, the World’s Most Valuable Retailer
Amazon’s valuation has grown by 2,830% over the last decade, and the tech giant is now worth more than the other 9 largest U.S. retailers, combined.
Visualizing the Size of the World’s Most Valuable Retailer
As brick-and-mortar chains teeter in the face of the pandemic, Amazon continues to gain ground.
The retail juggernaut is valued at no less than $1.4 trillion—roughly four times what it was in late 2016 when its market cap hovered around $350 billion. Last year, the Jeff Bezos-led company shipped 2 billion packages around the world.
Today’s infographic shows how Amazon’s market cap alone is bigger than the nine biggest U.S. retailers put together, highlighting the palpable presence of the once modest online bookstore.
The New Normal
COVID-19’s sudden shift has rendered many retail outfits obsolete.
Neiman Marcus, JCPenney, and J.Crew have all filed for bankruptcy as consumer spending has migrated online. This, coupled with heavy debt loads across many retail chains, is only compounding the demise of brick-and-mortar. In fact, one estimate projects that at least 25,000 U.S. stores will fold over the next year.
Still, as safety and supply chain challenges mount—with COVID-19 related costs in the billions—Amazon remains at the top. It surpasses its next closest competitor, Walmart, by $1 trillion in market valuation.
How does Amazon compare to the largest retailers in the U.S.?
|10 Largest Public US Retailers*||Market Value July 1, 2020||Market Value July 1, 2010||Normalized % Change 2010-2020||Retail Revenue|
|The Kroger Co.||$26B||$13B||107%||$118Be|
|Walgreens Boots Alliance||$36B||$26B||38%||$111B|
|The Home Depot||$267B||$47B||466%||$108B|
|Combined value of retailers (without Amazon)||$1,071B|
Source: Deloitte, YCharts
*Largest public US retailers based on their retail revenue as of fiscal years ending through June 30, 2019, e=estimated
With nearly a 39% share of U.S. e-commerce retail sales, Amazon’s market cap has grown 2,830% over the last decade. Its business model, which aggressively pursues market dominance instead of focusing on short-term profits, is one factor behinds the rise.
By the same token, one recent estimate by The Economist pegged Amazon’s retail operating margins at -1% last year. Another analyst has suggested that the company purposefully sells retail goods at a loss.
How Amazon makes up for this operating shortfall is through its cash-generating cloud service, Amazon Web Services (AWS), and through a collection of diversified enterprise-focused services. AWS, with estimated operating margins of 26%, brought in $9.2 billion in profits in 2019—more than half of Amazon’s total.
Amazon’s Basket of Eggs
Unlike many of its retail competitors, Amazon has rapidly diversified its acquisitions since it originated in 1994.
Take the $1.2 billion acquisition of Zoox. Amazon plans to operate self-driving taxi fleets, all of which are designed without steering wheels. It is the company’s third largest since the $13.7 billion acquisition of organic grocer Whole Foods, followed by Zappos.
Accounting for the lion’s share of Amazon-owned physical stores, Whole Foods has 508 stores across the U.S., UK, and Canada. While Amazon doesn’t outline revenues across its physical retail segments—which include Amazon Books stores, Amazon Go stores, and others—physical store sales tipped over $17 billion in 2019.
Meanwhile, Amazon also owns gaming streaming platform Twitch, which it acquired for $970 million in 2017. Currently, Twitch makes up 73% of the streaming market and brought in an estimated $300 million in ad revenues in 2019.
Despite the flood of online orders due to quarantines and social distancing requirements, Amazon’s bottom line has suffered. In the second quarter of 2020 alone, it is expected to rack up $4 billion in pandemic-related costs.
Yet, at the same time, its customer-obsessed business model appears to thrive under current market conditions. As of July 1, its stock price has spiked over 51% year-to-date. On an annualized basis, that’s roughly 100% in returns.
As margins get squeezed and expenses grow, is Amazon’s growth sustainable in the long-term? Or, are the company’s strategic acquisitions and revenue streams providing the catalysts (and cash) for only more short-term success?
10 Types of Innovation: The Art of Discovering a Breakthrough Product
How do companies like Amazon and Apple consistently make game-changing products? Here are 10 types of innovation, and the tactics that lead to big breakthroughs.
