Web1.0 Web2.0 sensibilities have merged with the Bit Torrent generation as Universal and Spiralfrog have joined forces to deliver free digital music — that is ad-supported. In a variety of reports around the ‘net, this new service, which launches this December, will have access to Universal’s entire catalogue of music which includes many popular artists such as U2 and be supported by advertising dollars …
… echoing almost every business plan of web2.0 startups.

I think that this plan is nothing short of seismic.
Clearly, they’ve got iTunes in their sites – and quite frankly, nothing is more attractive than being Free. And this isn’t just conjecture: the number one search terms in the AOL Data leak was, in fact, the word “Free”. People are looking for it, people want it, and to quote Paris Hilton, its hot.

Will an ad-supported service run into similar challenges that web2.0 startups run into?
I don’t think so. As I see it, ad-supported models run into problems when there isn’t enough traffic at the beginning to create enough revenue to support costs. When no one knows you, its hard for Adsense to pay the bills. Yet, when the business gets larger — let’s take an extreme example, such as AOL, which is moving to 100% free (no more subscribers), bu ad supported — its another dimension of the problem. Traffic is high, but will the revenue generated be *enough* to cover your overhead and capital costs?

Granted, the details have yet to be released to the media, but I think that this partnership will convey the best of both worlds without the pitfalls of each.

Universal has the marketing might behind it — both in an off-line and on-line sense. If they organize it right, they should be ramping up their buzz and marketing machines for the upcoming launch date in December. By the time Christmas comes along the meme “Free Digital Music” should be everywhere.

A torrential (no pun intended) flood of traffic should then hit SpiralFrog driving those advertising revenues through the roof; however, unlike AOL, this is a manuever that capitalizes on Universal’s existing works — and unlike AOL, Universal isn’t dependent on the revenues for anything. If anything, it represents another channel for Universal to market its wares.

Of course, with the huge influx of traffic, it could be used as a staging for other projects — and really, that’s how it should be played out. Using their existing catalogue of music as a “loss-leader” strategy is big brass ballsy, but the price of entry into the digital music arena is high; with Apple entrenched as it is, “Free” may be the only game-changing strategy left.

Now, we don’t know what the details will be with regards to downloading, the portability of the formats and so on — and these may also change things, but Free is an undeniably powerful word in Universal’s arsenal … it’ll be interesting to see how Apple responds to it.

In terms of what this means to the rest of the industry — if it becomes a breakthrough hit, we may be seeing free ad-supported movies next … essentially leapfrogging over the possibility of (micro)paying per download for high quality movie releases.