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Yahoo! Music Unlimited launched; should Apple worry?

Yahoo launched its music subscription service yesterday, Yahoo! Music Unlimited. Napster and Rhapsody, the other online music subscription services, should definitely be worried. But should Apple?

Yahoo enters the market well-equipped to become the leader in subscription-based music. They have a well established, respected brand — if you’re worried that Napster and Rhapsody may be here today gone tomorrow, resulting in you losing all your music, that certainly isn’t a concern with Yahoo. Yahoo’s service is also cheaper — $7/month ($5 is paid yearly) vs. $15/month. And Yahoo already has a giant user base (I use them for Fantasy Sports and for their stock market services; pretty much everyone I know uses Yahoo for something); if they convince just a small fraction of those users to give their service a shot, they’ll have a lot of users. They’re already throwing out incentives — right now, the first 7 days are free to give the service a shot. And if you’ve used Launchcast, Yahoo has your music tastes already handy and can recommend more music for you.

I expect Yahoo to become the market leader in the subscription arena. But can the subscription arena, in the long run, overtake iTunes and Apple? Or at the very least, cause Apple to rethink its business model?

Subscription-based services certainly have their advantages. You can listen to an unlimited amount of music — and not 30-second snippets like on iTunes, but the entire song. Like the song a lot? You can buy a copy that’s burnable to CD for $0.79 on Yahoo (or $0.99 on Rhapsody and iTunes).

The biggest problem facing Yahoo is that Apple dominates the market on mp3 players — both Flash and hard drive based. And guess what? Their service isn’t compatible with iPods. Can Yahoo make a profitable service while not being able to reach a majority of the portable player market?

Of course, Apple would have it no other way. They’re probably chuckling at Apple headquarters, giggling at Yahoo as they try to do battle on Apple’s turf armed with a pointy stick. But rumors are floating that eventually, portable players will become a commodity and the music service is where the money will have to be made. There are already dozens of portable music players that aren’t Apple — and while none are nearly as popular as the iPod, together, they can eventually start to make a pretty big dent by forcing lower price points and adding feature competition. Many music players are already seen as “superior” to the iPod — hard drive players such as Creative’s Zen Micro that come shipped with FM tuners and voice recorders and Flash-based players that are crazy enough to include a screen.

I think Apple’s market share has hit its apex. Moving forward, the increased competition will slowly eat at Apple’s market share. And if you have a Creative Labs mp3 player, you’re not tied into iTunes like iPod owners are. More and more users will be allowed to make a choice, and as more users make a choice, more will choose subscription based services.

I’d like to see Apple adopt a subscription service will continuing to allow music purchasing. I’d like to be able to listen to a lot of music, and just keep my favorites to burn to CD or to use if I cancel my subscription. The fact that subscription music can’t be used if you cancel your subscription gives me the hebee-jeebies — there are things I just want to be able to keep.

Which is why, in the end, I still buy CDs. I understand the nature behind digital rights management and their required usage by the record companies — but I want to be able to do whatever I want with music I’ve bought. Is it totally legal to take a CD and have a copy of it on my computer and on my iPod? Probably not, but I believe it should be (incidentally, there are reasons I’m not a lawyer… we just stumbled on one. I have no idea exactly what the laws are). CDs allow me to have more flexibility with where I listen to my music.

In the end, a lot of users might think similarly. Whichever service is the most flexible stands a good chance of being the most popular. Unfortunately, flexibility is what the record labels hate. So the music providers become caught in the middle of an intense tug-o-war.

I still believe iTunes is positioned the best for long-term success — but it can’t remain stagnant. It has to keep improving and being cutting edge. If not, Apple risks losing its market dominance both in music delivery and in portable players. And Yahoo and dozens of device makers are waiting for it to happen.

Wed May 11th, 2005 3:04 pm

Filed under Gadgets, Music, Web