A conversation sparked (somewhat out of nowhere) last week about the business model of Grooveshark, a popular, but far-from mainstream online music-listening platform. Jessica Malnik stood up to the plate and offered up the following guest post, explaining the Grooveshark business model and discussing the legality of the platform. Kudos to Jessica for writing this post…
“Music is one of THE biggest sources of inspiration for yours truly – there’s something about the “right” song that can have you from feeling brain-dead with writers block to painting masterpieces like Michelangelo.” - Matt Cheuvront
Like Matt, I also get much of my inspiration from music. Grooveshark provides me with millions of songs at my fingertips in an easy-to-use digital music library.
Grooveshark: Humble Beginnings
Just like Facebook, Grooveshark started out with humble beginnings on a college campus. According to the Grooveshark Press Center, the idea for Grooveshark came about in an economics class in a University of Florida classroom in Gainesville, Florida. Co-founders, Sam Tarantino and Josh Greenberg, saw a need for an easy-to-use, consumer-friendly, legal digital music service.
Putting The “Social” in Online Music
Grooveshark has never spent a dime on traditional advertising. They rely exclusively on word of mouth marketing. Grooveshark now gets more than 3 million unique visitors each month, with the average person staying on the site for more than 45 minutes, according to Compete stats.
What drives the word of mouth marketing is how easy it is to share your songs and playlists with your friends on all your social networks. It goes beyond the simple social share buttons that are common on pretty much any site these days. They also have a “community” section, where users can see what their friends and fellow community members are listening to. Users can also add favorites and build customizable playlists, which they can share with fellow members.
Grooveshark Business Model
Now, the ease of use and social factor are great, but the startup has to make money to survive. Grooveshark business model remains a bit fuzzy and unpolished. According to their press center, they make money through banner ads, Grooveshark Plus, their VIP subscription service, artist promotions, a merchandise store and custom mobile apps.
Legal Limbo
However, Grooveshark’s business model has been plagued by legal troubles. Last year, they built an iPhone and an Android app. The Android app is still available. The iPhone app lasted a whopping three days before legal complications forced them to remove the app. To this day, Grooveshark is still not available in the iOS app store.
They have also had problems controlling what users upload to the site. Grooveshark operates legally under the Digital Millenium Copyright Act (DMCA). In order to comply with DMCA Grooveshark has very specific requirements in what formats music can be uploaded and also polices the site for illegal uploads.
That being said, Grooveshark has a fair share of disputes with record labels. They currently only have an agreement with EMI.
Grooveshark has certainly proven to be a popular digital music library. These questions remain:
- Will they be able to survive and create a sustainable business model amongst all their legal troubles?
- Or, will Grooveshark suffer the same fate as Napster?
- What do you think? Share your thoughts below.
Jessica Malnik is a freelance Web and social media consultant, videographer and Generation Y Blogger. Visit her blog for social media, technology, public relations and journalism ramblings.
JOIN THE DISCUSSION
Hey Jessica -
Thanks again for the guest post and explaining in a bit more detail Grooveshark’s business model. I guess my main question is, how do they keep the site up? How has it yet to be shut down by the music biz? While you can’t download any songs illegally, you can listen to any song, at any time, on demand. Isn’t there something against doing this? If not, why doesn’t Pandora switch to a similar “what you want when you want it” model?
I plead ignorance as I really don’t know about all the legalities of something like Grooveshark, but was hoping you, or someone else can enlighten me (and the rest of the inquiring minds).
Matt,
Grooveshark was sued, by EMI, but they settled and EMI agreed to license their music. GS relies on the the music companies’ willingness to use the DMCA takedown process for unlicensed stuff and they will eventually have to reach licensing deals or else risk getting shut down/sued into oblivion. The DMCA basically says you can avoid liability (what the DMCA calls a “safe harbor”) so long as you take down infringing stuff when asked, and Grooveshark is operating under the assumption that a few recent court cases about video (Universal v. Veoh, among others) legitimize their approach. Contrary to what Jessica says in the “legal” section above, Grooveshark doesn’t have to use copyright=filtering technology in order to police the site and the DMCA doesn’t give preferential treatment to particular formats, or at least not in the context at issue here.
Matt: Dave pretty much summed it up well. The only thing I want to add is it wil be interesting if Grooveshark can survive under this loose interpretation of the DMCA. It’s such a great music alternative, and it would be a shame if it suffered the same fate as Napster.
Yeah, I guess that is my doubt, I just don’t see how it can survive without changing it’s core offering – it seems like things like this are destined to either evolve or get shut down. We shall see…
It’s interesting to see how they keep going, but they will probably face some serious competition when sites like Snoost open for real, since they don’t have the same copyright issues as GS. I wonder how long they can stand against all those charges.
Great article!
Thanks, Oliva. Grooveshark is such a great alternative to the Pandora and Last FM, and it will definitely be interesting to see if they stay afloat among all the charges.
Interestingly enough, in today’s digital age we are all linked together in real time. It is not illegal to listen to your best friends music in his/her car or perhaps borrow a CD. I think company models like Groove Shark etc… are just allowing us link together and share our tastes and interests in real time. How do you differentiate a ride in a car or a visit to someones home listening to their music choice from an online community listening site? Does that make any sense?