• Home
  • Latest
  • Fortune 500
  • Finance
  • Tech
  • Leadership
  • Lifestyle
  • Rankings
  • Multimedia

Trendingnow

1

As Big Tech showers employees with perks to win the talent war, Nvidia built a nearly $5 trillion company by making people pay for their own lunch

2

Mark Zuckerberg feeds his cows macadamia nuts and beer to create the 'highest-quality beef in the world' on his $300 million estate in Hawaii

3

Today, Emily Blunt is worth $80 million thanks to her Hollywood career—but she actually wanted to be a UN Spanish translator on $80K

1

As Big Tech showers employees with perks to win the talent war, Nvidia built a nearly $5 trillion company by making people pay for their own lunch

2

Mark Zuckerberg feeds his cows macadamia nuts and beer to create the 'highest-quality beef in the world' on his $300 million estate in Hawaii

3

Today, Emily Blunt is worth $80 million thanks to her Hollywood career—but she actually wanted to be a UN Spanish translator on $80K
Commentary

Why YouTube’s Attempt at a New Music Service Will Fall Flat

By
Michael Wade
Michael Wade
,
Stefan Michel
Stefan Michel
, and
Bethany Cianciolo
Bethany Cianciolo
Down Arrow Button Icon
By
Michael Wade
Michael Wade
,
Stefan Michel
Stefan Michel
, and
Bethany Cianciolo
Bethany Cianciolo
Down Arrow Button Icon
May 21, 2018, 3:56 PM ET
Using Apple iPhone 6
?stanbul, Turkey - August 15, 2017: Woman using smart phone on a wooden desk. The smart phone is an iPhone 6 plus. iPhone is a touchscreen smartphone developed by Apple Inc.hocus-focus Getty Images
Add Fortune on Google for similar content.

Last week, YouTube announced a new music streaming service—a revamped version of the existing YouTube Music. Launching Tuesday, the free, ad-supported version will remain in place, and there will be a Premium version with no ads for $9.99 per month. Google’s Play Music service will be phased out and its customers transferred over to YouTube Music.

We predict it will struggle.

It will not struggle because the service is bad—Google (GOOG) will do whatever is necessary to make it great. No doubt, it will have a tough time against well-entrenched competitors like Spotify (SPOT), Apple (AAPL) Music, Amazon (AMZN) Music, and Tidal, but we don’t believe they will be the main cause of YouTube Music’s difficulties. After all, over a billion people already come to YouTube for their music needs every month, including a wealth of music videos and live performances beyond the officially released versions.

The source of YouTube’s struggles will quite simply come from the fact that it is trying to transition users from a free model to a paid model, and free is a trap that is very hard to escape from. YouTube has already struggled in this regard. Just look at its video-streaming subscription service YouTube Red. It tried to convince people who were already using YouTube for free to pay for it under the YouTube Red service banner. Despite massive investment in content and marketing since 2015, YouTube Red only accounts for around 7% of YouTube’s revenue.

Free and paid models only work if they address different segments with different needs and offer them different value propositions. You can access the same content on YouTube without paying. YouTube Music just gives you this content without the ads. The only other ‘benefit’ of paying for the Premium version is that you get to watch/listen offline as well as online.

Moving from free to fee is not a rational question of “value for money.” Mental accounting suggests that we put things we get for free in a different mental category from things we pay for. Moving from one category to the other, as YouTube Music is likely to find out, is extremely difficult.

When people are used to receiving something for free, the psychology of loss aversion is very hard to overcome. But the wide gap between the price of “free” and “not free” is not just an economic question. When a service changes from “free” to “not free,” it demands cognitive resources whereby any purchase is a deliberate decision that comes with search costs (evaluating all of the alternatives, doing the research, and finding the right service); risk and fairness assessment (how much is it worth to me? What should I pay when others can get almost the same thing for free? Will I look stupid in front of my friends when they hear that I am paying for something that they are getting for free?); paying effort (finding a credit card to use, tracking the expense, completing all of the login information, and justifying the expense); buyer’s remorse, and other psychological costs. Even worse in YouTube’s case: Most customers pay for only one music service, which means they would have to drop their current choice to subscribe to YouTube Music.

YouTube is not alone in this regard. Attempts to transition from free to paid models have consistently floundered across a variety of services, like Napster, Skype, and a long list of media content sites, like the San Francisco Chronicle, The Toronto Star, and U.K.’s The Sun.

 

By contrast, services that start with paid models have encountered less difficulty increasing prices. Netflix (NFLX) and Apple Music have had paid subscriptions from the outset. While Spotify has a free option, it has always made sure that key features like offline listening and the ability to skip songs were only available with paid subscriptions, in addition to a lack of advertising. LinkedIn has always maintained paid models for both job fillers and job seekers.

Amazon Prime, within which Amazon Music is bundled, is another example of a successful paid service. Amazon recently announced a price increase from $99 per year to $119, a jump of almost 20%. This comes on top of another $20 increase in 2014. These increases have done nothing to dent the service’s popularity. Going from paying something to paying a little more is less of an adjustment than going from paying nothing to paying something.

For this reason, Google Search, Facebook (FB), Snapchat (SNAP), Instagram, WhatsApp, and other wholly ad-supported services would find it very difficult to start charging for their core products and services. Ironically, if YouTube really wanted to make its paid music service succeed, it would probably have to make its free service less user-friendly, and “annoy” people into paying. This strategy, of course, may well backfire and send users instead to competing services.

