How Apple's New Music Strategy Reflects a Paradigm Shift

Apple’s (s aapl) acquisition of Lala last week is part of a major strategic shift in Cupertino’s digital music strategy toward streaming music from the cloud, according to a report in today’s Wall Street Journal. The move will reverse several commitments the company has had in place since launching iTunes early in the current decade, primarily involving desktop software and ownership of music files.

More importantly, it will offer a glimpse as to how mainstream consumers will listen to music in the coming decade. Indeed, Apple’s acquisition and integration of Lala reflects not just a shift in strategy for the company, but a paradigm shift for music consumption. Here’s how:

  • Browser-based services are eclipsing desktop software as a way to hear music on a computer. Apple’s embrace of streaming isn’t as surprising as the idea that the company will allow consumers to listen to music without first downloading a piece of dedicated software. Apple could simply bake a streaming service into the desktop iTunes, but the fact that it would consider browser-based alternatives to that system is a major step that reflects an ongoing shift in consumer behavior.
  • Apple is threatened by mobile applications that do what iTunes cannot. Over the past year, a variety of mobile applications have sprung up that give on-demand access to songs not stored in a user’s own library. For Apple, such apps essentially transcend or circumvent the storage limitations of the company’s own hardware. Apple has accepted subscription-based ones like Spotify’s and Rhapsody’s, but may have drawn the line at Lala’s long-teased app, which was to allow streaming of any song of which the user can demonstrate ownership from a web-based storage locker. By buying Lala, Apple can deliver a similar service in its own way, via a next-generation version of iTunes.
  • The transition toward streaming rather than owning is slow, but real. Consumers know where to find streams — YouTube, search engines, MySpace, Spotify where available — but most still prefer to own MP3s of music they like because they can do what they like with them. (There’s no indication, by the way, that Apple is giving up on selling downloadable music files through iTunes anytime soon.) The shift to cloud-based music (GigaOM Pro, sub req’d) won’t be instant, and may never be total. But a smartly integrated way of giving consumers access to their existing MP3 libraries side-by-side with a new streaming option is very attractive. Lala knew this, and Apple can deliver it.
  • Apple is still betting on owning music in a new way, rather than subscribing to it. One thing Lala wasn’t interested in was a subscription model, and neither is Apple. It’s unknown whether Apple will keep Lala’s idea of the 10-cent streaming “web song” intact, but that’s still a kind of ownership that represents a relationship with an artist or song, and reflects the listener’s identity. The fact that it costs less and comes from the cloud matches up with ongoing technology trends without disrupting that relationship. All-you-can-eat subscription services may be near their own tipping point, too, but Apple doesn’t look like it’s interested in going there.
  • Older MP3 players aren’t connected to the future. Selling hardware is still the most important thing for Apple, isn’t it? Mid-decade iPods with no connectivity aren’t exactly dinosaurs yet, but they’ll suddenly look a lot more static if iTunes is streaming music from the cloud on iPhones and iPod touches. Meanwhile, a failure to embrace cloud-based music could have resulted in Apple ceding smartphone market share to other phone makers that do.

In its latest incarnation, Lala was a company that was exceptionally well-positioned in front of many trends — the shift toward streaming, downward pressure on the price of music, simultaneous and synchronized access to content via multiple devices — but one that hadn’t yet educated or convinced many consumers to be comfortable with paying for music without obtaining a song file. (It’s worth mentioning that someone who wouldn’t pay a startup 10 cents for access to a virtual “web song” might pay Apple for the same thing, as the more established company seems inherently more reliable.)

Lala’s model becomes much stronger inside of Apple’s system, while Apple gains flexibility to give music fans more options. Just as the turn of the last decade marked a shift to MP3s from CDs, as the aughts draw to a close, consumers are ready for cloud-based music to displace file ownership, partially if not completely. And with this acquisition, digital music’s largest player is accepting that change.