What comes next for Apple and Beats?

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If you watched Jimmy Iovine’s conversation with Walt Mossberg at last month’s D: Dive Into Media conference, you know that the Interscope Records chairman and CEO of Beats Electronics had some pretty unkind things to say about Apple’s approach to sound quality. Basically, he thinks Steve Jobs let design trump performance, resulting in sleek looking ear buds for the iPod that sound like crap. So whatever Iovine and Apple CEO Tim Cook have been talking about in their “informational” discussions, sound quality probably wasn’t on the agenda.

So what could the twp CEOs be discussing, as both Apple and Beats prepare to launch music streaming services? Apart from the obvious, I think Iovine’s conversation with Mossberg contains a clue. Here’s what Iovine said about the sorry state of music discovery on today’s streaming services and download stores:

Everybody wants to know what song comes next. People still listen to FM radio more than any other source, you know why? Because they tell you what comes next. And you know who doesn’t know what comes next? Your friend on Facebook, because if he did he’d be getting $250,000 a night like [celebrity DJ] David Guetta to tell you what comes next.

How does Beats plan to solve the discovery problem? “We’re going to have both a mathematics piece and human solutions, and we’re trying to build algorithms to make them work together,” Iovine said. The long-time record producer and his partners are tapping their network of music and radio industry professionals to help develop model playlists based on user data.

“We’re making tons and tons of lists, of curated lists, and we’re going to interact with you constantly,” Iovine said. “We’re going to know a lot about you. We’re going to know if you like to go to the gym in the morning so when you wake up there will be a list for the gym or for whatever else you do.”

“If you have to search.,” he added, “we will have failed you.”

Whatever Apple ends up doing in the streaming space, improving the nexus between music discovery and music acquisition is likely to be a big part of it. The Apple streaming service will  be baked into iTunes, which means it will have a built-in e-commerce mechanism. When listeners hear something they like they will be able instantly to download it, add it to their iCloud, or add it to their personalized iRadio channel.

Getting the discovery piece right will be critical to driving those transactions and boosting iTunes sales overall. Maybe iBeats by Dre is the part of the answer.