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Summary:

One of Apple’s great successes this decade has been its ability to unite the cell phone, the portable MP3 player and the music store in one ingenious handheld device, the iPhone. As new applications arise that allow on-demand streaming music on non-Apple phones such as those […]

Image courtesy of Spotify

One of Apple’s great successes this decade has been its ability to unite the cell phone, the portable MP3 player and the music store in one ingenious handheld device, the iPhone. As new applications arise that allow on-demand streaming music on non-Apple phones such as those powered by Google’s Android operating system, however, Apple’s great strength and longstanding investment in music may become a crucial vulnerability that will force the company to make difficult choices in years to come.

This week, European streaming music service Spotify demonstrated its Android app, which features on-demand streams of songs the user doesn’t own, as well as an offline synchronization and caching function that allows a listener to enjoy a song on the go, regardless of whether the phone is connected to a data network at that moment. That’s dangerously close to owning a song, and speculation is already rife that Apple won’t accept Spotify’s planned iPhone app because it’s too much of a threat to Apple’s iTunes music store.

Spotify, whose free desktop service is popular in Europe, doesn’t offer anything in the U.S. yet, and the Stockholm-based company has hinted that it may charge users in all geographies for premium accounts in order to use the mobile service. But it seems inevitable that consumers everywhere will eventually demand ubiquitous on-demand mobile streams, whether from Spotify or someone else, making ownership of music less popular and iTunes therefore less important. And in that respect, Apple’s decade of investment in music and current domination of the online music world may become an Achilles’ heel, as Android’s openness and neutrality give it greater flexibility than Apple’s closed system to offer consumers what they want as alternatives arise.

Thus far, Apple has shown considerable flexibility in working with streaming music providers. Companies such as Imeem have challenged Apple’s boundaries on the iPhone, but have always played nice, offering helpful links to buy songs through iTunes. On the PC, Apple has always endeavored to offer a superior experience compared to free services: no ads, a clean and organized interface, and interactivity between the store and the software (and by extension, the portable hardware). But those advantages could erode as increasingly simple and powerful apps are introduced on mobile devices — applications Apple may have to reject while other phones accept them. And that could give avid music consumers a reason to own Android-based phones instead of iPhones.

On-demand streaming isn’t a perfect science, and Apple’s user experience is still stronger than any application can provide. Nor is multitasking an option with most apps, never mind how much the ones that do can drain a device’s battery life. But as the trend toward streaming music rather than owning it, once confined to the desktop, shifts to the mobile sphere, Apple will have to make new choices to fend off its competition. Perhaps it will counter with a long-rumored subscription service of its own, although it has largely held off “music rental” services Rhapsody and Napster on the PC without doing so. Growth in full-track mobile downloads is still expected to outpace subscription-based mobile streaming over the next few years, according to a recent report. But music is the one content area to which Apple is committed while Android is not, and while that commitment has yielded benefits throughout the current decade, openness and neutrality will pose a real threat to it in the next one.

Image courtesy of Spotify.

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  2. Ian Morison Sunday, May 31, 2009

    It would definitely be nice to see someone challenge Apple’s North Korean walled garden. Apple is repeating mistakes they made with the Mac that ended up leaving them consigned to a small fraction of the market.

    The only questions over Android are carrier access — TMobile isn’t going to cut it and AT&T and Verizon aren’t budging — and how cleanly implemented Android devices will be.

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  3. Apple certainly does make money on the iTunes Music Store, however, they’re a hardware company. The music store and the app store exist to make the device more attractive. I expect Apple is smart enough to realize that they make a lot more money including an app that may cannibalize the music store but help sell more devices, other hardware constraints not withstanding.

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    1. Ian Morison Sunday, May 31, 2009

      I’ve seen various claims about how profitable iTunes is by itself, but I’ve never seen Apple break out numbers. (They site “X million songs sold,” but never profit numbers.) Do you have any hard data?

      Apple reputedly made deals with the labels that weren’t very favorable to Apple.

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  4. I doubt Android will ever overtake Apple/iPhone…but it could mount a challenge depending on how serious app developers are.

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    1. Ian Morison Sunday, May 31, 2009

      Yeah, that Windows POS will never beat the Mac (in the marketplace).

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    2. Actually, I think the opposite is true. iPhone will try to be the “premium” device, while android will be the mass market platform because of the economics.

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  5. I’ve been saying for several years now that Internet radio and streaming would be the norm. Many music industry people kept insisting that fans wanted to own songs and that 24/7 mobile Internet was years away. I’m not sure why they were so convinced ownership of song files was the only option fans would accept.

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  6. I will agree that Apple’s position on iTunes will create openings, and I have been commenting about this here for several months. Apple apparently considers an absolute pristine iTunes experience to be more important than allowing for the opportunities that record companies need to survive. Since we developed a platform to support media applications this is troubling.

    If we say build an application that contains video commentary on an album and embed music as well (these are waiting for Apple to approve), the rejections states that it confuses iTunes users. Then why can’t we download the music to iTunes and play it from the application? My belief is that music will primarily be sold as music experiences in the future. The music will be one aspect that is usable outside of the experience. Streaming is at best an introductory mechanism. People use music in other ways, and the platforms need to support this.

    iTunes is being defended as some shining citadel that offers the best user experience possible, rather than simply the best experience under current scenarios. If Android offered a better media experience in terms of interaction, I can see the platform making inroads. Competition is good, and my recent experiences have proven this. As a lifelong Apple user, I am upset enough to happily leave the platform behind. The experiences of NIN and in our case Aiden will provide reasons for companies to move elsewhere as the opportunities arise. The less they invest now, the lower the barrier to transitioning.

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    1. Apple is running the music store at break even. That means the bulk of the proceeds go to the record companies. In fact, because there is no physical object involved, and no inventory as well, they have to be making more profit per song in selling through Apple. It is hard for me to imagine how record companies would prefer a lower profit using another scheme. For unless these new business models create a better value proposition for the consumer, they will not take hold.

      Also please note that people tend to do other things besides listening to music all day. And they tend to pick favourites and listen to them. So for the typical person, it makes more sense to buy a song. I am sure Apple have made many studies to reach the conclusion to stay away from the subscription model so far.
      The reason record companies like it, is because they think if they turn music into a utility business, they can charge every inhabitant on earth a monthly fee, and not have to worry about running a competitive business any more. Wishful thinking!

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  7. [...] looks at the uneasy realtionship between iphone music streaming services and [...]

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  8. Apple has shown its capable of cannibalizing its own products when it comes to the iPod/iPhone, so if Apple found that streaming was the way to go, it would no doubt change. The only “vulnerability” would be if Apple were to let its current sales format blind it to a future trend. Apple has yet to show that to be the case, as many streaming music solutions are in the app store (and Apple even highlighted one in March 2008 at the SDK debut).

    As for Music Store profit, Apple used to say often at its conference calls that its iTMS was break-even or made a little profit after subtracting out its bandwidth, hosting, credit card, and store mgmt expenses.

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  9. Yeah . . . look at all those subscription/streaming services that are thriving!

    Mobile streaming service . . . just the thing to suck battery life on any mobile device!

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    1. The Spotify app on Android seems to cache your music offline, so techinically you’re not streaming and there wouldn’t be a huge drain on battery.

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      1. I agree with both of these perspectives, but most importantly, if you are trying to market specific music, making a customer wait is not giving them music. It makes them wait.

        Caching is a great mechanism, but Apple seems to dismiss such products. It is unfortunate.

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  10. [...] In Music, Apple’s Strength Becomes a Vulnerability (tags: music apple iphone itunes mobile article) [...]

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