Spotify has been in a long battle with the music industry over its controversial streaming business model. While the music industry has undergone a lot of change in the last decade it still hasn’t fully adjusted to the change, leaving the industry in somewhat of a standoff. Spotify, currently the leading streaming company, has been at the forefront of this stand off as they work to introduce the music industry to a new revenue model. Over the last several years Spotify has been making strides toward acceptance as they have worked to educate artists about their site and have steadily increased the royalties they pay out. This acceptance however hit a major hiccup 2 weeks ago, when Taylor Swift pulled her entire collection of music off the site.

On the subject Taylor stated, “I think there should be an inherent value placed on art. I didn’t see that happening, perception-wise, when I put my music on Spotify.”
Taylor has been vocal about her distaste of streaming services as she feels streaming sites are part of the reason album sales are shrinking. Though Taylor has voiced a negative opinion about streaming as a whole she has left her collection on both Beats Music and Rhapsody. Before pulling her collection off Spotify, Taylor had asked the site to make her content only available to paying users which Spotify responded was against their policy. Taylor also asked for her content to only be available outside the United States but this again was against Spotify’s policy. The two sites that still have Taylor’s content are sites that require a paid membership.

“With Beats Music and Rhapsody you have to pay for a premium package in order to access my albums. And that places a perception of value on what I’ve created.” – Taylor swift

While Taylor has made a very public separation from streaming, the real question is whether or not this will affect the Spotify. In response to the ordeal Spotify’s founder Daniel Ek released an open letter to the singer explaining why she made the wrong decision in pulling her music.

In the essay, “2 Billion and Counting” Daniel Ek wrote- “Taylor Swift is absolutely right: music is art, art has real value, and artists deserve to be paid for it. We started Spotify because we love music and piracy was killing it. So all the talk swirling around lately about how Spotify is making money on the backs of artists upsets me big time. Our whole reason for existence is to help fans find music and help artists connect with fans through a platform that protects them from piracy and pays them for their amazing work.”- Daniel Ek
This letter makes a very important argument, which is Spotify makes money where it didn’t exist by combating illegal downloading. In the same letter the founder explains that Taylor was on track to make 6 million this year had she left her collection on Spotify. Further than the 6 million the number was on track to increase significantly every year as the site grows. Daniel Ek made it clear in the essay that Spotify is not against artists; rather they are working very hard to make sure artists are properly compensated.

“Here’s the thing I really want artists to understand: Our interests are totally aligned with yours. Even if you don’t believe that’s our goal, look at our business. Our whole business is to maximize the value of your music,” he said. “We don’t use music to drive sales of hardware or software. We use music to get people to pay for music. The more we grow, the more we’ll pay you.” –Daniel EK
The Spotify battle is long over as it is a matter of educating both the public and those in the music industry on the business model of streaming. Spotify’s response to Taylor shows that the site is willing to fight back against artists to make streaming successful. While Taylors move to take down her music got a lot of buzz it, also got a lot of people stepping up to defend Spotify.  If Spotify is able to continue its efforts to educate artist on the benefits of streaming, it may have a fighting chance.  Spotify has proven that they can handle even one to the biggest pop stars dismissing their site. Though the future is not clear, it looks like the streaming site is here to stay.

Facebook wants to enter the workplace and in a big way. In the next year Facebook hopes to launch a new side to its site that would allow colleagues to collaborate on projects, share documents and function as an in office communicator. In Facebook’s London headquarters the company says they have been developing the program for a long time.
The site would feature a very similar design to the existing personal site, but would strictly be for inner office collaboration. User’s personal profiles will have no connection to the work profiles. The site would feature similar news feed and group functions, allowing users to post content for the entire company as well as preform smaller team work. While much of what the site will feature is still speculation many have wondered how Facebook for work will rival preexisting office applications.
Forbes contributor Erika Morphy states- “that Salesforce Chatter is already a popular service used by thousands of Salesforce.com users. Slack has also become a popular collaboration service that’s challenging Atlassian’s HipChat and Campfire, with its clean interface for chatting with colleagues or sharing documents and links.”
Further than just communication sites alone there has been speculation about Facebooks profile feature and how it could function in a very similar way to LinkedIn. If users are able to create a public business profile that moves with them from organization to organization as a user changes jobs the site could function as an online resume tool.
While there are many existing office communicator application out there already, there is speculation that Facebooks well-known name will lead it to success. Many offices have had to ban Facebook across the country as their employees are too addicted to the site. Facebook in the office could prove to be very popular among employees leading many companies to switch communicators. More so then popularity the familiar interface would mean little transition time for companies as the majority of employees are already accustomed with how the site works. The counter to this argument being that most employees have no say over their company’s communication systems as it is often a decision made in IT departments. With Facebook at work the site will only be available to employees if the company as a whole signs up for the service.
Facebook also faces another issue, privacy; can it get companies to trust the site? In today’s corporate structure much of what happens within the walls of a company is top secret. Posting and collaborating on sensitive documents on the internet would be worrisome to many.
Facebook has many issues that it must look at to become successful in this office space, however if done right it has the possibility to change the game. Facebook at work is currently in the testing phase at a select few organizations across the country. Though it is still unclear when Facebook will officially launch the site, it is definitely something to watch for.

Sephora, one of the most famous cosmetics shops in the world, just finished its semiannual sale on November 10. The 20% off event was for VIBs and VIB ROGUEs, who have, respectively, spent more than $350 or $1,000 in the past year. However, many qualified accounts with Asian surnames were blocked during the sale this year. Sephora released an official announcement on its Facebook page on Nov. 7, stating that they were deactivating accounts to stop reselling. But the company is facing possible charges not because their attempt to regulate its market. Many accounts with Asian surnames were deactivated, though the owners claimed that they’d never resold any items. Some of them even said that they didn’t buy anything on Sephora.com during the sale this year, yet their accounts were still locked. Now there’s an outrage on Sephora’s Facebook page.

Many Asian consumers are now complaining on Sephora’s Facebook page about their accounts’ being deactivated for no reason.

