Amazon preps Amazon-branded music players, digital music service to rival Apple iPod+iTunes Store

“In recent years, Amazon.com Inc. Chief Executive Jeff Bezos has explained his company’s deliberately paced approach to the digital-music business by saying he wants to avoid simply imitating the dominant player in the field, Apple Computer Inc.’s iTunes Music Store,” Ethan Smith and Mylene Mangaindan report for The Wall Street Journal. “Now Amazon, the world’s No. 1 online retailer, is in advanced talks with the four global music companies about a digital-music service with a range of features designed to set it apart. Among them: Amazon-branded portable music players, designed and built for the retailer, and a subscription service that would deeply discount and preload those devices with songs, not unlike mobile phones that are included with subscription plans as part of the deal.”

“Music executives privately welcome Amazon’s plans, which they see as one of the only credible challenges to Apple’s hegemony in both digital music and portable players. Now the question is whether Amazon’s massive customer base is enough to offset a long delay in entering the online music business,” Smith and Mangaindan report. “The service could be launched as soon as this summer, according to people familiar with the matter. Amazon declined to discuss the service, and hasn’t finalized deals to license content from major music companies… The move is crucial for the Seattle-based retailer’s long-term strategy. Despite offering a vast array of products from gourmet coffee to garden hoses, Amazon depended on physical media like CDs, DVDs and books for 70% of its 2005 sales. To maintain its dominant position, Amazon will need to hang on to consumers as they migrate to digital delivery of those products.”

“Amazon’s online music plans would take advantage of the company’s strong position in selling CDs and portable music players. The online retailer sells an estimated 10% of digital music players in the U.S., including iPods, and the pending deal could hurt its relationship with Apple. If Amazon’s competing offering presented enough of a threat, Apple could even stop selling iPods on the site, says Chris Crotty, senior analyst at iSuppli Corp., an El Segundo, Calif., market-research firm. Apple declined to comment,” Smith and Mangaindan report. “Amazon hopes to set itself apart [by offering] a subscription service, in which users pay a flat monthly fee for access to an unlimited amount of music [and] Amazon has discussed offering subscribers digital-music players that come preloaded with tunes suggested by the online retailer, based on factors such as the subscriber’s personal CD-buying history on the site. The preloaded music could be kept on the player as long as the customer pays the monthly fee, but could also be swapped out for other songs during the course of the subscription. Another likely feature: the portable players would be free or very cheap with a long-term subscription — say, a year — similar to the way cellphone providers subsidize the cost of new handsets when customers commit to service agreements. It’s possible Amazon would price the subscriptions close to what competitors typically charge — about $15 a month — and has said it may offer discounted CDs to subscribers.”

Full article with more here.
Even if Amazon launched today, it’s just way too late. Apple simply holds too strong a position. Various subscription services have uniformly failed to do anything negative to Apple’s iTunes Music Store (which also offers music videos, TV shows, podcasts, etc., by the way). Free music players from Amazon with subscriptions don’t sound as hot as it might have years ago with iPod prices now starting at $69. At best, this is a play by Amazon to compete for Apple’s leftovers and attempt to offset their CD sales losses to Apple’s iTunes Music Store.

No portable music players have “scratched” Apple iPod’s dominance to date; an Amazon-branded player from third-parties won’t succeed where Sony, Creative, Dell, iRiver, Virgin, Rio, and many others have failed miserably. And Apple’s certainly not sitting still with hot new iPod models debuting regularly.

Apple just has too many weapons with which to combat threats to iPod and to iTunes. Apple could cut iPod prices and win any price war. Apple could license FairPlay. Apple could flick the switch on subscriptions for music and/or video. Not that any of those options are even remotely within the realm of possibility right now: Apple’s iTunes Music Store dominates the market with 80% or so share. And iPod dominates the portable digital media player market; iPod models currently occupy the top 9 spots of Amazon’s MP3 Players best-sellers list, including the top 4 spots of Amazon’s Portable Digital Media Players best-sellers list, the top 6 spots of Amazon’s Flash Drive-Based MP3 Players list, and the top 4 spots of Amazon’s Hard Drive-Based MP3 Players list. If Apple pulled iPod from them, Amazon immediately would not be selling an estimated 10% of digital music players in the U.S.

This play by Amazon just doesn’t add up to a rival for iPod+iTunes. However, it may cause some serious angst in Napster’s, RealNetworks’ and other also-ran online music services’ headquarters.

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Related articles:
EMI Music Chairman: Music subscription services like Napster and Rhapsody haven’t beeen huge – January 23, 2006
BusinessWeek: Apple unlikely to launch music subscription service – August 15, 2005
Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service – April 11, 2005

More blood on Apple iPod’s Click Wheel: Sony’s Walkman Bean is cooked – February 13, 2006
More blood on Apple iPod’s Click Wheel: Dell dumps ‘DJ’ hard-drive MP3 player line – February 04, 2006
More blood on Apple iPod’s Click Wheel: iRiver pulling out of Europe? – February 01, 2006
More blood on Apple iPod’s Click Wheel: Thomson gives up on MP3 player, CE markets – December 12, 2005
More blood on Apple iPod’s Click Wheel: BenQ withdraws from MP3 player markets – November 28, 2005
More blood on Apple iPod’s Click Wheel: Olympus halts production of portable digital music players – November 09, 2005
More blood on Apple iPod’s Click Wheel: Rio is dead – August 26, 2005
Sony to combat music market ‘maestro’ Apple Computer with ‘Walkman Beans’ – August 18, 2005
Apple’s iPod has blood on its Click Wheel: Virgin Electronics is dead – March 08, 2005

31 Comments

  1. Great analysis. I have to say that Apple’s dominance in this market is getting scary, may have some negative implications with labels, etc., not playing ball with them. Thank goodness that they are not an inherently evil corporation like those to the North.

