If there is any industry ripe for disruption it’s music. Coupled with emerging technology and the fast-paced world of the internet and you’ve got a potential gold mine for those with the balls big enough to dip their toe into the minefield that is music technology.
Apple we’re quick to the party back in 2001, when then-CEO Steve Jobs saw the potential for a device that could store all your music on a hard drive that you could put in your pocket and sync with your music player on your computer. Sounds deceptively simple doesn’t it, and yet at that time music players were clunky at best and totally useless at worst. Remember mini-disc players?
The iPod revolutionised the way we listened to music, taking our entire music collection out of the home and onto the streets. But Apple didn’t stop there and introduced the iTunes music store to their already popular iTunes music player that quickly became the default music player for most consumers around the world, unseating Microsoft who held what seemed an impenetrable grip on computer software.
The lesson to be learnt from what happened with Microsoft is that nothing is safe from disruption and if you move slow you will be beaten by a smarter and more nimble competitor. Apple and their iTunes store have since become the single largest music retailer in the world, selling 16 billion songs since they launched. Fast forward to now and the iTunes store is currently selling over 300 million songs a month and climbing.
But the days of iTunes dominance could be waining as new players enter the market. In fact, Apple are fighting two similar but equally important battles to maintain their dominance.
The first is the rise of music streaming services which challenge Apple’s traditional business model of selling music. With streaming users pay a flat fee per month and are given access to the services entire music catalogue to stream as they wish.
The size of the catalogues vary from service to service but as a comparison iTunes has nearly 20 million songs available for purchase, streaming service Spotify has 15 million tracks, Rdio 12 million, and Microsoft’s Zune Marketplace 11 million.
Here Apple clearly have the competitive edge with a catalogue nearly twice the size of most competitors. But where the biggest differences lay is in price. Whereas it costs $1.69 in Australia or .99c in the US per song on iTunes, Spotify costs $4.99 per month for unlimited streaming on your computer, and $9.99 per month for unlimited streaming across all your devices. Rdio, which was started by the same guys that brought us Skype, is priced the same at Spotify, and the Zune streaming service is $9.99 per month in the US, and $11.99 in Australia
Apple also has a clear advantage in their user base. There is an estimated 200 million+ iTunes store users, and over 600 million people around the world use iTunes music player. This compares to 13 million users for Spotify (of which only 2 million actually pay for the service). In fact compared to the 20 million satellite radio subscribers across the US it is clear the dominance of iTunes.
But that is only one fight, the other is with old foes but new competitors in this space, Amazon and Google. Amazon has been sizing up Apple for some time now and have recently invaded Apple’s most successful markets with their own offerings. It’s estimated that Amazon attracts over 65 million customers in the US each month and their Amazon MP3 service has a catalogue of just over 16 million songs.
Amazon have sold physical albums through their store for years but a while back they introduced the MP3 store to compete with iTunes, but without any proprietary devices to compete with their store failed to make much of an impact on iTunes dominance. But it did change the landscape of digital music in some way, when Amazon launched their store in 2008 it was the first MP3 store in the world to provide music without Digital Rights Management. A year later Apple was pressured to respond and removed their highly restrictive DRM from the iTunes Store that had prevented users from using the songs on multiple computers or devices.
Amazon also just introduced the Kindle Fire, an update to their Kindle device range which has seen them blindside Apple and capture a the dominating market share in the emerging ebook market. Amazon are so dominant here that experts predict that sometime this year 50% of all book sales in the US will be through Amazon. That’s taking into account traditional physical sales at book store. Not bad for a company that had 15% market share of all book sales only a few years ago.
The Kindle Fire is Amazon’s answer to Apple’s iPad, and many in the technology world predict that the Kindle Fire could be the first tablet to erode Apple’s market share in any significant way. So why will the Fire be so popular? Because it takes a lot of its cues from Apple. All of Amazon’s services, from their music store, ebook store, and movie and tv show streaming (that’s right, they have a Netflix competitor), are baked right into the device.
The cloud is the now the big focus for Amazon, Google, and Apple and earlier in the year both Amazon and Google unveiled their versions of a digital music locker in the sky. Amazon’s service allows you to upload your entire music collection onto their servers that can then be played on any internet enabled device. Google’s service was almost identical.