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The Challenges of Starting up a New Internet Venture

Source: Richard Ivey School of Business Foundation

With the internet becoming more readily available and the rise of the use of smartphones, many companies and new services have taken advantage of this new wave of technology. Many business models have been able to outreach to a larger population and the instantaneous spread of information allows networking sites to keep people connected. One industry that entrepreneurs have tried to tap into is the music industry.

Rockly Lui and John Wong, both recent graduates, wanted to find an interesting internet business to get into when they stumbled upon sellaband.com. This Dutch company had created a platform on which musicians and fans could interact, and fans could raise money for the musicians. The funds raised would be used by the musicians to create CDs, and profits from the sales of the CD were then shared with the fans who had contributed to the fund. The idea kinda worked like a stock market for musicians, and at the same time a social networking site for the musicians and fans. Lui and Wong decided to found a website called Musicjuice.net which had the same basic structure as sellaband.com with a few different features namely: musicjuice.net would allow musicians to use funds raised to fund tours, it also had a premium membership option in which users could have special privileges like invitations to private chats with the band members. The revenue model for the company was to keep 33.3% of profits made from cds, premium membership sales, Google ad revenues, and also interest generated from the money raised by all the musicians but not yet used. The idea sounded good on paper, but in its execution, it did not fare so well.

First of all, the industry they were trying to get into already had a competitor, and sellaband.com already had an established network of users. For musicjuice.net to really be successful they would have to have notable better functionality and appeal to capture the market. Another issue arose from several informational effects arising from the nature of the internet. Since users can easily and readily compare online services, users can easily find their best fit. For example, users can use Google and then Bing, and make a decision on which search engine they like better, whether it be because of aesthetics or functionality, the user can review it themselves. Another informational effect has to do with the spread of peer reviews. When products or services are reviewed, word spreads like wildfire and people quickly have a general idea of how a service is like. When musicjuice.net first came out, the founders did not put an emphasis on aesthetics, which was probably one of their worst pitfalls especially since they were in the art industry. Users who tried the service out did not find it appealing, and word spread that the site was “ugly and boring”. This really killed the companies growth from the start, and it didnt go far from there. For a website that required the trust of fans to invest their money into the service, not making the site look appealing definitely did not help build trust. Even though hosting a website costs very little capital, the company was making little to no revenue so the founders decided to shut it down.

Even though the internet has allowed many companies to thrive, not all ideas will fly. Informational effects in these new industries can really effect the success of the company.

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