It seems that the reselling phenomenon is the key issue here. However, Sephora actually has its stores in China. Why do Chinese purchase oversea? This article will look into the reasons why people resell Sephora products to China.

As mentioned, Sephora has its stores in China, but people still buy from Sephora.com. There’re mainly 2 reasons: Some brands that are exclusive in the U.S., and more importantly, it’s much cheaper to buy directly from the website. For instance, the price for the Rose Mask produced by Fresh is $58 on Sephora.com. Chinese Sephora stores don’t carry the brand. If consumers turn to Fresh stores – which now only exist in Beijing and Shanghai – to make a purchase, it will cost them￥500, which is about $82 – the price is 41.4% higher than it is in America. This is because Chinese government places high customs tax on import goods.

Besides, it is said that the quality of skincare products sold in manufacture countries is much better than those sold elsewhere, which is considered an open secret in the cosmetic industry – and Sephora sells a lot domestic products. Last but not least, Chinese Sephora also doesn’t do well in marketing itself, so few people actually go to stores and make a purchase – these are all the reasons why Chinese consumers turned to Sephora in America.

However, high customs tax, low product quality and diversity, and poor image of Chinese Sephora are not the only reasons why resellers exist. One of those whose accounts were banned decided to file a class action against Sephora for discrimination against Asians. He made an announcement on Weibo, encouraging people whose accounts had been unfairly deactivated to leave their contact information to the lawyer in charge. Interestingly, he mentioned that he had asked certain promotion account to help him tweet the message, but he was refused because there’s interest conflict between helping him and the account’s relationship with Sephora.

The Weibo announcement made by a Chinese consumer whose account was deactivated for no reason. He’s now working with a lawyer to file against Sephora for discrimination against Asians, especially Chinese.

It’s interesting because, many promotion accounts on Weibo constantly tweet about sales going on on Sephora.com. However, Sephora.com explicitly points out on its website that international shipping only includes Germany, Japan, Netherlands, Norway, South Korea, and the United Kingdom. So it doesn’t ship to China, yet it’s advertising on Chinese promotion accounts, where most of Chinese consumers get the latest promotion information.

Shipping policy on Sephora.com.

One of the Weibo accounts which had tweeted about promotions on Sephora.com. According to Rise_Against_Sephora, it is this account which has refused his request for help with the class action.

 The same promotion account had publicized information about how Chinese can buy from foreign websites such as 6PM and Saks, which shows that its target audience includes those who are living in China, though its account description is “looking for deals for Chinese who are living in North America.”

Now that Chinese consumers have seen the promotion information, they want to make a purchase. Since Sephora doesn’t ship to China, consumers use transshipment companies to deliver their products. Here’s how it works. They buy things on Sephora.com. The address they leave on the website belongs to a transshipment company. The company will receive the orders, and will send them to the buyers. Everything looks perfect, until Sephora began to ban transshipment addresses. From more than a year ago, consumers started to complain that their orders had been declined due to detected transshipment addresses.

 

A consumer was complaining about the fact that Sephora doesn’t allow people to use transshipment companies to purchase.

 Since consumers can no longer make a purchase on their own, they start to look for individuals to help them place an order. This is the most major reason why there’re resellers targeting at Sephora. Some people said that resellers might hoard hundreds of the same products while they’re on sale, which is not fair to other consumers. However, on one hand, there’s a limit on the number of the same products that one can purchase online, so it should be hard for one to hoard. But on the other hand, though Sephora has made a limitation online, it doesn’t limit the quantities that one can purchase in stores, except for some limited-edition gift sets.

All in all, Sephora has banned all possible means by which Chinese consumers can make a purchase on their own; but at the mean time, it’s advertising in China. Sephora said that some accounts were locked due to the purpose to control resell, but it’s actually implementing different rules online and offline. It seems that Sephora is blaming resellers, but the company itself is one of the reasons that contribute to the phenomenon. Some even argue that Sephora is hypocritical, because it wants to utilize huge purchasing power in China, but at the same time, when it’s short of supply, Asian accounts are the first to be locked with “justified reasons.[1]”

It’s not suggesting that Sephora is guilty. However, the contradictions in the company’s rules do make it seem suspicious. Regardless of the fact whether Sephora is discriminating against Asians, the company obviously has a lot of PR work to do if it still wants to stable the Asian market, especially the Chinese market.

The latest update on the issue is that the promotion account which advocates Sephora and has refused to help with the sue, has contacted the management of Weibo, trying to filter some of the tweets that the person who raised the class action publicized. Obviously, this is not the best PR it can do.

The anti-Sephora Weibo account @Rise_Against_Sephora claimed that Weibo had hidden some of his tweets. In the picture, it is his conversation history with the promotion account which advocates Sephora. Actually, in one of the tweets he publicized last night, he mentioned the exact name of the promotion account – but that tweet can’t be found now.

Another tweet just publicized by Rise_Against_Sephora, stating that his tweet was filtered again.

[1] Resource: http://www.douban.com/group/topic/66540865/

It’s official: California drought, which began in 2011, has entered a fourth consecutive year of severe drought. Almost 80 percent of California is now in the state of “extreme or exceptional” drought. Low snowpack in the mountains and record high triple-digit temperature heat waves surrounding the state even in the midst of autumn are telling us that coming months will do little to improve the dehydrated state. In drought-stricken California, people engaging in businesses anywhere from breweries to golf are struggling hard to prevent their companies from shutting down by fighting water-shortage. Among all industries however, farming is the probably the most negatively impacted in California—the nation’s biggest agricultural state by value.

Shocking image of cumulative water storage changes in California captured by NASA satellite over the last 12 years.

http://mashable.com/2014/10/03/nasa-satellites-california-drought/

The fact that farmers need water to grow their products is pretty intuitive. However, the state has faced a net water shortage of 1.6 million acre-feet this year, resulting in $810 million loss in crop revenue and $203 million worth of damage in dairy and livestock products. California drought is causing the agricultural business to shrink. The dwindling farming business is negatively affecting the California economy in many ways. The severe and historic drought in California is expected to have a huge financial and economic influence in California’s agricultural sector—and lead to thousands of jobs being cut. To make matters worse, it will also likely to have negative impacts on nation’s food prices and foreign exports.

