A Piece of the Free Economy - Last.FM

Last.FM is a social networking site that is built around the wonderful world of music. Site members build profiles, join groups, make friends, listen to music, and track listening habits through a simple iTunes (or other listening software) add-on application.

In order to generate revenue, Last.FM uses a combination of strategies. The primary strategy used is the Freemium, where varying subscription tiers exist, from free to paid. On Last.FM, however, there are only two subscription levels - free or paid. Free users are able to enjoy most of the major site benefits of paid users, and the majority of Last.FM members stick to the freebies. Those who chose to pay (3$ per month) enjoy the following features: blue icon status (instead of the free grey), no ads, recent visitor tracking, personal radio station, shared tracks with other users, preferential treatment during peak traffic times, and top secret beta access. Currently, the company is Beta testing a subscription based listening service in partnership with many of the major recording companies, which will add another tier to the subscription services.

The second major revenue generating strategy for Last.FM is the Advertising Model, where free content is sponsored by advertisers. Last.FM is probably one of the best sites for music related advertisers to spend their money. Site members are typically music trend setters, and keep up to date with the constantly changing music scene. A typical free member will see a variety of ads for new music releases or upcoming local concerts. Users also have the ability to preview and listen to free music tracks, and are provided links to buy the song legally through an affiliate site. In traditional advertising terms, the site could be compared to a magazine or cable channel in relation to its appeal to a niche market.

The beauty of Last.FM's business model is that the company is able to generate revenue no matter what type of member is using the site. If it's a free member, then the company generates revenue from selling ad space and from affiliate revenue. If it's a subscription member then the company generates revenue from the subscription fee. It would be interesting to see what the site's main costs are - my assumption is that the company is able to generate large profit numbers off of near minute expenses.

Moving forward, the streaming music subscription service should be a major source of revenue for the company - assuming they don't charge an obscenely high price. My prediction is that it becomes a competitor to iTunes and other digital music sites. Last.FM should look into setting up several more subscription tiers on the site to take advantage of members who want to interact more with the site and who are willing to pay a premium for the privilege.