06
December
2009
|
10:08 PM
America/Los_Angeles

Analysis: Apple's Move Into Streaming Music Counters MSFT And Spotify With Unique Model


(Bill Nguyen - founder of Lala.)

Reports that Apple has purchased streaming music startup Lala is bad news for companies in the crowded streaming music sector.

Apple does not have a streaming music service and has been struggling to defend its lead in online downloads. By acquiring Lala, Apple is signaling that it intends to be a major player in the fast growing streaming music sector.

It also shows that Apple is betting on a unique approach towards streaming music services and one that better fits into its current iTunes business model.

Lala offers customers a lifetime license to stream songs from its extensive music library for 10 cents per song. This is a complimentary model to Apple's iTunes store that offers downloads of songs for 99 cents each.

Apple moves against Microsoft and Spotify

The Lala deal is Apple's first major foray into music since iTunes music store was established in April 2003. And it shows that it won't give up a leading position in the music industry to numerous competitors, such as Microsoft with its Zune music subscription plan, and Spotify, the formidable European music streaming company, which is preparing to enter the US market.

Spotify has become very popular in Europe with a monthly subscription plan and an advertising supported free-option.

Ad supported music trouble

In the US there are numerous startups offering advertising supported music streaming services. Advertising supported music streaming, however, faces challenges as license fees rise.

With a paid-model such as that offered by Lala, Apple will be able to offer better licensing deals to the hard hit music industry than revenues from competitors with advertising supported music streaming services.

This will be a key differentiator in the forthcoming battles over subscribers to music streaming services. While free services may initially win listeners, it is not a viable long term model.

Lala's user interface is already very similar to iTunes, which will make it easy for Apple to win new customers. And the 10 cent lifetime streaming license will appeal to people that like to own music, as iTunes customers like to own music downloads.

Unlike music subscription plans where access to music stops when payment stops, Lala users retain full access. Why waste $15 per month on a subscription plan when for the same money you can have lifetime access to 150 songs a month, and build a growing library of music?

Again, Apple has a key differentiator that competitors lack.

Acceptance...

The Lala acquisition is an indication that large numbers of Internet users have grown comfortable with streaming music as a viable way of listening to music. The educational effort that Lala and other startups have done, now enables Apple to use its clout and take advantage of its long partnership with the music industry.

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Please see my interview with Bill Nguyen, founder of Lala Oct, 2008:

LaLa Launches Next Generation Music Web Service

Also from Dec 2006:

Lala music swap site expands into streaming live performances