According to data released by Beacon Economics, exports of California fruits and tree nuts dropped by 8 percent compared to last year and vegetables by 7.8 percent this August. In terms of rice crop, almost 25% of California’s $5 billion will be lost this year due to drought. It is said that 2,500 rice farmers planted just 420,000 acres of high-quality rice used in sushi this year—a significantly lower number than usual. California’s Sacramento Valley produces most of the sushi rice and exports a huge amount of rice countries outside U.S., especially in Asia. According to U.S. Drought Monitor, 58% of California, including all of Central Valley, where a lot of agriculture happens, is currently going through “exceptional drought”, the most severe level of drought. In other words, sushi lovers will either see a spike in the price of sushi or a shorter roll.

Among the biggest losses in California agriculture are almonds, hay, corn and oranges. The state’s dairy farmers are struggling too because there is not even water to grow hay to feed their cows.

 

Empty docks as a result of severe drought

US_NEWS_ENV-CALIF-DROUGHT_7_LA.jpg

So what are some specific repercussions of California drought? What will happen if the problem does not get resolved?

1. Overall Economic Loss

The number one result of California’s severe drought is of course the loss of money. From a report from experts at the University of California, Davis commissioned by Department of Food and Agriculture, California is estimated to lose about $2.2 billion this year, and is expected to cut 3.8%, about 17,100 of the state’s agricultural related jobs, most of them consisting of seasonal and part-time work in the Central and San Joaquin Valleys. It is also according to the report that dairy and livestock farmers will be losing about $203 million while pumping cost for more groundwater will cost about $500 million.

 

2. Less Employment

Since there is less arable land for farmers to harvest their crops, there is less demand for workers as well. Job cuts are not only limited to farmlands but are also happening in other industries that are closely related to farming. For example, some companies that make farm equipment have begun laying off their workers and downsizing their business since there is now less need for farming equipment in California. Although this is only happening locally as of now, it will soon be a national if drought problem persists. For instance, those who are engaged in agricultural goods export business all around the world will soon be put into predicament as well due to shortage of food.

The job cuts are causing a ripple effect on the local economy. If the problem continues, it will soon cause a ripple effect on national and worldwide economy as well.

 

3. Less Export

California is responsible for providing food nationally and internationally. It is known that the state grows about 80% of world’s almonds. The almond trade has become so profitable that Californians began planting almond trees in deserts thanks to the well-equipped irrigation system. Now that farmers in California are strictly restricted from freely watering their plants, many lands that grow almonds are being left fallow this year. This is not only limited to almonds; we are seeing this in other food products as well such as rice and oranges. Although this is not yet a significant problem as of now since California has enough amount of products that are stored, it could soon possibly cause a global crisis if the problem were to persist.

 

4. Higher Food Price

This is quite intuitive. Less food production due to drought means there will be less supply chain. Now that there is less food available in the market but equal amount of people competing for that reduced amount, the price of food must go up. This will be especially crippling to poor people who are trying hard to make their ends meet. This will also make people turn to relatively cheaper food, most likely the imported goods from other countries. This will stagnate the local food market and ultimately lead to less active economy and possibly inflation as well due to less consumer confidence.

 

5. Groundwater Demand

The average demand for groundwater in California is usually around 40 percent a year, but now it has reached 60 percent. The amount of money put into pumping groundwater costs millions of dollars. To make things worse, pumping groundwater not only depletes the stored water but also makes dangerous conditions for the ground such as huge sinkholes because groundwater is layered in clay and sandstone. If this happens to be the case, the state would have to spend extra money on fixing the land.

Using up groundwater due to drought may solve the problem that is imminent. This is why we are not seeing a huge change in our food prices just yet. However, using up groundwater is not the best idea if we look at this situation in a long term—there is only a limited amount of resource and it will be depleted soon enough if drought continues to happen in the future. The result of depleted groundwater will be devastating, leading to much less harvest and worsened land situation.

 

As of now, there is nothing we can really do to solve this problem. The dilemma to this drought problem is that the short term solutions that have been implemented to resolve the problem may resolve the current economic problem but it cannot solve the drought problem which can occur over and over again. All we can do as of now is to use less water. We have been too greedy, and surprisingly our greed has come back to haunt us.

Technology companies have dominated the business world of today through means of innovation and creativity. Technology allows us to make the world a smaller place and connect individuals from different ends of the world. On October 10th 2014, Apple announced their new iPhone 6 and iWatch. The biggest shock to the industry was the drastic increase of the screen size for the new iPhone. Apple had officially entered the phablet, phone/tablet market.

The single product the sky rocketed Apple to the top of the tech industry was its sale of the iPod, an improved version of the Walkman. Making the already invented mobile music playing device much smaller, more user friendly, and look nicer allowed Apple to truly sell a great product. Then Apple announced its first iPhone. The innovative feature of this groundbreaking technology: multitouch screen. In 1992 the IBM Simon was launched as the first touch screen phone but it was not very successful. Apple took that idea, refined and made it look sexy for consumers. In your hand you held the power of the internet with a single swipe of your finger, everyone had to have it. More compatible products were created, Macbook, iMac, iPod Touch, iPad, iCloud, etc. While Apple has established itself as one of the most successful mobile device providers, Google quickly stepped in to introduce its mobile software called Android.

There is unanimous agreement that Android has currently overtaken IOS as the most popular operating system on a mobile device in the U.S. and globally. According to the latest data from Kantar Worldpanel ComTech, “Android now holds 61.9% of the U.S. market share to Apple’s 32.5%.” Internationally, the numbers reflect a similar trend with Android having 82.7%market shares in China and 73.3% in other European countries. However even with this drastic market share difference, Apple has not cared about its dominance in this specific sector for a long time.

