Seek out the superfans

The real threat is not piracy, it is competition. Use the internet to connect with the audience and then craft product and services for which they will pay lots of money, says a new book

Lady Gaga is a twenty-first-century star. It's not that she doesn't work with a record label. Her first album, The Fame (2009), was released by Interscope Records, as was Born this Way (2011) and ARTPOP (due in 2013). Lady Gaga has chosen to work with the traditional record industry to release records in the traditional way. It's just that record sales represent less than a quarter of her income. More than that, Lady Gaga has direct connections with her fans. A lot of fans.

Lady Gaga is the most followed person on Twitter. In May 2013 she had 37,520,337 Twitter followers. Her Twitter stream includes political statements such as:

I JUST GOT OFF STAGE IN COLUMBIA!! CONGRATULATIONS MR. PRESIDENT ©BarackObama. We are so proud to be American tonight! YES!!! YES! YES!!

and talking to and about her fans:

OI GALERA! In Rio + My beautiful fans are wearing leather & bandanas in the sun, bad asses, gorgeous smiles & fists in the air! I HEAR U!

These tweets are more than just marketing. They are about allowing fans to have a glimpse inside the life of a superstar. They allow the fans to feel that they have a one-to-one relationship with Lady Gaga, even though they know they are only one of 38 million followers. They allow Lady Gaga to speak directly to fans without having to go through the filter of a TV interview, a newspaper article or a magazine spread. They allow Lady Gaga to appear genuine.

Lady Gaga doesn't stop at Twitter. The music video for Bad Romance is one of the top ten most popular videos on YouTube with 495 million views by November 2012. It is freely available to watch on YouTube and Lady Gaga has said that she is fine with her fans getting her music for free, whether legally or illegally. In an interview with The Times, she said,'big artists can make anywhere from $40 million for one cycle of two years' touring. Giant artists make upwards of $100 million. Make music - then tour. It's just the way it is today. Bad Romance is available for free on YouTube, but this doesn't seem to have hurt its sales. Bad Romance sold over 9.7 million copies in 2010, making it the second most purchased single in the world that year, behind Ke$ha's TiK ToK. This isn't a one off event either. Lady Gaga has five songs in the top fifty best-selling singles of all time (see table).

We must be careful how much we read into the table . There are issues with the underlying data, the implications and the conclusions that we might be tempted to draw. The sales data is incomplete because it includes only the number of downloads in the year of release, sourced from the International Federation of the Phonographic Industry, and there are claims that Poker Face has in fact sold over 12 million copies. The YouTube video views can't be directly compared to the sales figures, because they were taken from YouTube on 9 November 2012 and represent aggregate views, not just those in the year of release. We also need to be cautious of causality: did Lady Gaga sell so many digital downloads because her songs and music videos have been so popular on YouTube, or did each of these songs fail to reach their potential and hence sold fewer copies because I so many fans were able to watch and listen to them without paying a dime? If the latter is the case, it is possible that Lady Gaga has suffered enormous financial loss from all the customers who have experienced her music on YouTube and as a result chosen not to bother spending money on buying her singles and albums.

What we do know is that Lady Gaga has sold a phenomenal number of singles while also having a phenomenal number of YouTube views. She is an artist who has put a great deal of effort into using social media and modern distribution channels to disseminate her music and videos. She has a clear and stated strategy of making sure that her music gets in front of her fans, wherever they are and whether they have paid or not. She also has five of the best-selling singles of all time. The correlation is strong.

There is an important question, though: has all this success made Lady Gaga any money? Boy, has it. Forbes magazine estimated Lady Gaga's earnings in 2011 at over $100 million, and perhaps as high as $130 million. However, of that revenue, only 24 per cent came from record sales. Even with some of the best-selling singles of all time, Lady Gaga made only around $25 million from record sales. Seven per cent of her income came from endorsements and sponsorship. The lion's share of her income, 69 per cent, came from touring and merchandise.

Re-printed with permission of the publisher. Copyright Portfolio Penguin. All rights reserved.

THE CURVE: FROM FREELOADERS INTO SUPERFANS. THE FUTURE OF BUSINESS
AUTHOR: Nicholas Lovell
PUBLISHER: Portfolio Penguin
Price: Rs 550
ISBN: 9780670923205

Identify things that can be offered for free...: Nicholas Lovell
Inreview with Author, & founder Gamesbrief

...charge for products or services that customers or clients value the most, Lovell tells Ankita Rai

Consumers expect more and more for free. How should companies expect to cover their costs in such a scenario?
That is a complex question. In a competitive environment, the biggest risk to your business is that competitors figure out how to make money while still giving products away for free, irrespective of your own underlying cost base. The basic approach comes in three parts:

• Find an audience (probably using free).
• Figure out what they value and earn the right to talk to them again. (This will probably involve technology).
• Let those who love what you do spend lots of money on things they truly value.

The trick is to start identifying those things that are sensible to give away for free, while still charging for the things that customers or clients will value. So if you run an IT business, create web pages that tell your customers how to solve problems that they regularly face. If you create entertainment products, accept that these will be pirated: Use the free stuff to drive those people who might be prepared to spend money into your website, your app and your customer relationship management system.

Internet enables people to market their products to a vast majority by offering free content. However, the revenue stream in that case becomes very thin, especially for start-ups. There is no guarantee that the content will go viral...
You don't need something to go viral. Many start-ups rely on the law of large numbers: "if just 1 per cent of all the people in India use our product, we'll have a massive market." This can work well for a small number of companies that become winners in their field, but it is not a predictable strategy. The alternative is to start your search for superfans. Create product offerings that enable people to spend more than the average with you. If you are lacking in inspiration, look at crowdfunding sites like Kickstarter or Indiegogo. Look at the pledges where fans are prepared to pay $10,000 for lunch with game designer Tim Schafer.

Think about what your best customers value: exclusivity, early access or an experience. Craft a strategy that offers an entry ramp to your product offering for no cost, all the way up to products or services priced at 10 times or hundred times what the average customer pays. The web has made maintaining one-to-one conversations with customers cheaper. You need to figure out how to take advantage of this, so as to not cede the opportunity to your competitors.

Nicholas Lovell
author, & founder, Gamesbrief