The Art of Discovering Breakthrough Products
As venture capitalist Peter Thiel once put it, “competition is for losers”.
It’s inevitable that every company must be out there battling for market share, but you don’t really want to be in a situation where the competition is so stiff that any potential upside is eroded away in the process—―a scenario known as perfect competition in economics.
To avoid perfect competition, companies must strive to build an economic moat that gives them a sustainable competitive advantage over time. While these protective moats can arise from a number of different sources, in today’s information economy they most often arise from the power of innovation.
But where does innovation come from, and is there a universal framework that can be applied to help consistently make big breakthroughs?
The 10 Types of Innovation
In today’s infographic, we showcase the culmination of years of in-depth research from Doblin, an innovation-focused firm now owned by Deloitte.
After examining over 2,000 business innovations throughout history, Doblin uncovered that most breakthroughs don’t necessarily stem from engineering inventions or rare discoveries.
Instead, they observed that innovations can be categorized within a range of 10 distinct dimensions—and anyone can use the resulting strategic framework to analyze the competition, to stress test for product weaknesses, or to find new opportunities for their products.
Here are the 10 types of innovation:
|1.||Profit Model||How you make money|
|2.||Network||Connections with others to create value|
|3.||Structure||Alignment of your talent and assets|
|4.||Process||Signature of superior methods for doing your work|
|5.||Product Performance||Distinguishing features and functionality|
|6.||Product System||Complementary products and services|
|7.||Service||Support and enhancements that surround your offerings|
|8.||Channel||How your offerings are delivered to customers and users|
|9.||Brand||Representation of your offerings and business|
|10.||Customer Engagement||Distinctive interactions you foster|
From Theory to Practice
What does innovation look like in practice?
Let’s see how well-known businesses have leveraged each of these 10 types of innovation in the past, while also diving into the tactics that modern businesses can use to consistently make new product breakthroughs:.
Innovation Types #1-4: “Configuration”
According to Doblin, the first four types of innovation center around the configuration of the company, and all the work that happens “behind the scenes”.
Although innovation types in this category are not directly customer-facing, as you can see in the examples below, they can still have an important impact on the customer experience. How your company and products are organized can have a crucial downstream effect, even enabling innovations in other categories.
Two of the most interesting examples here are Google and McDonald’s. Both companies made internal innovations that empowered their people to make important advancements further on downstream.
In the case of McDonald’s, the franchisee insight that led to the introduction of the Egg McMuffin spearheaded the company’s entire breakfast offering, which now accounts for 25% of revenues. Breakfast is also now the company’s most profitable segment.
Innovation Types #5-6: “Offering”
When most people think of innovation, it’s likely the offering category that comes to mind.
Making improvements to product performance is an obvious but difficult type of innovation, and unless it’s accompanied by a deeply ingrained company culture towards technical innovation, such advancements may only create a temporary advantage against the competition.
This is the part of the reason that Doblin recommends that companies focus on combining multiple areas of innovation together—it creates a much more stable economic moat.
Apple has a reputation for innovation, but the product ecosystem highlighted above is an underappreciated piece of the company’s strategy. By putting thought into the ecosystem of products—and ensuring they work together flawlessly—additional utility is created, while also making it harder for customers to switch away from Apple products.
Innovation Types #7-10: “Experience”
These types of innovation are the most customer-facing, but this also makes them the most subject to interpretation.
While other innovations tend to occur upstream, innovations in experience all get trialed in the hands of customers. For this reason, intense care is needed in rolling out these ideas.
In the early days of the internet, online shipping was precarious at best—but Amazon’s introduction of Amazon Prime and free expedited shipping for all members has been a game-changer for e-commerce.
Executing on such a promise was no small task, but today there are 150 million users of Prime worldwide, including some in metro areas who can get items in as little as two hours.
Making Innovations Happen in Your Organization
How can organizations approach the 10 types of innovation from a more tactical perspective?
One useful resource is Doblin’s free public list of over 100 tactics that correspond with the aforementioned framework.
The one-pager PDF provides a range of typical dimensions for approaching each type of innovation. In essence, these are all different ways you could consider when trying to differentiate your product or service—and at the very least, it provides a useful thought experiment for managers and marketers.
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