"Investing" in the next Lady GagaJune 14, 2012: 1:58 PM ET
New game TastemakerX lets users buy and sell virtual stock in emerging musical artists.
By Richard Nieva, contributor
FORTUNE -- Do stockbrokers have an edge in discovering the next Lady Gaga? Probably not. But Marc Ruxin and Sandro Pugliese, co-founders of the social game TastemakerX, want to make finding the next hit artist look more like the New York Stock Exchange. The game, which allows players to unearth and support new bands, officially launched on Thursday, after months in beta mode.
Founded in 2011, the idea is for users to discover new bands by buying and selling an artist's "stock," which rises and falls depending on factors that include who's been buying it and the amount of buzz an artist is getting on and offline. Players get rich by earning "notes," the game's form of currency. In the real world, this translates to bragging rights: being the first to spot an unknown band before they're blowing up the airwaves. The pool of over 95,000 musical artists in the game have passed through the software's "IPO" algorithm, which determines a "stock's" initial pricing based on metrics like number of plays on Last.fm -- another music discovery service -- and Facebook "likes."
So it is only fitting that part of the company's operations take place not too far from the NYSE, in Manhattan's NoHo neighborhood. Pugliese, who is also CTO, handles business in New York while CEO Ruxin heads the company from San Francisco. (Not only is TastemakerX bi-coastal, it's also bi-national; it has a throng of developers in Guadalajara, Mexico.)
Considering the ethos of the game, the company's New York roots might be spot on. "There's a tremendous musical renaissance in Brooklyn right now. From that standpoint, there may be no better place to be," says Paul Resnikoff, who runs the trade publication website Digital Music News. (Pugliese lives in the DUMBO neighborhood of Brooklyn.)
And this isn't the first time proximity to the New York's music scene has helped Ruxin and Pugliese. In 1993, the two, who met at Hamilton College and both worked at record label EMI, went to a performance at the intimate Fez Under Time Cafe bar on the Lower East Side of New York City. On stage was a then-unknown Jeff Buckley, the seminal musician who didn't amass much mainstream exposure until his untimely death in 1997. "I looked around and I've never seen so many music industry people with their jaws dropped," says Pugliese. "We're trying to get people to discover the Jeff Buckleys earlier."
But Resnikoff also warns of the risks of setting up shop outside of Silicon Valley, particularly when dealing with financiers, who often have to make difficult decisions early on about whether or not they want to continue funding startups. Having a sprawling, non-centralized company doesn't make it easier, says Resnikoff. The company has raised $1.8 million in funding, including an investment from Guggenheim Partners, one of Billboard's parent companies.
Ruxin hopes to monetize by collecting data on how users are engaging with music and making that information available to artists and labels. Another stream is selling players more "notes" if they run out. Yet another is building in advertising more organically, such as having sponsored challenges for players, like having them buy the stock of specific types of artists. Ruxin believes he can build a "taste graph," akin to the buzzier social graph. The fallout from Facebook's IPO has proved it challenging to advertise on the social graph as well. It's difficult to gauge the market for music discovery services, but Pandora -- the most mature of the bunch -- had revenue of $274 million last fiscal year. (Pandora, of course, also serves as a music player, while TastemakerX wants to focus mainly on discovery.)