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Posted by Mark Mulligan on May 4, 2011
Spotify has today anounced a series of new features which the Swedish streaming service hope will position it in direct competition with iTunes. New features include a download store selling discounted playlists, playlist synching with iPods and iPhones, and turning the Spotify client into a music management tool. Have no doubt, these really do add up to competing with Apple head-on, something that few succeed at.
Apple dominates the paid digital music business, and it does so because of its device-service ecosystem. To badly misquote Bill Clinton: "It’s the iPod, stupid." The majority of iPod owners don’t even buy music regularly, but those that do still make Apple way out-perform pure-play download stores. iTunes Music Store downloads are effectively monetized CRM.
Apple has innovated its music offering so little (thus far) because:
a) What it's got has been doing a good-enough job -- up to now -- of enriching the device value proposition (the coming cloud strategy reflects a recognition that downloads alone soon won’t be enough).
b) Nobody (not even price-slashing Amazon.com) has seriously eaten into Apple’s market share.
Without the device ecosystem, third parties have failed to break Apple’s digital hegemony. So why on earth is Spotify trying to do so now? Why compete directly with Apple when it's done so well at competing around Apple?
Part of the answer is the record labels. The majors desperately want Spotify to start turning its millions of free users into solid new-music spending. They want Spotify to grow up from its fun-filled, commitment-free childhood and take on the responsibilties of digital music adulthood. To achieve this, Spotify needs to dress like a grown-up, too, and that means having a download store like all those other sensible, grown-up digital music services.
But adding a download store won’t make Spotify the leading download store nor will it change the music market. Download stores are a transition technology that bridge the gap between the analog and digital worlds. But they are coming to the end of their usefulness, as illustrated by the slowdown in digital music spending just when it should be booming. So some label execs will need to realign their expectations. But Spotify will get some benefit from the store: it will be another revenue stream (albeit low-margin) that will help it continue to move towards operational profitability.
The syncing and music management moves are more interesting though. These are Spotify’s way of trying to break into Apple’s device ecosystem through the back door. The iTunes app is outdated and bloated. It’s long overdue competitive disruption. Spotify’s music app is clean and elegant, just like iTunes used to be. With Facebook integration, a celestial jukebox, music management, and even device synching (of sorts), Spotify may actually stand a half-decent chance of getting many of its iTunes-using customers to start using Spotify as their main music app.
But despite the PR, Spotify is not actually trying to be an iTunes Killer at all. It's trying to learn how to co-exist, using the iTunes ecosystem as its habitat. It's almost a parasitical co-existence: if the host dies, the parasite dies, too. The fate of iPods, iPhones, and iPads is inextricably linked with iTunes.
The iTunes ecosystem will still always trump Spotify’s for Apple customers. Where else will an iPod owner buy apps, get software updates, download TV shows, etc.? But this is a bold move for a company without its own device play and will nicely realign marketplace dynamics ahead of Apple, Google, and Amazon’s forthcoming moves.
Apple is finally facing the sort of competitive pressure in music that it has lacked since, well, day one. To badly misquote another politician (David Cameron this time) "You were the future once, too, Apple." Of course the odds are that it will continue to be the future too (because of its devices), but at last we have the prospect of other runners on at least the same lap of the race.