Apple still makes more money that all of the Android devices combined. Today, Apple’s biggest competitor is Samsung. Other smartphone companies such as HTC, LG, Motorola, Nokia, and Blackberry are all losing money. Samsung is the only other phone company right now other than Apple that is making money. Even so, Android does not sell more apps and does not generate more ad revenue than Apple. Companies will invest more money in Apple because it provides more real world usage data and Apple has an overwhelming share of smart phones and phablet app sales, web browser use, and ad network units. Additionally, the people who have recently joined the Android family are not Apple’s intended audience. This individuals buy the “junk phones” from companies like LG and HTC that do indeed operate on an Android system, however these individuals would not have bought an iPhone instead. With the dominant market share, Apple still makes more money because its target is the 15% of the top richest population in the world. But how exactly does Apple make money?

Apple sells, phones, computers, music players, but most importantly, it sells an idea: simplicity. Upon turning on the iPhone for the first time, the user quickly understands that to unlock the phone you must swipe your finger to the right. Without any instruction manual or video tutorial, any individual can figure out the basics to how to use an iPhone because the phone is very intuitive. Apple stands for simplicity and automation. Once an individual buys an iPhone, he or she is going to want to buy a Macbook to integrate the two systems, then an iPad for a more mobile form of the Macbook and finally purchase the iCloud to sync all of the data together across all platforms; this is just one person, now imagine a whole household. The wife needs a phone, the kids both need a phone, all of them buys apps on the apps store and to hold everyone’s data on the iCloud you need to buy more space. With one purchase of the iPhone you have now entered the uniform family plan of Apple, simplicity and automation at its best. Not everyone can afford this, but the people that can will buy everything and the newer versions of each product. Apple does not need to reach the 61.9% market share of Android, it only needs to cater to the 15% of the richest people in the world. Apple was king at holding this market down, however in the pas few years, Samsung has invaded with tremendous force and speed into the smartphone market. Samsung is Apple’s biggest competitor.

Samsung has thousands of technology patents and many companies have infringed on then, however they strategically chose not to pursue them in court. If Samsung does infringe on another companies patent and the other company chooses to sue them, the chance of the other company having previously infringed on their patents is fairly high. This exact situation occurred with Apple on patent infringement for multiple devices. Samsung quickly responded and counter sued and the war between the two giant tech companies began. After about a year of war, through trials and appeals, apple won and was awarded $930 million in damages. However, during this war, Samsung managed to take a portion of Apple’s smartphone market share. Samsun started as a fish and product exporting business and later entered the technological space of selling black-and-white televisions. Samnsung has a reputation of selling cheaper knock off brands and inferior products, but many people still bought their products because it was more affordable. Initially the smartphone market was no different.

The first major smartphone that set Samsung apart from other junk phone distributors was the Galaxy S. It first launched in Singapore on June 4 2010 and after the first weekend, Samsung had announced that the Galaxy S had sold out with the exclusive Samsung phone carrier in Singapore. The Galaxy series phone has drastically improved on the past model with each new version. Within the past 2 years, many iPhone users switched over to the Galaxy S4 and S5 simply because it had a bigger screen than the iPhone. Samsung had established itself as the leading player in the phablet market.

Steve Jobs was the face of Apple, he sold the idea of simplicity and automation to the general public. One of the biggest selling points at Steve Job’s key note speech for the first iPhone was the size, “it’s a phone that fits comfortably in your palm at 3.5 inches.” When the iPhone 5 was announced with the specs of a bigger screen, Apple quickly released a short 30 second commercial addressing the issue. Here is the video: https://www.youtube.com/watch?v=d2s7-hTubUU

With the lost of smartphone market share to Samsung, Apple quickly realized that its user were switching over to Samsung for a bigger screen. Regardless of the message of Steve Jobs, they disregarded his message to win back their previous users. The age of the phablet has come and Apple’s transition into a larger screen confirms the change. All of the giant tech companies have entered the phablet market and competition will continue. Google and Apple have also had patent wars in the past but have agreed to drop all cases to focuses on creating better products. With this shift in focus, consumers can expect to see better products coming out in the near future. Apple learned from its war with Samsung that legal battles may result in a monetary gain mandated from the court, however, market share is dictated by how good of a product the companies can create. This is how a free market should be.
In preparation for its phablet unveiling, Apple released a guide on how Android users can easily import their media from their computer into iTunes to switch over to the iPhone 6. http://support.apple.com/kb/HT6407?viewlocale=en_US&locale=en_US

The opinions on preference between the two smartphones are split about evenly. However, interestingly enough, Gazelle, a tech-reviewing site that frequently analyzes the smart phone market, revealed that their trade-ins from the iPhone 6 to the Android tripled in the past week before the iPhone 6 launched.

SuperSaf TV on YouTube sums up the opinions on preference fairly well in his comparison review. He says, “Depends on what your preference is, do you prefer something with expandable storage, removable battery, and water and dust resistant or do you want something that looks and feels that much more premium.” The iPhone is branded as the stylish, sleek, and simple phone that makes your life a lot simpler, while the Galaxy S5 is branded as the highly customizable, more complicated and sophisticated phone that may appeal more to technology savvy individuals. Regardless of the preference between the two phone everyone agrees that the launch of the iPhone 6 has had a global effect. Apple’s dominance as a tech giant has been felt all the way over in China and Taiwan.

China and Taiwan make up the two biggest manufactures of parts for the iPhone 6. When the iPhone C came out, the manufactures in China and Taiwan suffered along side Apple because the price point was originally set too high. The supposedly cheaper and marked down version of the iPhone 5S still performed poorly because they missed the mark on their target demographic. As a result, a lot of parts were manufactured but not many iPhone C’s were bought. Apple learned from its mistakes from the iPhone C and priced the iPhone 6 at $199. China and Taiwan rejoiced because they new the price point was low enough to where the demand would be extremely high and they would be able churn out more products. The biggest company in the two countries that benefits from this is Hon Hai, previous known as FoxCom. While the iPhone is still an American product, if the product is assembled in a country and is then sold in any other country, it is considered an export of that country. The economist from focustaiwan.com projected that “the release of the iPhone 6 could add about 1 percent per month to China’s export growth for the rest of 2014, and boost Taiwan’s by around 2 percent per month from August to October.” Because it is counted as an export for the respective countries, Apple’s iPhone will help stimulate the GDP’s of both countries through the well known equation C + I + G + XN = GDP. Surprisingly however, the iPhone 6 is not actually the most popular smart phone in China. This buying chart from Wall Street Journal compares the iPhone to other phablets that are currently in the market.

