Recovering Lost Revenue: Vindicia CEO Gene Hoffman (Part 4)

Sramana: How long did eMusic last and how far did it go?

Gene Hoffman: The company went public, and I was the youngest NASDAQ CEO ever. We bought a whole bunch of our competition and bought out RollingStone.com. We ended up selling the business to Universal Music in 2001. I spent a year at Universal being involved with strategy. During the unfettered days of Napster, eMusic grew slowly but surely. Once Napster was shut down, we saw that business take off. The business we were building was a real business selling music. As much as iTunes has been successful, the selling of music was to support the devices and not vice versa. We like to say that eMusic was the only true digital music etailer that supported itself only off digital music.

Sramana: How big did the business grow in terms of revenue?

Gene Hoffman: Revenues hit the multiple tens of millions of dollars.

Sramana: What year did you leave Universal and what came next?

Gene Hoffman: I left in 2002. At that point I thought about retiring. I had done well and had a heck of a ride. We had our first child and I enjoyed being a stay at home dad. Then I found out that I failed at retirement. I was too bored. My future co-founders of Vindicia were already thinking about what they wanted to do next. They were both early employees of eMusic.

We all had learned what was really necessary to do digital services. We knew what the transition looked like and how you went to market with digital business models. We felt that we wanted to readdress the same markets we had been in. Software services, content, gaming, and entertainment were markets that were going to have the same effect that the music industry had gone through. Broadband was going to make that a reality.

Sramana: What was the premise of Vindicia at that point?

Gene Hoffman: We originally started thinking that people would not hand us the full credit card infrastructure. Initially we set out to sell charge back management. What we knew from eMusic was that you have a few reasons why subscribers don’t continue using the service. The obvious ones are those who opt out. They tried it and decided to cancel their subscription. Then there are all these reasons beyond that for losing monthly customers. One of the major reasons was charge backs.

If you sell physical goods you care about charge backs. If you sell a television and they do a charge back then you are out a television, the money, and the charge back fee. However, if you were an intangible goods business you were just moving money back and forth. It does not cost a lot to deliver the monthly service. You collected 15 dollars and then you have to pay a $7 charge back fee. The cost of delivering that month of service was only 15 cents. Most merchants chose to just ignore those issues. When we dug in, we found there were all kinds of interesting marketing nuggets in there. Customers were telling banks things they would not tell customer service.

This segment is part 4 in the series : Recovering Lost Revenue: Vindicia CEO Gene Hoffman
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