The Original Disruptor of the Music Industry

I know. You’re thinking I’m talking about Napster, right? Nope. Napster was launched in 1999. Bobby Diggs and the Wu-Tang Clan introduced unbundling into the music industry 6 years earlier in 1993. While the wild musical styles, grimy beats, no hooks, and raw lyrics might be what hip-hop fans laud when talking about the impact of the Wu-Tang Clan, the savvy business person’s perspective is one of awe when it comes to how The RZA (Bobby Diggs’ stage name, pronounced rizza) upended traditional music industry models when he insisted upon each individual artist within the Wu-Tang clan retaining the option to sign as independent artists at any other label.

If you’re not a music industry insider, this may not seem like a big deal, but this type of deal was unheard of prior to the Wu-Tang Clan. Aside from all the amazing music produced by The RZA (FYI: for non-hip-hop fans, Diggs is widely acclaimed as one of the best music producers ever by industry media like NME, Vibe, and The Source), this seemingly small detail makes all the difference in categorizing the Wu-Tang Clan as a business venture that was fully unbundled at birth.

What Business Professionals Can Learn from the Wu-Tang Clan

In a generic business context, the concept of bundled/unbundled capabilities can be defined along the following lines:

Bundled vs Unbundled Offerings

In the most simple definition, to unbundle something means to break down a bigger thing into a set of smaller parts or components. In a business context the process of unbundling often includes allowing some of the smaller parts and components to be independently offered for sale in a standalone manner.

A bundled offering is one where the ingredients and processes leveraged to achieve its intended purpose of use have been baked into the offering in a way that requires the consumer of the offering to pay for its inclusion. This “baking in” is often a transparent process that can be very difficult to reverse or undo, and neither the consumer nor supplier of the offering has an easy option to buy or sell any of the embedded ingredients independently.

Conversely, an unbundled offering is one in which the individual steps along the value chain of delivery are each loosely coupled and addressable to the point where the manufacturer can offer the output of that step as an individual product for consumption by any party both inside and outside the enterprise.

In the recent past, cable TV providers bundled all of the individual networks and programs into one simple offering (with minor variations for additional niche programming) that consumers could buy. Until the advent of streaming networks, not only did media consumers not have the option of an à la carte order that was fully personalized for their tastes, but the networks and cable providers were also hamstrung in their ability to offer highly curated offerings that were targeted to individuals.

In the current world, where algorithms and automation have transformed which business models are viable, unbreakable rules and legacy best practices (like how margin can best be preserved by maintaining a small set of standardized offerings) are no longer rock-solid concepts that can be relied upon to deliver business results.

Diggs’ business achievement is stunning when you look at the time frame in which it was achieved (1993). Given that the Netscape IPO was in 1999 (the time frame in which Jim Barksdale and Marc Andreessen coined the oft-quoted statement that there are “only two ways to make money in business: One is to bundle; the other is to unbundle”), it’s clear that Diggs didn’t have the luxury of learning about this concept from the digital leaders who popularized the idea.

Diggs Did Not Predict the Future; He Made It Possible

To fully understand what Diggs achieved with the unbundled contract structure, we have to unpack what he was trying to achieve, the various leverage points he had at his disposal, what he invested to gain that leverage, and what he was willing to sacrifice to get his desired end game.

To call Diggs a great music producer does him short service. RZA is clearly a polymath whose genius spans music, poetry, marketing, and finance. With his media and business portfolio growing into streaming series, the category list where Diggs is excelling seems to be ever-growing (Wu-Tang an American Saga recently completed season 3 on Hulu). 

Winding the clock back to 1993, Diggs’ business objectives were more than aggressive—they were centered on domination.

• Diggs didn’t just want to be the top-selling hip-hop group. He wanted hip-hop to grow beyond the niche it occupied and for the Wu-Tang Clan to be a top-selling music group.
• Diggs wanted to protect the differentiation of hip-hop’s original art form and prevent it from being diluted by the commercial tastes of traditional record company executives.
• Diggs wanted to have the highest TAM (“Total Addressable Market”) for the Wu-Tang Clan by courting across multiple different consumer segments within the hip-hop music category.
• Diggs wanted to control the pricing power and leverage of their key suppliers (the record companies) and maintain the “wholesale transfer pricing power” advantage (the bargaining power of company A that supplies a unique product XYZ to Company B which may enable company A to take the profits of company B by increasing the wholesale price of XYZ) for all the artists within the Wu-Tang umbrella.

Diggs had learned key lessons on maintaining leverage with the record companies after his failed solo effort, where he surrendered all control to his producers and record company. The second time around, Diggs was not only sure to bring more leverage to the table, he also had a specific plan to invest his own limited resources to keep the short-term leverage he was creating in the long term for the entire group.