The competition between all of these tech giants does not stop at smartphones. The next frontier of personalized technology is wearables. The Apple Watch was announced alongside the iPhone 6 and iPhone 6 Plus marking Apple’s official entrance into the already tough market of smart watches. Google and Samsung have already attempted to tap into this new market but no one has done well. The biggest issue for smart watches is necessity. Misha Pollack, a tech reviewer on YouTube, argues that there is no reason for me to check a text message on my wrist when I can pull my phone out using the same amount of effort. The smart watches do not have a killer app, or a program/functionality that makes buying the product a necessity. Apple announced with its reveal of the Apple Watch that it is exploring the sector of health monitoring technologies; this includes heart rate, glucose levels, and a multitude of other health indicators. Quickly following this announcement, Google also announced its excitement in exploring this aspect of new technology.

Even with the dominating market share of Android as the preferred mobile operating system, Apple still walks out with the money. Having lost some of the smartphone market share from its battle with Samsung, the launch of the iPhone 6 was seen as Apple’s first strike in the new age of the phablet.

The music industry has waged a tricky battle in its fight against the ever-changing ways consumers obtain music. The music industry was once a dominant force in the entertainment world; at its peak in 1999, 943 million CD albums were sold. While the industry was at its peak, it was also on the verge of a slippery slope it wasn’t prepared for. In the same year, Napster made its debut, not only changing the way music was distributed but slashing the price to free. Napster took off in popularity gaining over 60 million users and dramatically changed consumers’ mindset on what the value of music was. As a legal response to illegal downloads, iTunes was created in 2003, but many believe that the four year lag was the industry’s fatal mistake.

iTunes created a digital music option for consumers, allowing the purchase of single tack for around $1 but, compared to free, $1 doesn’t look so appealing. iTunes became the dominant legal option for music sales over the next several years as the iPod changed the way consumers listened to music. Apple, while still making some profit from its music sales, wasn’t concerned with large margins on the digital tracks as the company’s profits were in the hardware it sold to hold the music. The iPod was Apple’s main priority and the iTunes store was just a part of making the iPod marketable to consumers. By offering consumers low prices on music, the iPod grew in popularity and, though legal digital downloads meant some revenue for artists, it wasn’t much.

“In the popular digital realm, a $9.99 download on a program like iTunes nets artists a modest 94 cents — less than a 10% cut. The record company takes $5.35 and Apple keeps the remaining $3.70.” -Investing Answers
iTunes was able to create a digital revenue stream for artists; however it was still a dramatic drop from the money physical CDs netted.

iTunes affected the industry in more ways than just price shifts, it caused an unbundling of the industry. iTunes offered consumers the option to purchase individual tracks as well as the full album. This dramatically shifted the average purchase amount, as consumers no longer needed to spend the full $9.99 for the album but, rather could pick and choose the songs they liked. In an industry that used to rely on a few track hits to boost a whole album, this posed a major problem. In the traditional media packaging format seen in many other areas of the entertainment industry, mediocre content is bundled with prime content and consumers pay for the entirety, with the prime content carrying much of the value. This change meant a content shift in the industry and the pressure on artists to produce hit after hit.

“Steve Jobs said to us, ‘There’re two things you have to accept: 99 cents for every single song, and every song has to be sold as a single.’ And we went home and swallowed hard because that was tough for us to accept for us as a music industry…. If certain songs were really popular we should be able to set the price at whatever we thought was the right price as opposed to the $1 price. Steve said, ‘You know, you’ve got to keep it simple, you’ve got to keep it clean.’”
-Chief Strategy Officer for BMG Music Entertainment when the iTunes Music Store launched

Apple was the site consumers used for digital downloads and Apple’s high market share meant it set prices.

There is no doubt that iTunes and illegal downloading presented the music industry with a number of obstacles but, though less obvious, it also presented opportunity. The digital age gave music the opportunity to be present everywhere and the ability to expand to a global playing field. Though iTunes hadn’t created the profit stream the industry has hoped for, it forever altered music consumption. Digital downloads offered instant gratification at a time when consumers wanted to be able to receive what they wanted with a few clicks of the mouse. iTunes gave consumers accessibility and, as with most things, give the consumer what they want and they will continue to consume. In iTunes’ first year, it sold 25 million digital tracks and the number rose to an incredible 1 billion by 2006.

“Apple made music ubiquitous in a way it never was before. And they set music free from large PCs. Earlier MP3 players did that, too, but not like this. That ubiquitousness has driven a consumption of music that is unparalleled in the history of the world.”
-Jeff Price, founder of TuneCore and co-founder of spinART Records

Apple was able to make big strides in the digital music space but it never was able to fully bridge the gap the loss of physical CDs created. iTunes was thought of as the industries answer to illegal downloads but did not save the industry. However, it did start the process for the industry to reinvent itself. iTunes had two main problems it wasn’t able to solve. The first was as a distributer, it didn’t please the music producers and artists who received little revenue from the site. The second was iTunes was too late to the game, and was stuck fighting a consumer mindset that still remembered times of free music.

iTunes two main flaws opened the doors for a new business model to enter the game, streaming. Music streaming entered the industry offering consumers an all-you-can-eat buffet of music and the pay-for-song model crumbled. Streaming gave music to consumers for free and fulfilled the consumer ideals from the Napster days. A number of new music applications following the streaming model have popped up, with one of the most notable being Spotify. In 2011, Spotify launched its service creating a major new business model for the industry. With the creation of Spotify, consumers could now get access to unlimited music for free, or for $5-$10 dollars a month, if they paid for a subscription. The free version of Spotify is supported by ads, while paid users have access to a premium service that is ad-free. Spotify has been growing at a rapid pace the last two years and in May of this year it announced that it had reached 10 million paid users. While 10 million paid users may sound like a lot, the number is not even close to the 30 million users who use the site for free. Spotify’s rapid consumer approval meant it had the possibility to dramatically changed the industry once again. iTunes proved that consumers want easily accessible music for very little money; Spotify took this model one step further by offering a free option. Spotify though a hit with consumers, didn’t solve iTunes first problem, revenue to producers.