  2. The biggest problem Amazon faces is technical. How would they service these devices? Through the mail?

    You just have to walk into an Apple store to see the amount of service required for iPods. Much of it the customers fault and issues relating to Windows.

    Still, with no service desk, they will have to set up a overnight mail in service or an actual center. I can’t see either being viable for Amazon.

    Then subscriptions have also shown to not really work either so I don’t know what they are thinking there.

    Apple has got the market because they made a better widget and they have the infrastructure to make it work that the others lack. The retail stores are part of the iPods success.

    Can you imagine having an iPod and needing service and the only thing you could do was to mail it in to Apple? Would you imagine Millions of people having the patience for that?

  3. The MDN Take with a few changes,

    XP DailyNews Take: Even if Apple launched OSX 10.5 today, it’s just way too late. Microsoft simply holds too strong a position. Various operating systems have uniformly failed to do anything negative to Microsoft Windows. Even a free OSX from Apple doesn’t sound as hot as it might have years ago. At best, this is a play by Apple to compete for Micorsoft’s leftovers.

    No OS has “scratched” Micfosoft’s Windows dominance to date; an Apple Intel computer won’t succeed where IBM, Be, Linux, Sun, Commodore, Amiga, and many others have failed miserably. And Microst’s certainly not sitting still with hot new Vista models debuting in the fall.

    Microsoft just has too many weapons with which to combat threats to Windows…..

  4. MDN Take: “If Apple pulled iPod from them, Amazon would immediately not be selling an estimated 10% of digital music players in the US”

    Or, to look at it another way, if Apple pulled the iPod from Amazon, it would immediately be selling an estimated 10% fewer digital music players in the US.

    Let’s not forget that not only is Amazon not US only, but it also provides Apple with a broad distribution network in countries where iPods aren’t always widely available at retail or where people are simply comfortable shopping at Amazon. I don’t think the iPod is in enough people’s hands yet for this to be an option at this point in time.

    I also don’t think pre-loading Amazon players is viable. It would be a logistical nightmare and push costs up. More likely is that Amazon would recommend music when you plug your player in if you’re not sure where to start.

  5. You know the one-click feature in iTMS and the Apple Online Store? Guess who owns it? Amazon. In fact, Apple is the only retailer other than Amazon to use the system, which has proven to be largely secure from the kind of stuff that happens with Pay-Pal, etc.

    Steve Jobs and Jeff Bezos are friends and have been friendly in business for a long time. Apple and Amazon both know that companies can compete in one market and cooperate as well. What will be interesting is what file formats and DRM systems will be used and what platforms supported.

    I welcome Amazon to the party. They are an Apple friendly company that provides a good product and service. I am sure that they have not taken entry into the field lightly. As long as it’s not Windows only WMA/WMV, I have no problem. They wouldn’t want to be ‘Played for Sure’ like Rob ‘Krispy Kreme’ over at UnReal Networks.

  6. Reality: The MDN Take with a few changes,

    XP DailyNews Take: Even if Apple launched OSX 10.5 today, it’s just way too late. Microsoft simply holds too strong a position. Various operating systems have uniformly failed to do anything negative to Microsoft Windows. Even a free OSX from Apple doesn’t sound as hot as it might have years ago. At best, this is a play by Apple to compete for Micorsoft’s leftovers.

    No OS has “scratched” Micfosoft’s Windows dominance to date; an Apple Intel computer won’t succeed where IBM, Be, Linux, Sun, Commodore, Amiga, and many others have failed miserably. And Microst’s certainly not sitting still with hot new Vista models debuting in the fall.

    Microsoft just has too many weapons with which to combat threats to Windows…..

    Actual Reality:

    How about answering the topic at hand?

    Microsoft will always dominate the OS market for the foreseable future. It doesn’t mean that it’s OS is anything great. Even Gates more or less admited that. It’s just that he got to a dominant position and market share that it would make any assault tough. In most cases impossible only by the sheer numbers involved.

    It still does not make it a better product by no means. How can Vista be any better when even before it has been released it has viruses for it already? And OS X is still virus free? It’s not market share, there are many who are even offering money to see if somebody can come up with one. Not to mention the bragging rights. It’s not to say it can’t or won’t happen but the reality is and has been that Windows is inherently flawed.
    Microsoft does not have to make a better product given their dominance and it keeps many IT guys happy and employed.

    For example: why do automakers paint BUMPERS on cars? To make the car work better? To look nice? Please, it’s so any scratch or ding essentially makes the bumper into a repair. It keeps the parts dealers and repair shops happy.

    Now Microsoft is turning there inability to make a better OS into a profit center by offering virus protection. This is the same way the mob works. Nice OS, shame if anything happened to it….

  7. Any new competitor to the iPod, or iTMS will be using MSFT’s WMA software. That immediately puts the new competitor in competition with a dozen other vendors for less than 20% of the market.

    There isn’t enough room there for any of the WMA devices to gain enough traction to fight iPod.

    Someone first has to grab a 10% share just to get any attention from the consumer. Even after accompishing that fete, in a horribly fragmented market, they are going up against a juggernaut that is 8X their size with a fully integrated offering.

    Two years ago I would have been concerned about Amazon entering the fray. Today I see news like this as an attempt to negotiate something more favorable from Apple.

  8. Nowhere does the phrase “iPod Killer” appear anywhere in the article!
    I’m impressed!!! Is this a first? I thought I clicked on the wrong story.

    Can you only rip Amazon music CD’s? ” width=”19″ height=”19″ alt=”grin” style=”border:0;” />

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