Amazon’s digital download service unlikely to make much headway against Apple’s iTunes Store

“Last week, various news outlets picked up the story that the world’s top online retailer,, is planning its own digital download service to complement its CD sales. Details are sketchy, but music industry executives believe that the Amazon service will be based on Microsoft Windows Media Player (WMP) technology and that it may offer some new twists, such as an Amazon-branded digital player provided free to monthly music subscribers,” Carl Howe of Blackfriars Communications writes for The Conumer Electronincs Stock Blog. “The reaction was predictable: Watch out Apple, a new Internet-savvy competitor is about to join the party and capture a chunk of the growing digital download business.”

“But is all the hype about an Amazon product justified? Many other major brands have taken on Apple and are failing. For example, Wal-Mart, the largest and most important physical distributor of CDs in the US market, has offered digital downloads for years and has had almost no impact on the market. Napster, the brand that launched the digital download revolution (the illegal, file sharing revolution), is also struggling to make a profit. Massive, global brands like McDonald’s have offered free downloads that relied on Microsoft music solutions, and they have all been complete and utter flops,” Howe writes. “Let’s examine the three pieces of the digital download puzzle that make Amazon unlikely to make much headway, even with its consumer-friendly brand.”

Full article here.

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Related articles:
Apple’s iTunes+iPod market dominance underscored with more than 1 billion songs sold – February 24, 2006
Apple’s iTunes Music Store hits one billion songs sold milestone – February 23, 2006
Amazon’s music ambitions pose no threat to Apple’s market-dominating iPod+iTunes – February 18, 2006
Amazon preps Amazon-branded music players, digital music service to rival Apple iPod+iTunes Store – February 16, 2006


  1. I have no basis for this theory, but hey ill throw it out there anyway.

    If Amazon is deciding to give away music players with the subscription, why not choose a proprietary codec like Apple has (well I know it not strictly prop, but Fairplay is) rather than going with WMA. Say Ogg with a layer of DRM.

    That way, they could sell (as in charge the users for) better players of high quality (ie have a hope of competing with the iPod) and hang on to their users like Apple has, meerly luring them in with the freeby. If they distribute a WMA device there will be no brand loyalty and people will be able to use their players on any other service when the subscription period is up.

    Tim Coughlin

  2. Tim, that’s because Amazon will not spend $ on developing their own DRM that can satisfy the RIAA. If they do that, it would take a long time and substantial amount of $. On top of the “free” players, they’d lose $ on each subscription. This is a circular arguement and another reason why Amazon will fail.

  3. I agree it would take some serious cash to do this. But it is Amazon, they have deep pockets. I was thinking that they may be looking at the big picture with an endgame in mind.

    They have seen all other rivals fail to compete, so maybe this is a way in for them long term.

    My other concern is they will negociate a deal with the record labels that they can distribute the music downloads with the purchase of each physical CD for free, or a nominal fee. This is something Apple can’t compete with.

    In this way Amazon would gain because many people would like to own the CD for cars, lossless encoding etc, plus they (I imagine) would be making far more on the sales than Apple, helping pay for the subsidised players. The labels would perceive a gain as people invariably would use the DRM downloads rather than rip the CD itself (with no eventual DRM). It wouldn’t cost them anything to do it either, as Amazon would carry the distribution costs.

    Tim Coughlin

  4. I don’t understand this notion of Amazon selling the players at a steep discount for people who subscribe to their service.

    The dollars aren’t there. You can’t compare it to satellite or telephone service. Satellite TV and Cellular providers can give you the telephone or the box for free because they will charge you $40 or more per month on service. Over 24 months they will rake in about $1,000. This can subsidize the cost of the hardware.

    With internet music stores. The per month charge won’t be any higher than $10 or $15 a month and the bulk of that will go to the record Label.
    I don’t see where Amazon can afford to discount the players and still turn a profit. At least I don’t see them offering a steep discount.

  5. The logic that selling the physical CD along with downloadable version is a superior strategy is flawed. If someone wants the physical CD, they would get just the CD. If they want it in file form, they would buy it in file form. If they want both, just buy the CD and rip the darn thing yourself into whatever format you choose (DRM-free). There’s not enough enticement for anyone to buy the CD *AND* spend $ on DRMed files. It simply makes no sense to the consumer. As to the record labels, it costs them nothing to put the music on iTunes either. So there.

  6. Brian, don’t forget that with cell phone service, there’s always the chance that you go over your alotted usage and rack up a much higher bill. For subscription music, that doesn’t happen. That’s why the only way for outfits like Napster and Rhapsody to make $ is to keep adding subscribers (suckers). Their revenue is a lot more linear than the cell providers, which is more exponential.

  7. Simple. Get Apple to build their DRM’ed Subscription service software and make their subscription iPod for them.

    Apple sells the hardware to Amazon. Amazon gives the suscriptionPods away for a one year subscription contract and everybody wins, as long as a subscription service will actually work. I still want to own my music.

  8. Let’s do some 1st grade math (with a couple of assumptions):
    1. Amazon can generate a user base of 30 million users in a year (inconceivable).
    2. The device they are giving for free will cost approx $250.00 US.
    3. Subscription service for $15.00 per month ($180/yr).

    I know that this is an oversimplified assumption. So, here it goes:
    $250 X 30 Million = $7.5 billion in potential losses.
    $180 X 30 Million = $4.5 billion

    This leaves Amazon with $3 billion is losses. Then you have to factor in the cuts for the record industry and everybody else.

    Why would Amazon continue to incur billions in debt hoping that it will be number 1. And the operative word here is “hoping”…just like the other wannabes…hoping.

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