In Spotify’s business model, executives have stated that 70% of the revenue from the site goes to royalties, but even with this large percentage, many in the industry haven’t felt they are properly compensated. With this pay structure, artists end up receiving fractions of cents per song played ($.0033) on average. Spotify’s pay structure brought up a tricky problem for the company as the ($.0033) was per stream, meaning a single customer could rack up multiple royalties on the same song. In a more technical break down, the royalties are paid out to artists by taking an artists total streams compared to total streams for Spotify, with the largest artists getting the most money. While the multiple royalties could potentially add up to the same revenue per customer as a single iTunes track purchase, Spotify created the problem of sticker shock with its producers. Artists and music producers are given their earning figures on a per stream basis and fractions of a cent didn’t go over well with already frustrated musicians. Spotify’s problem, like many other streaming services, was that it had created a new business model in an industry that didn’t understand it. Spotify’s revenues, while reoccurring, look shocking next to the one-time revenue an artist gets from iTunes. Spotify came into the industry at a time when artist were already frustrated by the loss of the golden days of music, leaving it to fight an uphill battle from the start.

As Apple proved with iTunes the music industry must adapt to its consumers’ needs and Spotify has been able to just that. In 2013, digital sales dropped from $1.34 billion to $1.26, while the number of songs streamed continued to increase, reaching over 118 billion raising income from streaming by 51%. Spotify has proven to be something the industry cannot ignore, and streaming, while a contested model, looks like it’s around to stay. Though Spotify has been at the center on controversy since its start, as it entered a situation that was already a disaster, could it be the answer to illegal downloading that Apple wasn’t?

Spotify has the potential to do what Apple does on a much larger scale, which is dramatically increase the consumption of music. In Spotify’s few years of existence, it has already proven to be an extremely effective outlet to share music, not only boosting the amount of music consumers listen to, but the variety of music as well. The site spreads music very quickly and through playlists introduces new music to consumers. Consumers using the site can also generate playlists and share them, creating a social interaction with the music. Spotify goes even one step further with publicity as it offers the ability for users to share what they are listening to in live time on their other social media accounts like Facebook.

“Streaming is about access versus ownership,” says Fredric Vinna, Spotify’s vice-president of product. “Now you can have up to 30 million songs in your pocket. We want to connect fans and artists, fans and brands, fans with fellow fans,” he says.

In this way, Spotify has been able to create a music sharing space that goes past the traditional outlets of the past such as YouTube. Further then just allowing users to discover new music, Spotify is able to add personalization to the business model. Using complex algorithms the company can monitor and track consumers patterns, allowing the company to make personal music recommendations. Spotify is continuing to expand on this personalization model, adding new ways to benefit consumers by analyzing their use.

“We will even have movement sensors in Windows phones that will help us match a song list to the cadence of your exercise routine.”- Fredric Vinna

Spotify has to potential to greatly surpass Apple’s consumer reach and do what the music industry needs most, increase consumption. As a service that gives the consumer what they want, Spotify has been able to dominate music distribution. The only question left is, will this dominance equate to revenues?

Spotify offers fractions of a penny per stream, but fractions of a penny multiplied by millions of plays add up. With Spotify’s growth already and its potential growth in the future the streaming model might actually turn out to be one that is profitable. Spotify has not only seen growth in its free users, but has been growing largely with its subscription based users as well, surpassing 10 million. If this growth continues with subscription-based users, Spotify will not only see an increase in the number of streams, but will be able to raise royalty payments, further increasing profits for artists. In a study done by Russ Crupnick of NPD Group, a respected music consultancy. They found that looking at the U.S. internet population of 190 million, only 45% buy music of any form. The average annual spend of that minority is only $55.45, while the average paying Spotify user generates more the two times that amount. Spotify says it has paid out more than $1 billion in royalties since its launch in 2008 to the end of 2013. That is certainly some profit and while it mightnot be close to what the golden ages of the music industry brought in, Spotify has been able to create profit on consumer preferences. With every new user, Spotify increases revenues and in turn increase the amount of royalties they can pay out.

This chart shows Spotify’s total royalty payments per year-

“Last year we saw some growth in music industry revenues – the first time in ages,” says Gennaro Castaldo, spokesman for the BPI (2013). “We’re pointing forward again and streaming is helping with that recovery.”

While the industry was hit hard in 2011, it has since been on the track to recovery. Artists can no longer rely solely on album sales so they have diversified their revenue streams to compensate. The music industry which in 2004 could have been given up for dead has made a remarkable recovery and is continuing to head towards the direction of growth and profitability. Streaming sites like Spotify have changed the economics behind the music industry by changing the way money flows from consumer’s hands to the artists. Consumers have certainly benefited from these streaming sites in the form of lowers cost and better user experience and artists have seen benefit as well in the form of increased consumption. Though the industry has not been able to fully recover, the revenues it once generated, it is well on its way.

 

 

 

When Russia revealed vast diamond reserves in 2012, the diamond market was expected to suffer terribly. The Russian government kept the mine – whose deposit may last the next 3,000 years – classified for nearly half a century in order to protect its national benefit in diamond industry. However, two years have passed since the revelation and the price of diamonds doesn’t seem to have been affected much. On the contrary, the price has continued to rise, as we can see from the chart below.

Source: www.ajediam.com

This might prove the famous slogan: A Diamond is Forever. But what exactly does it mean? Indeed, the price of diamonds seems to be impervious to anything – from recessions, the laws of supply and demand, to even Antitrust Laws. This article will look into how the De Beers Group is able to dominant the diamond market by controlling supply, establishing a unique distribution system, evading antitrust laws, and positioning diamonds as a necessity of life, and thus reveal the secret of the whole diamond industry – why “A Diamond is Forever.”

