Lala
The music service that started with CD swapping and moved to 10-cent-a-song cloud streaming
- Founded
- 2006
- Closed
- 2010
- Lifespan
- 4 years
- Total funding
- $20 million
- Country
- United States
- City
- Palo Alto
- Sector
- Media and entertainment
- Founders
- Bill Nguyen, Billy Alvarado, Anselm Baird-Smith, John Cogan III
- Investors
- Bain Capital, Ignition Partners, Warner Music Group
- At its peak
- More than 8 million licensed songs; around 300,000 members in December 2006
- Cause of closure
- Acquired and shut down
What did it do?
Lala was a Palo Alto-based online music service that began by brokering second-hand CD swaps between users. It later moved to a model in which users could upload and play their own music, listen to any song once for free, and then buy unlimited web playback for 10 cents or an MP3 for 89 cents. It had deals with the major record labels and said it offered more than 8 million licensed songs.
Why did it shut down?
The company changed its business model several times: first CD swapping, then free streaming in 2007, which was withdrawn without explanation shortly afterwards, and in 2008 the 10-cent web song. In the swapping business, shipping and unused stamped envelopes created a risk of lost revenue. According to a New York Times report cited by TechCrunch, Lala's executives concluded that the chances of reaching profitability in the near term were slim and approached Apple themselves. Apple acquired Lala on 4 December 2009 and announced on 30 April 2010 that the service would close on 31 May.
The story
Lala's first incarnation may look odd today: users mailed each other second-hand CDs, and the site kept track of who had sent and who was owed how many. The Palo Alto company was founded by serial entrepreneur Bill Nguyen together with Billy Alvarado, Anselm Baird-Smith and John Cogan III. Opened as an invitation-only beta in March 2006, the site had reached around 300,000 members and more than 500,000 CD swaps by December 2006, with a team of just 23.
The economics of swapping were thin. Lala charged $1 for each disc received and covered the shipping. At first members were given stamped envelopes, but unused or lost envelopes posed a serious risk of lost revenue; in July 2006 it switched to a 75-cent shipping fee per swap. Lala 2.0, launched in 2007, shifted the focus to uploading music and free, legal full-track streaming, but the streaming feature was withdrawn a few weeks later without any explanation to users.
With Lala 3.0, opened to the public in June 2008, the model changed once again. Members could listen to any song once for free, then buy a web song with unlimited playback for 10 cents or an MP3 for 89 cents. Backed by Bain Capital and Ignition Partners, the company also took $20 million from Warner Music Group and said it offered more than 8 million licensed songs. In autumn 2009 Lala was integrated into Google's search results and Facebook's gift shop.
None of this was enough. According to a New York Times report cited by TechCrunch, Lala's executives decided that the chances of turning a profit in the near term were slim and themselves approached Eddy Cue, the Apple executive in charge of iTunes. Apple bought Lala on 4 December 2009; according to the report, its real interest lay in the company's engineers and its cloud-based music experience. The swapping service was shut down the same month. On 30 April 2010 it was announced that no new members were being accepted and that the service would close on 31 May; users' balances were converted into iTunes Store credit.
Lala caught on to the idea of music in the cloud early, but took refuge with a buyer before it could settle on a profitable model. The lesson is plain: a company that keeps changing its business model burns through a little more user trust and cash at every turn.
Lessons for founders
- Changing your business model frequently shakes user trust; when you remove a feature, tell users clearly why.
- In models that involve physical logistics, build the cost of lost or unused shipping materials into your pricing from the outset.
- In acquisition talks, settle what happens to the rights users have paid for, and plan compensation in case the service closes.
Sources
- Lala (music service) (Wikipedia)
- Apple Has Acquired Lala (TechCrunch, 2009-12-04)
- Popularity crunch: Lala's free streaming goes dark, will return (Ars Technica, 2007-07-03)
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