Michael Wade is director of the Global Center for Digital Business Transformation at IMD. Stefan Michel is professor of Marketing and Service Management at IMD, and dean of IMD’s Executive MBA Program.

About the Authors
By Michael Wade
See full bioRight Arrow Button Icon
By Stefan Michel
See full bioRight Arrow Button Icon
By Bethany Cianciolo
See full bioRight Arrow Button Icon
Add Fortune on Google for similar content.

Latest in Commentary

Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025

Most Popular

Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Finance
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam
By Fortune Editors
October 20, 2025
Fortune Secondary Logo
Rankings
  • 100 Best Companies
  • Fortune 500
  • Global 500
  • Fortune 500 Europe
  • Most Powerful Women
  • World's Most Admired Companies
  • See All Rankings
  • Lists Calendar
Sections
  • Finance
  • Fortune Crypto
  • Features
  • Leadership
  • Health
  • Commentary
  • Success
  • Retail
  • Mpw
  • Tech
  • Lifestyle
  • CEO Initiative
  • Asia
  • Politics
  • Conferences
  • Europe
  • Newsletters
  • Personal Finance
  • Environment
  • Magazine
  • Education
Customer Support
  • Frequently Asked Questions
  • Customer Service Portal
  • Privacy Policy
  • Terms Of Use
  • Single Issues For Purchase
  • International Print
Commercial Services
  • Advertising
  • Fortune Brand Studio
  • Fortune Analytics
  • Fortune Conferences
  • Business Development
  • Group Subscriptions
About Us
  • About Us
  • Press Center
  • Work At Fortune
  • Terms And Conditions
  • Site Map
  • About Us
  • Press Center
  • Work At Fortune
  • Terms And Conditions
  • Site Map
  • Facebook icon
  • Twitter icon
  • LinkedIn icon
  • Instagram icon
  • Pinterest icon

Latest in Commentary

rn
CommentaryCryptocurrency
Former Iran director at NSC: Crypto legislation is a ticket to sanctions evasion
By Richard NephewJuly 2, 2026
16 hours ago
m
Commentary250 Years of Innovation
McKinsey chairs: Building a more resilient industrial base may require $2 trillion in investment
By Eric Kutcher and Shubham SinghalJuly 2, 2026
16 hours ago
em
Commentary250 Years of Innovation
America’s 250th birthday has Elon Musk and a record IPO. Its 15th had Alexander Hamilton — and a stock market bubble
By Owen LamontJuly 2, 2026
20 hours ago
paramount
CommentaryAntitrust
How Paramount’s theater commitments could boost local economies across the nation
By Ike BrannonJuly 2, 2026
20 hours ago
elon
CommentaryChina
China has 400 private space companies. The West is barely paying attention
By Rainer ZitelmannJuly 2, 2026
21 hours ago
senate
CommentaryCongress
One rare bipartisan AI bill is moving through Congress. Here’s why it deserves to pass
By Neil Björkman and Betsy BrewerJuly 1, 2026
2 days ago

Most Popular

As Big Tech showers employees with perks to win the talent war, Nvidia built a nearly $5 trillion company by making people pay for their own lunch
Big Tech
As Big Tech showers employees with perks to win the talent war, Nvidia built a nearly $5 trillion company by making people pay for their own lunch
By Marco Quiroz-GutierrezJuly 1, 2026
2 days ago
Mark Zuckerberg feeds his cows macadamia nuts and beer to create the 'highest-quality beef in the world' on his $300 million estate in Hawaii
Success
Mark Zuckerberg feeds his cows macadamia nuts and beer to create the 'highest-quality beef in the world' on his $300 million estate in Hawaii
By Sasha RogelbergJuly 2, 2026
13 hours ago
Today, Emily Blunt is worth $80 million thanks to her Hollywood career—but she actually wanted to be a UN Spanish translator on $80K
Success
Today, Emily Blunt is worth $80 million thanks to her Hollywood career—but she actually wanted to be a UN Spanish translator on $80K
By Orianna Rosa RoyleJuly 2, 2026
23 hours ago
Americans are escaping the U.S. for New Zealand where house prices have hit a new low—but only wealthy Americans with $3 million spare can invest
Success
Americans are escaping the U.S. for New Zealand where house prices have hit a new low—but only wealthy Americans with $3 million spare can invest
By Emma BurleighJuly 2, 2026
15 hours ago
Current price of oil as of July 2, 2026
Personal Finance
Current price of oil as of July 2, 2026
By Joseph HostetlerJuly 2, 2026
17 hours ago
MacKenzie Scott alone accounted for one-third of America's $19.2 billion in megagifts last year
Success
MacKenzie Scott alone accounted for one-third of America's $19.2 billion in megagifts last year
By Sydney LakeJune 25, 2026
8 days ago

© 2026 Fortune Media IP Limited. All Rights Reserved. Use of this site constitutes acceptance of our Terms of Use and Privacy Policy | CA Notice at Collection and Privacy Notice | Do Not Sell/Share My Personal Information
FORTUNE is a trademark of Fortune Media IP Limited, registered in the U.S. and other countries. FORTUNE may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.