• Diggs integrated a key capability of his supplier by mastering the skills necessary for music production. When he controlled the production process, he no longer had to negotiate with the record companies on the creative vision for his output.
• Diggs used guerrilla marketing tactics to get his music in front of listeners and created a groundswell of proven demand. Diggs was able to leverage the proven demand from his core audience to play the record companies off each other and secure the long-term leverage he wanted—the rights of all the artists involved (including himself) to be free agents outside of the group who had the right to negotiate and sign deals with other record companies.
• Diggs’ courage and confidence were on full display when he sacrificed short-term revenue to gain long-term leverage. When Steve Rifkind’s new label Loud cut the final deal with Diggs, the upfront money from Loud to get the clan as a package was only $60,000. In return, Diggs got an unprecedented deal that allowed each individual in the group to be marketed independently to any other record company as a free agent.
• To maximize his fanbase and his TAM, Diggs assembled multiple members with different styles to attract multiple audience segments. As described by RZA in an interview with NPR: “I recall telling GZA, ‘You’ll get the college crowd,’ because he’s the intellectual. ‘Raekwon and Ghost, all the gangstas’ — their metaphors read like a police blotter — ‘Meth will get the women and children’ — and he didn’t want to do women and children. He didn’t know that, though. Method Man is a rough, rugged street dude, but all the girls love him. Method Man is playful. Myself, I was looking more like that ‘I bring in rock ‘n’ roll’.”
• To further lock in his pricing power with suppliers, Diggs was adamant about having the clan members sign with different labels: “When Def Jam wanted to sign Method Man, they wanted to sign Method Man and Old Dirty…and Old Dirty wanted to be on Def Jam — everybody, that was like the dream label. But if I had Old Dirty and Method Man on Def Jam, that’s two key pieces going in the same direction, whereas there’s other labels that needed to be infiltrated.”

When each of the members had successful solo albums with a wide array of labels, the entire recording industry woke up to the potential value in producing and marketing hip-hop music made by kids who had been living street life.

The “free agency” retained by each member extended to the point where they could not only sign a solo deal with any other company, but they could also use and leverage the Wu-Tang name and even collaborate with other Wu-Tang members on their solo projects (most of which were produced by The RZA).

RZA and The Wu-Tang Clan Bet on Themselves and Everyone Won

While the concept and power of bundling and unbundling didn’t start to enter mainstream strategy conversations until 1999 with the Barksdale and Andreesen anecdote. It is only in the last few years that digital industry professionals are beginning to see and understand the power of a closely related concept—Optionality. Optionality in financial markets is a concept that has been gaining traction in recent years thanks to the work of Nassim Nicholas Taleb and his book Antifragile: Things That Gain from Disorder. In the digital business context, optionality can be understood as follows:

Optionality — Optionality is a quality that is described as having a choice within your control but not the obligation to pursue it. An enterprise can create and retain “optionality” by creating an opportunity to offer a product or service to a consumer (but not being obligated to offer it) through the process of enabling a capability to be accessed digitally outside of the original context of use.

Convex vs. Concave Optionality — There are two types of optionality: convex and concave. A convex option has a low cost to create and a potentially uncapped return if it is exercised in the future. A concave option has a high cost to create and a capped return if it is exercised in the future. 

Serial Optionality — Exercising serial optionality is the practice of creating a wide number of options, trying these options out at small scale, and then reinvesting in the options that show a good rate of return. It’s like putting a lot of fishing lines in a body of water, then focusing on the area where you get the most bites.

And yet, again, we see Diggs is decades ahead of the rest of the world by not only creating and retaining optionality for the members of The Wu-Tang Clan but also utilizing both convex optionality (investing a small amount of resources in music production to gain access to uncapped value in music distribution) and serial optionality to capture immense revenue gains from the marketplace in music, concerts, merchandise, and now streaming video.

What may be even wilder than Diggs prescience is examining all the winners of the bets placed by The RZA. Not only did the Wu-Tang artists win through sales of records, concert tickets, and other ancillary ventures, but the music industry as a whole also won as the success of the Wu-Tang Clan was a pivotal event in creating what has now become the most popular selling genre of music (graph below from Statista).

Perhaps the party that won the most was the fans. The sheer amount of amazing content that was created as a result of a small yet powerful nuance in the original contract of the Wu-Tang Clan leaves but one question: Can it all be so simple?

Curious to learn more about bundling, unbundling, and optionality? Learn more in our upcoming book Unbundling the Enterprise: APIs, Optionality and Science of Happy Accidents.

- About The Authors

Matt McLarty

Matt McLarty is the Chief Technology Officer for Boomi. He works with organizations around the world to help them digitally transform using a composable approach. He is an active member of the global API community, has led global technical teams at Salesforce, IBM, and CA Technologies, and started his career in financial technology. Matt is an internationally known expert on APIs, microservices, and integration. He is co-author of the O'Reilly books Microservice Architecture and Securing Microservice APIs, and co-host of the API Experience podcast. He lives with his wife and two sons in Vancouver, BC.

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Stephen Fishman

Stephen Fishman (Fish) is the NA Field CTO for Boomi. He is a practicing technologist who brings creativity, rigor, and a human-centric lens to problem-solving. Known as an expert in aligning technology and business strategy, Stephen places a premium on pushing business and technology leaders to embrace iteration and the critical need to collaborate across disciplines. Throughout his career, Stephen has consulted with organizations desiring to transform their technology-based offerings to better meet the needs of organizations and the people they serve. In addition to consulting with large organizations, Stephen is an in-demand speaker and advisor. Stephen has led multidisciplinary teams to deliver amazing results at Salesforce, MuleSoft, Cox Automotive, Sapient, Macy's, and multiple public sector institutions including the US Federal Reserve and the CDC. He lives in Atlanta with his family and when he's not working can be found biking on the many trails in Georgia.

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