What Sunday's music streaming soap opera can teach us about doing business in the Internet age.

By Philip Elmer-DeWitt
June 22, 2015

Something huge happened yesterday. With a single Tumbler post the biggest name in pop music got the world’s most valuable company to change the terms of a service that is, in its own words, part of its DNA.

It was both a power struggle and a love fest, a dance played out in social media by two multibillion dollar enterprises with a lot in common.

Taylor Swift and Apple are, in some ways, two sides of the same coin. Each has found a way to create value in a business environment where everything—bits and atoms—wants to be free.

The key, to use a term out of Marketing 101, is differentiation.

Apple differentiates its devices with a proprietary ecosystem of software and services. That’s what allows it to charge a premium over its competitors—Windows PCs, Android smartphones, Samsung watches.

A musician’s power comes from the connection he or she makes with a fan base.

“And no one,” writes Stratechery’s Ben Thompson, “is more differentiated than Taylor Swift.”

 

Swift’s complaint about Apple’s proposed three-month free trial period—which asked musicians (rich and poor alike) to subsidize a very rich company’s subscriber acquisition costs— is the same one she articulated when she pulled her music out of Spotify:

“I’m not willing to contribute my life’s work to an experiment that I don’t feel fairly compensates the writers, producers, artists, and creators of this music. And I just don’t agree with perpetuating the perception that music has no value and should be free.”

Source: Stratechery

Apple and Taylor Swift are examples of what happens on the left side of the “smiling curve”—an economic concept introduced by Acer founder Stan Stih and reinterpreted to apply to Apple and Swift by Stratechery’s Thompson. In the attached chart, both ends of the value chain add more value to the product than the middle.

“Taylor Swift is not some sort of Luddite futilely standing against the forces of modernity,” Thompson wrote last December. “Rather, she is a highly differentiated content creator capturing the immense value she is creating instead of ceding it to an aggregator that treats every piece of content the same.”

For a deep dive into the dynamics of what happened Sunday, Thompson’s December essay is a great place to start.

Link: Differentiation and value capture in the Internet Age.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

Sign up for Data Sheet, Fortune’s daily newsletter about the business of technology.

SPONSORED FINANCIAL CONTENT

You May Like