Imeem's iPhone App Competes With Apple on Its Own Hardware

newimeemSocial music site Imeem unveiled an iPhone application this morning, a few months after releasing its initial mobile app for Android. But although Imeem is best known for offering free on-demand music streaming from all four major labels, the new iPhone app doesn’t let users listen to any song, anytime — that would pose too direct of a threat to Apple’s (s AAPL) iTunes Store.

Instead, Imeem’s app offers two key elements: a Pandora-like radio function that streams songs from a given artist mixed with similar fare, and a “My Music” section that allows streaming access to a user’s own library of uploaded songs. The latter essentially expands the music storage capacity of the iPhone, but there’s a catch: Users have to pay for a storage locker of more than 100 songs, via subscription plans that range from about $30 to $100 annually. In this way, Imeem is competing with Apple on its own hardware — and Apple is letting it happen. The iPhone’s relatively limited storage capacity (up to 16MGB, including apps and other software besides music files) isn’t enough for most serious music fans, so Imeem is providing an avenue to iPod-like capacity via a cloud-based subscription service, so that listeners don’t have to carry a second piece of hardware. (The app itself remains free to download, but an Imeem library of up to 20,000 songs will cost $100 annually.) Of course, future generations of iPhones could include much more storage capacity, potentially obviating Imeem’s service in time, and the cloud-based subscription service is still only as good as the connection on which it runs.

Consumers have come to expect free on-demand streams of just about any song via the desktop. What remains to be seen is how closely Apple will allow app developers to approximate that experience on the iPhone. While “Twitter-for-music” site readies its own application, the Boombox app, built by another developer on’s platform, offers streaming access to a moderately substantial, but still limited, library as long as a user is connected via Wi-Fi. Both Imeem and Boombox also drive song sales via iTunes.

For Imeem, the mobile apps represent a new path to monetization. The company is moving away from a purely ad-supported model and finding other ways to squeeze cash out of users, including selling ringtones and tickets. The company has struggled in recent months, losing the confidence of investor Warner Music Group and possibly other stakeholders such as Sequoia Capital, although it has apparently raised $2.3 million of a projected $6.5 million round in the past few weeks. Sequoia, Warner, Morgenthaler Ventures and Universal Music Group have invested north of $50 million total in the company since its inception.