Story of a start-up that has invented a market for itself.
Based on the relatively simple concept of sending digitized popular tunes over phone lines as gifts for all occasions, Dan and Tim Price have prepared the way for a potentially huge business. But to be successful, the Send-a-Song Corp. will have to gain public acceptance very quickly -- no mean feat when you're inventing a market
It's not often that a couple of guys with a hot business idea almost beg their attorneys to nuke the deal. Brothers Dan and Tim Price, however, couldn't be too cautious. They had hit upon something with such explosive potential they had to be sure there were no legal obstacles.
"We lawyered the daylights out of this thing," says Dan. "We'd get one opinion saying everything looked fine, then we'd triple-check it with other lawyers. We implored them to tell us why we couldn't do it. Finally, they assured us we were in the clear." What drove the brothers to legal overkill was, ironically, a simple idea. For years they'd enjoyed the musical messages left by their younger sister, Eileen. "She'd call us up when there was something special to celebrate or to commiserate about, and sing a song into the answering machine," Dan says. In short, she let the lyrics express her feelings.
That eventually got Tim thinking. A computer engineer with Westinghouse's electronic-systems group, in Baltimore, he saw the convergence of computers with new voice-processing technology. Why not computerize the singing-message concept, he thought, and see if people liked it?
In early 1990 he began tinkering at home with a way to write the enabling software, digitize popular recordings, and store them in his hard drive. It required some breakthrough work, but by that Christmas he had a prototype capable of sending songs from his personal computer to friends over the phone. And his friends could send songs through his system to their pals -- the whole network was automated.
His inventory of 125 songs ranged from Bing Crosby's "Happy Birthday to You" to such pop favorites as Billy Joel's "Just the Way You Are." They were familiar tunes with a strong hook, and for the recipients the impact was surprisingly powerful. The music evoked an almost visceral response. The effect was even stronger if there was an emotional tie, for instance, when one sent a love song. All told, the system was a big hit and lots of fun.
As Tim refined his model, the sound kept getting sharper. "I got it to where you couldn't tell if it was coming directly from the stereo or from the voice-processing gear," he says, with some modesty. "People said it sounded almost like a Walkman."
Meanwhile, Dan was doing investment banking in the Washington, D.C., area. He and Tim had always wanted to start a company; nothing else seemed as satisfying. And as they hashed out the song-by-phone concept, they thought they'd found a focus. Research showed that the "sentiment conveyance" market was booming. According to trade-group estimates, some 17 million greeting cards and 1.7 million bouquets are sent every day in the United States. Millions of dollars are spent on balloon deliveries. "Those numbers startled us," Dan says. "There was this huge demand for ways to express feelings."
Nowhere, however, was there a service that sent songs by phone. It was virgin territory. And it looked like a winner. "We thought about the inconvenience of going to a card store, the frustration of looking through racks," Dan says. "A lot of men, in particular, don't like doing that. And as a result, you let a lot of days slide by that you really shouldn't -- anniversaries, birthdays. With songs over the phone, you could send a message spontaneously. And a lot of popular music gets right to the point."
Analyzing the economics, he and Tim figured they could profitably sell their service for less than $10 a song. It wasn't a capital-intensive business, nor was it labor-intensive. It was a pure marketing play. By early 1991 the brothers had quit their jobs to work full-time on their creation, the Send-a-Song Corp.
As it usually is for a start-up, cash was tight. Legal fees devoured most of the $50,000 Dan and Tim Price had chipped in up front. Still, that seemed smart. "We wanted to take every legal step to protect our intellectual-property rights," Dan says. "So we trademarked it, copyrighted the software, and got patent-pending approval on the entire system."
Especially complex was the legal issue of licensing the rights to send music over the phone. Whom do you pay? How much? It wasn't like a licensing formula for a radio station. The Price brothers were pioneering a new field.
That uniqueness was a mixed blessing. It meant that, at least for a while, they'd have the business all to themselves. But because the technology was novel and difficult to comprehend without actually trying it, investors didn't easily grasp its appeal.
In his first fund-raising foray, in the spring of 1991, Dan Price approached an old friend, Daniel E. Moore, a general partner at Venture America, a venture-capital firm in Vienna, Va. Moore already liked the idea. As a test, he'd sent a song to his mother-in-law the previous New Year's Eve. The call came at 11:30 that night, during a family gathering.
"She listened to the song and started bawling like a baby," Moore says. "The other sons-in-law gave me grief, but her reaction was so human and good that I thought, Hey, these guys might have something here."
What they needed, Moore said, was some objective assessment of the idea, as well as consumer trials. He ponied up $10,000 to split the cost of a focus group and the building of five "take one" displays for placement in stores. If things went well, he'd invest more. "That was our story every step of the way," Dan says. "Prove a little bit more, and we'll give you more money."
That July a focus group of 12 gift-store and greeting-card-store owners convened in downtown Washington. The moderator first described the idea, then played a few clips of the music. "You could just see their looks change when they heard it," says Dan, who watched from another room. "Imagine having Nat King Cole sing 'Unforgettable' to your sweetheart. It's conveying a message in this really fun, sentimental way.
"One woman who'd been in the gift business for 30 years started to tear up when she heard the music. She said she had to have this in her store."
Encouraged, the Prices built some stand-alone displays, complete with phone handsets so shoppers could hear the music. They made copies of their song list, put them in small plastic bags, and stapled them to the displays. Inside each package was a personal-identification number -- a PIN -- that would serve as a customer's membership code.