• Are Diamonds Scarce?

Adam Smith put forward the paradox of value in his book Wealth of Nations: Water is extremely useful, yet people can trade diamonds – which are of little use – for a large amount of goods, but not water. It is the scarcity of diamond that endows it with such high value – the supply of water is abundant, but that of diamonds is rare.

Diamonds were rare in the eighteenth century. At that time, only a few kilograms of gem quality diamonds were yielded around the world every year. The royal families monopolized them because diamonds are solid, long-lasting, and beautiful. However, later in the nineteenth century, diamond mines were discovered in Canada, Russia, and Australia. According to Does Scarcity Make Diamonds Expensive, an article written by Zhuojun Xu in SWEEKLY Magazine, nearly 25 tons of diamonds were mined in 2011, but the price of diamonds kept increasing steadily.

Why? In 1970, Carl Menger, William S. Jevons, and Leon Walras, three economists from Austria, Vienna and France, separately but almost simultaneously developed the idea of marginal utility. They came to the same conclusion that price or exchange value is based on marginal utility, not total utility or use value. In other words, the more difficult it is to get one more unit of a certain product, the more expensive it will be.

Snap Lake Mine, located in Canada, the De Beers Group’s first diamond mine outside of Africa.

Resource: https://www.canada.De Beersgroup.com/Mining/Snap-Lake-Mine/

Soon after the De Beers brothers found the vast diamond mine in South Africa in 1870, British financiers who were in charge of keeping the mining business running realized that the price of diamonds depends solely on the fact that it’s rare. They then began to control diamond output to create an illusion of scarcity. Due to absolute control of resources, the public could only know what the diamond giants told them: Diamonds are rare, and so they’re expensive. The De Beers Group further put forward the Peak Diamond Theory in 2010. According to the company, the total existing diamond reserves on earth are about 3 billion carats, which will last for only another 30 years according to current mining rates. We all know that it doesn’t matter if something is scarce or not, but whether people believe so – this is even more true in the diamond industry, which is purely built upon “people’s vanity and greed.”[1] The Peak Diamond Theory throws the public in deeper fear of extinction of diamonds, and has further convinced them that diamonds are expensive for a reason. As long as they believe that diamond is becoming harder and harder to get, they’ll be willing to pay higher and higher prices.

• Iron Hand

Now we know how diamonds are made rare, then how is the illusion of scarcity maintained? The De Beers Group introduced a way of controlling circulation of diamond in the open market, which is called Central Selling Organization (CSO). Since then, De Beers Group had been able to monopolize both production and distribution of diamonds for a very long time.

A flow chart of how CSO works. DTC (Diamond Trading Company) is the organization which holds the “sight” event.

Resource: http://www.allaboutgemstones.com/diamond_pipeline.html

The CSO worked through a corporation called Diamond Trading Company (DTC). The CSO employs “supplier of choice (SOC)” system. It sells to 125-250 sightholders selected by the company at sight visits, which are held by DTC every five weeks. Each of the sightholders is a leader in the industry, who owns large-scale factories and a huge distribution network. However, even these magnates are not able to negotiate with De Beers. The company puts diamonds in sealed boxes according to their quality. Sightholders can only see the price on the box but not the diamonds. They either take the entire box or none – De Beers Group has sole power to determine how many diamonds to sell and at what price. The founder of Harry Winston, a top fine jewelry brand in America, was once kicked out of the “sightholders list”, because he said CSO was “a most vicious sytem.[2]” However, he wasn’t able to find another diamond supplier, so he had to apologize in order to go back to the list again.

Matthew Hart wrote in Diamond: A Journey to the Heart of an Obsession that, in order to reinforce the CSO, if any small diamond producers try to sell diamonds without De Beers, the group will put a large number of diamonds onto the market to lower the market price to bring the competitor to the ground.

Under strong control of resources from De Beers Group, the diamond trading system is able to keep running, and that’s how the value of diamonds is kept stable.

• Battles Against Anti-Trust Laws

It seems that nothing can stop De Beers from taking control of the diamond market. However, it had been encountering setbacks for nearly 60 years when it tried to extend its branches in America, the largest diamond consuming market in the world. However, De Beers always seems to be able to find a way to regain its control of the market, directly and indirectly.

Since the mid 1940, De Beers had been sued again and again in the U.S. Court for violating antitrust laws, which prohibited the group from selling diamonds to American market directly – even appearance of employees from the company was forbidden in the U.S.. During that time, De Beers distributed only through intermediaries in the U.S. – for example, Harry Winston, as mentioned earlier. De Beers had been eager for transforming from supply-side to demand-driven management as more and more mines were discovered. Therefore, though De Beers was still controlling the market in effect at that time, it wanted to sell diamonds via its own brand.

A turning point took place in 2001 when Nicky Oppenheimer took over the position as CEO of the De Beers Group. He came up with an idea which helped the company bypass antitrust laws in the U.S.. De Beers created a joint venture with LVMH, a worldly renowned luxury retail conglomerate, and successfully opened its first retail store in Manhattan, New York. It doesn’t violate the laws because technically, it is LVMH who is selling diamonds as an agent of De Beers’s own brand, not the De Beers Group itself.

The De Beers Jewelry retail store in New York.

Resource: http://www.2luxury2.com/the-jeweller-of-light-opens-first-store-in-canada/

The move means that after disappearing in the U.S. for almost 60 years, De Beers was finally able to return to the American diamond retail market officially. De Beers used to monopolize the raw diamonds market since it controls majority of resources, but now it no longer needs to lean solely on limiting supply. Its legitimacy in selling at retail level grants the group not only a longer value chain, but also a new profit point. Henceforth, the De Beers Group has transformed from merely a monopoly in diamond production and distribution, to a giant who also has a place in the retail market.

• Higher investment value than gold?

