Amazon Looks to Take Bite Out of Apple’s Music Biz
By George Anderson
Looks like everyone is trying to take a bite out of Apple Computer’s market share in the downloadable music category, and the latest to step up and take aim at Steve Jobs and company is Amazon.com.
The New York Times reports that Amazon plans to offer a download service that will charge consumers a monthly subscription fee, rather than a per song charge as Apple does.
Amazon also intends to sell its own portable music player to compete head-on with the iPod.
Others have tried this approach in the past with less than spectacular success, but Amazon believes it can avoid the pitfalls that have hampered others.
According to the Times’ report, “Amazon plans to load the player with songs of a customer’s choosing before shipping it, the music executives said. And because Amazon maintains records of the CD purchases of its customers, it can also use that information to recommend music to be downloaded onto the players.”
Ross Rubin, director of industry relation with NPD Group, said Amazon may have an edge that others haven’t had in the past with its built in customer base and brand equity. However, he said it faces the same challenges that others have, namely, “The branded music player approach hasn’t worked because of Apple’s considerable iPod marketing and brand power.”
Moderator’s Comment: Is Amazon.com the company to finally put a dent into Apple’s stranglehold in the portable music player and downloadable music categories?
What must Amazon do to be successful? –
George Anderson – Moderator
With 4 quarters in a row of declining profits, Amazon is using its innovation skills to attempt reversing the trend. They key to the new venture’s profitability depends on the ad promotion expense. Over its history, Amazon spent more on sales promotion and advertising than almost every other retail brand. They had the ability to do that because of the huge capitalization gained at the height of the internet craze. Now that the company is fairly mature, it has the same challenges of high costs and low margins that other retailers face. And it’s unlikely that they can raise billions more in ultra-low cost capital at this point, since the craze is long gone. Great fortunes are usually not made via competition, they’re made via innovation and/or cooperation. Competing with Apple is likely to be very expensive.
I agree with Mark’s comments. This is a “me too” attempt by Amazon, not a unique idea. The reality is that the music industry AND retailers need to determine how they are going to address the ownership and royalty issues before any truly revolutionary ideas come to the forefront. The fundamental issue is that Amazon is not addressing the issue that is plaguing this market. That issue is that when I purchase a CD I have control over where I play its content, but with a downloaded song there are frequently restrictions and hoops that make it a pain. Until that is solved this market will not mature. There are many untapped customers and therefore profits in the Baby Boomer and following generations.
Nobody has been able to touch Apple’s sense of style, functionality and user interface when it comes to the iPod. Without a serious partnership with someone who has already shown a strength in this area, Amazon is sledding uphill.
It would seem that leveraging their huge sales presence in the music, video and book worlds, and coming up with an interface and aggregator that beats iTunes and integrates with the iPod as well as Apple is the only reasonable road to go.
Even Apple is not without its blemishes. The issue of scratches on the iPod Nano, for example. It would seem that this is not the best place to try private branded hardware. They should work to their strengths. Be the great equalizer. Make the iRiver and other major players work as well and seamlessly as the iPod does with podcasts, music and book downloads. That’s something that no major player does now, and makes a lot more sense.
I agree with Mark and Jeremy that Amazon will not be successful with their music player, however they can certainly be successful with their download site. It will be difficult for Amazon to attract more attention as a “cool” product with their MP3 player. This requires much promotion, unique features and of course the cool appeal which is so difficult to identify. However, Amazon’s core competencies lie in its internet access, the incredible number of visitors which it attracts each day, and their extensive customer database. All of these combine for a great opportunity for Amazon to position their music service as unique, available, and familiar. Pricing, bandwidth and song selection will be important for Amazon’s success in this channel. They have the strengths to make this happen, now it’s just a matter of how they position their product in the music marketplace.
Several years ago, some politician, when faced with more competitors getting into the race, said “bring em’ on!” While I’m a big fan of Amazon.com and what they’ve accomplished, they should focus their attention on being a better online retailer and leave the music and hardware business to others. The recent history of the downloadable music business shows that few companies have been able to favorably compete with Apple and no other company has been able to mount much competition to their iPod business.
The more players (pardon the pun), the better. Wal-Mart’s recent offer of music downloads for 88¢ presaged a new round of competitiveness in this popular field, and Amazon’s introduction of its own portable music player raises the competitive bar even more. I like Amazon’s idea of loading up the player with music to begin with, which is like including a bunch of razor blades with the purchase of a razor handle. When combined with Amazon’s legendary ability to recommend purchases based on customers’ purchase histories, this development could signal a whole new chapter in the music download business.
From what I’ve seen of my daughter’s use of an iPod and downloading of music, she and her friends are always looking for new and better ways. This is one area where I think the entire market is completely vulnerable to innovation. Whether it be Amazon or someone else, I don’t see Apple either having a current lock on the market or ending up with one. Amazon will be the first to likely challenge the market in a big way. Actually, I am not a fan of either player – Amazon or Apple. So, I don’t see myself being swayed either way. I think 5 years from now, this whole discussion will evolve around different companies in the market and a completely different evolved technology.
Now, where’s my cassette case?
In reading the NY Times article, I saw one very big red flag that causes me to doubt the viability of their download service, namely the fact that when a customer cancels their “subscription” to the service, all of the music already loaded in the player is disabled. I think consumers are smart enough to recognize such a blatant attempt to lock them into a permanent monthly fee in order to continue to be able to play music downloaded in previous months, when they know that the music they download from Apple or Wal-Mart are theirs to enjoy permanently.