Will Popcuts Out-Surrge Surrge with Music Rewards Program?

8/7/08Follow @wroush

The news in TechCrunch last night about the public beta launch of Popcuts, a startup founded by Cambridge, MA- and Mountain View, CA-based Y Combinator that proposes to reward music buyers by giving them a slice of the revenue every time someone else buys a song they already bought, sounded awfully familiar. Then it came back to me: in March, I covered the launch of a Boston company called Surrge that has a nearly identical business model.

Popcuts is led by founders Hannes Hesse, Kevin Lim, and Yiming Liu, who are in Cambridge right now for the current (summer) term of Y Combinator’s startup incubator, but plan to move back to Berkeley, CA, after the program ends. Here’s what the company does: 1). Allows customers to download DRM-free songs, mostly by indy bands, for $0.99 each. 2). Keeps track of each song each customer buys. 3). When somebody else buys the same song, gives a cut of that $0.99 to the previous buyers, in the form of store credit. Early purchasers get rewarded with a bigger cut. Popcuts’ site doesn’t explain how much of a cut, but according to the TechCrunch story, it’s up to the artists. One band, called My First Earthquake, is reportedly giving 30 percent of its song revenue back to listeners; the first dozen people to buy the song can make back their $0.99 if two dozen people buy it. 4). Showcases the top trendsetters on its front page, directing new users to the buyers who have the best musical taste and/or the biggest followings.

Surrge was founded by brothers Jonathan and Justin Bingham, young serial entrepreneurs based in Boston. And here’s what their service does: 1). Allows customers to download DRM-free songs, by both indy and classic bands, for $0.79 to $0.89 each. 2). Keeps track of each song each customer buys. 3). Allows song buyers to recommend songs they’ve bought to their friends. 4). When friends buy songs based on these recommendations, the first buyer earns a cash commission, according to a sliding scale based on how many other people have downloaded the song, thus encouraging users to become to first to “discover” and publicize new artists. 5). Highlights top artists and members on its front page.

[For those interested in the details about Surrge's reward, here's my explanation from the March story: If you buy a song on Surrge, you tell your friends about it, and if they are then among the first 20 users to buy that song, you get a 50 percent cut of each sale. If your friends are among the 21st through the 30th purchasers, you get a 40 percent cut. If they're among the 31st through the 50th purchasers, you get 30 percent; 51st through 100th, 20 percent; and 100th or later, 10 percent. What that means---in a hypothetical best-case scenario where you buy a $1 song and refer it to 100 friends, all of whom buy it before anybody else does---is that you can earn $29.50 (19*0.50 + 10*0.40 + 20*0.30 + 50*0.20).]

I reached Popcuts’ Kevin Lim by e-mail this morning. He said that the launch (and the TechCrunch article) have “brought a burst of enthusiastic users, forward-thinking artists, and stakeholders offering cool ways to move forward.”

Interestingly, Lim said the Popcuts founders had not previously heard of Surrge. “But a main difference I can discern just from your description is that we do not believe in basing our model on extra work on the user’s part,” he wrote. “There are very many existing referral models. We don’t think they scale well because of the extra barrier that is put up against everyday people. These barriers appear when you make people recommend or refer or nag to get rewards. We just want to reward every fan for being a fan. Now we do believe in rewarding certain fans in bigger ways. But we’re not focused on referrals, so much as the overall big picture of why fans are crucial to music.”

So, how do the guys at Surrge feel about the new competition? It seems that for now, there’s more harmony than discord. “I think, first off, any time you see a company that’s recognizing the importance of the fan in the process, they’re to be commended,” says Jonathan Bingham, whom I reached this morning in Los Angeles, where he’s preparing for a private concert tonight by Joshua James, a singer-songwriter featured on Surrge. “That’s at the heart of what we’re doing, so we are happy to see every new model that comes out that takes that slant.”

The major difference between Popcuts and Surrge, Bingham says, seems to be that Popcuts’ rewards are more heavily skewed toward the early recommenders. Also, Popcuts is paying recommenders in store credit, while Surrge pays them in cash. “With Surrge, what we’re doing is really helping fans to become part of the distribution channel, and rewarding them through cash incentives, so there is the ability for the hipsters out there to make some significant capital,” says Bingham. “If people are buying more music, great, but if they’re acting as distribution channels for their favorite artists, they should be compensated appropriately.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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