Elizabeth Taylor and her 69.42-carat pear-shaped diamond – Taylor Burton

Resource: http://www.jointventurejewelry.com/blog/2011/03/the-many-jewels-of-elizabeth-taylor

Speaking of impervious pricing, we have to talk about the investment value of diamonds, because people are likely to invest in things with stable value, such as gold. But are diamonds the same case? The public is constantly fed with stories of making money by reselling diamonds. We all know the story that Richard Burton gave Elizabeth Taylor one of the biggest diamonds in the world whose price was $1 million, and Taylor auctioned it for more than $3 million. Jewelry companies and the media always claim that diamonds weighed more than one carat have high investment value, and it keeps increasing by 5% every year – but is this true?

In 1970, a London magazine company spent 400 pounds on two 1.5-carat diamonds, in order to verify if their value would go up. Eight years later, when the chief editor Dave Watts tried to sell the 2 diamonds, most of the stores refused to pay in cash. The highest offer was 500 pounds for 2 diamonds. Taken the inflation at that time into consideration, the 2 diamonds only worthed 167 pounds if it had been in 1970.

The Netherland Consumer Organization had conducted a similar experiment. They bought a diamond weighed more than 1 carat, and tried to sell it to the top 20 jewelry brands after 8 months. Nineteen of them refused to purchase. The only one company who was willing to buy the diamond offered a price much lower than it cost.

Zihong Wan is the founder of MAKELUMER, the first diamond retailor in China. According to him, if consumers buy diamonds in traditional department stores, 25% of the market price goes to the store, 42% to the brand, and 33% to the supplier. He also pointed out that the retail price of diamonds of general brands is 4 times the factory price, with a markup rate of 300%, and that of luxury brands, such as Cartier and Bulgari, can reach as high as 500% to 700%. Suppose a consumer buys a diamond ring for $20,000 in 2010, and he wants to sell it after 10 years. According to the pricing structure, he can only sell it at around 20% of the diamond ring’s market value in 2020 at most. Even if he just wants to not lose money –not taken inflation into consideration – he will need to sell it for more than $100,000. This means that the market price of the diamond ring in 2020 has to be 5 times that in 2010. However, if we take a look at the first graph in the article, we can easily find out it used to take price of diamonds about 30 years to quintuple, and then another 20 years to double. From the calculation, it seems that investing diamonds is not that profitable, especially that we were not considering inflation. Lack of reselling channels and the pricing structure of diamonds bring doubts to the investment value of diamonds.

• Will the Price of Diamond Fall?

As mentioned earlier, the value of diamond depends not only on its actual value, but also how much people believe it is worth. Since Harry Oppenheimer hired Ayer – an advertising company – in 1938, it has been trying to associate diamonds with timeless love, upscale fashion, and unique art. It employed celebrities, designers and famous paintings from Picasso, Derain and Dali to reinforce advertising effect. In 1947, the most renowned slogan of De Beers Group was born: A Diamond is Forever. Since then, diamonds’ status as a symbol of “eternity” has been well establishd. Besides the illusion of scarcity, people believe that diamond is no longer merely a “product,” but a synthesis of love, status, power and wealth. Consumers are willing to pay for not only what diamond is, but also what it means. Moreover, the De Beers Group is trying to position diamonds as a possible form of heirloom, to encourage people to keep their diamonds instead of selling them for profit, which will further stabilize the market price.

One of the advertisements for De Beers Group’s “A Diamond is Forever” campaign.

Resource: http://www.globalchange.umich.edu/globalchange2/current/workspace/sect008/s8g7/diamond_general.htm

As mentioned earlier, Zhuojun Xu, a journalist from Sweekly Magazine, stated that vanity and greed are the two essential factors that keep the whole diamond industry functioning – one day they exist, the industry will keep flourishing. However, since the whole industry lives on a beautiful bubble, diamond merchants have to keep it from shattering by ensuring people’s desire for diamonds and their willingness to keep them. Edward J. Epstein, the author of the Rise and Fall of Diamonds, told people not to sell their diamonds, or the market price won’t be stable – maybe, that’s what “A Diamond is Forever” really means.

 

 

 

[1] Zhoujun Xu, Does Scarcity Make Diamonds Expensive, SWEEKLY

[2] http://edwardjayepstein.com/diamond/chap18.htm

Whether you buy a house, a pair of shoes, or dinner out at your favorite restaurant, the sticker price is never the price you pay. The same is true for businesses calculating exactly how much a minimum wage hike might actually cost. Beyond the obvious increase in payrolls for workers who would move from around $9 an hour to more than $13 are a host of hidden costs. Let’s consider.

Anyone who’s received a paycheck probably noticed the roughly 8% missing for Federal Insurance Contribution Act (FICA) taxes. This includes a 6.2% deduction for Social Security tax and a 1.45% deduction for Medicare tax. What some people may not realize is that employers are required to match the amount deducted from each employee’s paycheck for these taxes. The employer contribution increases if a worker’s wage increases.

To keep things simple, consider an employer’s total cost for an employer who makes the current $9 an hour minimum wage and works 30 hours a week (or 120 hours a month), and how it would rise if Los Angeles accepts Mayor Garcetti’s proposed wage increases. Staring in January, an employee would earn about $150 more a month, but this would cost the employer roughly $167 more per month; a little more than $200 each year in FICA taxes alone. Similarly, by 2017 that same employee would earn around $510 more a month, but cost the employer $550 a month. This amounts to another $500 the employer must pay annually in taxes, in addition to about $6,100 more it would pay in wages. Consequently, a 47.2% wage increase for employees translates to a 47.2% increase in the cost for their employer to pay them those additional wages.

An extra $6,600 a year might seem insignificant compared to some businesses’ total revenues, but the full effect of this increased cost largely depends on a business’s size. Does a company employ 10 people, or 100? The annual difference in an employee’s cost will add up quickly.

Thus, a wage increase of $4.25 an hour would actually cost employers paying minimum wage about $4.60 more an hour. This does not factor in other expenses that increase in conjunction with wages; at a minimum employers must also account for increased premiums for general liability insurance and workers’ compensation insurance.