Editor's note: This is the first article in a two-part series about expanding music-related web services.
Like any girl who grew up during the heyday of the boy band, I have a collection of old CDs that I wouldn't mind parting with -- groups like O-Town, Soul Decision, Dream, Lyte Funky Ones (LFO's full name, go figure) and the Spice Girls just aren't my idea of good music anymore. A lot of the albums don't have much resale value, but it would still be preferable if I could somehow monetize the collection rather than chuck it.
Most everyone owns undesirable CDs. Now there's a place for that music to net some recompense. Last spring, Lala.com, based in Palo Alto, Calif., launched a service that allows members trade CDs for only $1, plus 75 cents for shipping. After free registration, Lala users search the site's 1.8 million album titles and indicate which ones they own and are willing to swap and which ones they would like to own instead. Lala does the matching up of one user's "have" list to another user's "want" list and sends out a prepaid envelope and plastic clamshell to the sender via the U.S. Postal Service. The frequency with which a member receives CDs is based on an invisible algorithm called Karma, which takes into account the number of discs on the "have" list and the frequency with which the member sends out damaged CDs, among other factors.
Lala co-founder Billy Alvarado believes Lala's business model is superior those of other music stores.
"From a price perspective, you're getting a full album for $1. You're getting the advantages of a CD, which are that you own the music and can listen to it anywhere -- in your car, the stereo, your iPod," Alvarado said in a phone interview with The Dartmouth.
But, as a service that relies on aging compact disc technology when digital mp3 sales are swelling, can Lala survive?
"I think the theory is out whether the CD is dying. Ultimately, the CD -- the physical product -- accounts for 80% of all music sold. We view it as a need for an overhaul in how music is marketed. It's all been mass marketing up until now. You view titles, and then hear them on the radio. The reality is that with the Internet, the possibilities are more."
Alvarado founded Lala along with three other young entrepreneurs with prior tech start-up experience. CEO Bill Nguyen, tech whiz Anselm Baird-Smith and business manager John Cogan together have a Google-like interest in customer satisfaction, user-friendly software and administrative transparency. Nguyen, for example, writes a blog detailing new developments and concerns, and he strongly encourages customer feedback.
"We can't achieve it overnight, but our hope is to transition the FAQs, all of support, marketing, PR and even our product design to you," Nguyen wrote in his Lala.com blog last June."You'll be able to suggest features and put them forward to other members to vote. The best features will be coded by us.Maybe you can code some of them as well."
Since its inception, Lala has attracted considerable praise from the blogosphere and news outlets. But the service isn't without its share of legal controversy. Technically, Lala operates under the "first sale" doctrine, a section of copyright law that forbids copyright holders from having any legal claim on downstream profits. That's how used-record shops are able to do business.
In the digital age it's not uncommon for customers to pirate music once they buy it -- used or new -- and resellers take a "see no evil, hear no evil" approach to the things their customers do out of sight. With Lala, however, the constant trading of CDs -- once you receive a CD, it automatically goes on your "have" list -- seemingly encourages customers to rip the discs to their computers and iPods before another exchange.
"We discussed with most labels before even launching the service," Alvarado said. "We've had a number of industry experts say that it's legal."
In other words, Lala isn't in any legal hot water -- for now.
Which brings up another area of contention, if not in legality then at least in integrity: Artists have accused peer-to-peer networks and music-sharing systems of denying them proper compensation. But artists won't take issue with Lala. Musicians that register with Lala are guaranteed a 20% cut of all trading revenue. If an artist isn't registered with Lala, that 20% goes towards helping musicians via a charitable fund set up for that purpose. Lala's "Z" Foundation contributes to the health and dental care needs of working musicians.
"We don't have to give 20% back to the artists, but we choose to because we know how hard it is for the majority of artists to make a decent living doing what they love," Lala marketing analyst Justin Sung said.
Another philosophy of Lala is to seek innovation. In its short history, Lala has broadened its vision of the virtual secondhand marketplace.
"It's a lot more than that," Alvarado explained. "The intent of the company was to create a place where people could find great music at a great price. But a big part of it is really being able to listen to music and sample mixes for free. We try to help people discover music."
That's why Lala recently acquired formerly-defunct alternative radio station WOXY. A popular station out of rural Ohio since 1983 (you can hear Dustin Hoffman deliver its catchphrase "97X, Bam! The future of rock n' roll" over 70 times in 1988's "Rainman"), WOXY transitioned its acclaimed freeform broadcast from a traditional FM format to an Internet stream in 2004, a format it had been tooling with since 1998. When funds dried up in 2006, WOXY shut down operations to the despair of thousands of alternative and modern rock music fans. That's when Lala swooped in, eyeing the cross-promotional potential of an online music store and an online music player.
Today, with investment capital from Nguyen, WOXY.com is back. Its listeners are directly routed to Lala to purchase songs heard on the station, a concept Alvarado envisions will create a revolution in musical discovery for customers. In addition, using the technology of online radio, Lala users can now become their own deejays, designing personal playlists that stream live on Lala.com, the licensing fees of which are subsidized by Lala. The station can expose new or unknown acts and broadcast local shows to a wider audience.
The capabilities of digital technology seem infinite for the music industry, and by integrating features that marry new innovations with old -- a music recommendation engine, wholesale purchase options, individualized user radio, the WOXY partnership -- Lala has already carved itself a discrete segment of the music market. It's no wonder that Alvarado seems certain of his dot-com's continued success.
"We're passionate about music," he said. "You're definitely going to be seeing more from Lala."
