At Avvenu we recently announce the Avvenu Music Player (Beta), a new service that lets you listen and share your iTunes music collection, from anywhere via a web browser or Windows mobile 5 smartphone. This new service has got a lot of press lately. You can read about it here, here, here and here. If your a “digger”, you can even digg it here.

By the way, you can get a sense of the Avvenu Music Player (Beta) with one click — stream part or all of a 3-hour playlist from Bill Tai via a link at the Avvenu blog. His share expires shortly. It starts with Tubthumping by Chumbawamba, a classic song to kick off your week whether or not you kite surf.

Well before the beta version of the Avvenu Music Player, the Avvenu team came up with the Alpha version — the sporty Avvenu Kazoo. We quickly formed a choir to experiment with our invention, the results of which can now be seen publicly for the first time ever. Here is the video that convinced us to rapidly proceed with our current beta version.

Technology itself will not force the music industry into freakonomics, and legislation will not protect the music industry from ending up that way. However, people want to share music. It’s human nature. And, most people will obey the laws of their land, if they are able. That means, it’s in everyone’s interest to present people with options for sharing music within the boundaries of fair use. Otherwise, we are forcing them to use technologies for illegal purposes.

The same technologies that RIAA wishes to control can be used to foster more effective business models, with reduced costs or higher volumes. Technology enables the creation of entirely new business models when it is incorporated into the business model itself. In other words, technology becomes part of a business process. It’s time that the RIAA drop it’s lawsuits, stop it’s lobbying and spend its money on embracing technologies that can quickly help in the transition from industrial-age manufacturing economics to digital economics.

The music industry needs to rethink their approach and begin incorporating technology into the model itself. Apple understands this very well, and has even begun to overcome the problem of teenagers without credit cards through its gift card approach.

The music industry could create a super eCommerce and music sharing site containing far more than the 3,500,000 songs on iTunes. They could setup music purchasing accounts with banks so that teenagers without credit cards can easily purchase songs. They could implement loyalty programs where sharing music can be used to motivate the purchase of music among friends, these loyalty programs would reward the person sharing whenever an item they shared was purchased by their friends. They could implement a subscription model, similar to emusic, and at the same time offer a purchase model on a song by song basis. They could reward people for volume purchases, or for hitting and exceeding annual targets.

Last week, I asked my 15 year old son why he didn’t join the online fan club of a particular band he is fond of. He told me they wanted to charge $10 per year to join and maintain his membership and all he got was a newsletter and discounts on the band’s concerts, which he knew he wouldn’t be allowed to attend until he was older. He said it just wasn’t worth it. I asked him what if they were to charge $20 and he would also get a free song to download every month in additional to the newsletter and concert discounts. He said that would be a bargain and he would have asked me for a credit card to use. When you consider this, for $20 a year he gets 12 songs, more per song than the 99 cents paid at the iTunes music store, and up to date news about the band he really likes. He would then tell his friends who also like the band about how great the experience is and some of them may sign up too. Unfortunately, this particular band hasn’t embraced this approach. This is just an example of the kind of loyalty program that embraces technology and incorporates it into the business model.

These are but a few of the ways the music industry and the RIAA could quickly gain the respect of the consumer and illegal file sharers while managing its own destiny in its move to digital economics.

I’ve been following the RIAA and its lawsuits against mothers, teenagers and the elderly over copyright infringements. I’ve also been following the RIAA’s lobbying efforts in Washington over the Audio flag and the “Analog Hole”.

The discussion about technology and music business models is getting confused with entitlement. At one extreme, you have some consumers believing they are entitled to use any technology to consume and redistribute any content for free. At the other extreme, you have some music industry executives believing they are entitled to dictate the creation and use of technology in any manner they see fit. Technology has a tendency to settle in the middle of a market, where there is the largest number of users and greatest demand. This is true for products and for specific features.

The music industry is in the middle of a transition from industrial-age manufacturing economics to digital economics. Lawsuits focused on copyright and lobbying efforts to legislate against technology innovation are two ways the industry is using to slow down this transition.

What’s interesting is that technology has already transformed many parts of music industry business models — market research, recording, production, manufacturing, distribution, marketing, delivery, finance. There are only two areas where the industry is citing issues: technologies that play a role in music industry go-to-market strategies, and technologies that enable content sharing.

The music industry is not the first to go through a painful transition from industrial-age manufacturing economics to digital economics. Lessons are clear. The music industry needs to learn from others — banks, insurance, consumer goods, automotive, and the electronics industry to name a few. Right now, the software industry is going through a parallel shift — from proprietary to open source and from packaged software to metered use. In my previous position as head of the open source development network, I saw and participated in the early stages of this last transition first hand.

What’s clear is we cannot legislate innovation in consumer electronics, any more than we can legislate innovation in music.

More about this in Part 2.