How MOG Eventually Found Its Mojo

A year or two ago, few would have seen the potential for MOG to become a disruptive force in the music subscription arena. But what started in 2006 as a music-blogging network has become a full-fledged on-demand streaming music service — one whose transformation came about because a project backed by two major record labels never managed to get off the ground.

As it turns out, when Sony Music and Universal Music Group invested in MOG in spring 2008, they weren’t just putting their money behind a text-heavy site that catered to music fanatics. As founder and CEO David Hyman revealed to me in a recent interview, the deal coincided with a plan for MOG to build a front-end user interface for TotalMusic, a free ad-supported on-demand service that the two labels planned to launch. But TotalMusic ran into a series of snags and was ultimately killed early in 2009. Since then, the labels have largely soured on the free ad-supported model, leading MOG to repurpose elements of the existing front-end technology for its own paid product: the $5-a-month, “All Access” service it introduced in December, with songs from all four major labels and numerous indies.

Hyman, a former CEO of Gracenote and co-founder of influential 1990s webzine Addicted to Noise, articulated the thesis behind MOG’s well-designed product with the rhetorical question: “If music is free, what do you get for $5 a month?” Over nearly four years, MOG has experimented with numerous strategies and services, most of them centered around music discovery, namely information aggregation around artists and songs, desktop software that automatically creates a profile of a user’s musical taste, and innovative search functionality. (Hyman said that at one point, the company was beginning to seem “like Yelp or TripAdvisor for music.”) After much trial and error, the company has settled on a subscription product that includes both a passive radio service and an on-demand service, with seamless switching between the two: Start with a Smiths song, shift to a Smiths-heavy radio station; while there, hear a Cure song you like, and queue up the whole Cure album, and so on.

The idea behind the combined offering, Hyman said, is to minimize the confusion that comes with unlimited consumer choice. I think MOG’s product also benefits from including both passive and active controls (with a spectrum of intermediate levels, no less — pictured at right). I’m always surprised at how many of my conversations with consumers about on-demand music services quickly become conversations about radio services like Pandora, even though the two aren’t directly related. Even in an on-demand service, serendipitous discovery may be underrated, and MOG is smartly endeavoring to engage consumers on multiple levels. In the meantime, the company has maintained its user-contributed editorial content, which keeps hardcore fans interested while helping casual listeners find what they want.

MOG won’t say how many subscribers it has, but Hyman said if the company can get close to RealNetworks-owned Rhapsody’s current tally of 700,000 customers, “we would consider that a win.” To that end, he said the company will pursue direct-marketing strategies “very aggressively,” with more free teasers for trial users on the way. As to whether it can pay its royalty bills, Hyman declined to give specific numbers, but hinted that MOG is paying a much more manageable fee than the penny-per-stream on-demand rates that have proven unsustainable for many ad-supported sites.

The music subscription sector is getting crowded, especially with Spotify’s U.S. launch on the way, and MOG still has to prove itself in the market. Music subscriptions have never quite gone mainstream, particularly with so many free options available, but consumers may be warming to them, especially as the price drops and the services improve. The battle may be decided in the mobile sphere, where MOG promises an app in the coming months. Use of the mobile service will require a higher monthly fee, but Hyman suggested that MOG may dangle its radio product as a free teaser on mobile devices.

Like, the cloud-based music startup recently acquired by Apple (s AAPL), MOG has pinballed from idea to idea before finally settling on a model, but it’s a model well-positioned to capitalize on a number of trends. Investors including Menlo Ventures agree it’s onto something, betting on the company just as other music service providers are being written off. Indeed, as I’ve written before, the five key factors in the subscription market will be cost, library, user interface, free component, and mobile services, and MOG now appears to be firing on all cylinders.