Apple in Lala land

08 Dec 2009

Apple appears prepared to take its iTunes model further into the cloud.

According to various reports, a start-up company that counts Warner Music among its backers. It started as a used CD swapping service in 2006 and has since moved into the music streaming business.

So far so Spotify, but Lala’s value-add is the ability to scan the user’s hard drive and duplicate it in the cloud, making it accessible from any device. Lala also has a deal with Facebook that lets users send each other web-based songs for ten cents a pop.

And its next trick – and undoubtedly the one that caught Apple’s eye – is a new iPhone app that enables users to stream playlists on an unlimited basis for ten cents per track.

Apple has already acknowledged the potential value of a streaming business model as a complement rather than a threat to iTunes by approving a Spotify app for its App Store (this from a company notorious for rejecting apps that compete with iTunes and other Apple mainstays).

Also, cloud-based music services offer sexy advantages for the mobile space – namely a way to sell music services that don’t rely on fat pipes, handsets with massive storage space and consumer-hostile DRM, which in turn means a much wider potential audience beyond the high-end smartphone segment, which is why a number of cellcos in Asia offer streamed music already.

On the downside, streaming music’s chief downsides are inferior sound quality and a music fanbase that, for the most part, puts great value on (relatively) tangible ownership of music they pay for.

Of course, just what Apple intends to do with Lala is unknown. As Rethink Wireless analyst Caroline Gabriel notes, “Presumably Apple thinks it would be better to control such an app than let it take on the iTunes model alone or, worse, with unfriendly partners.”

Apple typically is only interested in content services like iTunes and App Store inasmuch as they help it sell devices.

On the other hand, Apple has been looking for ways to up its iTunes ARPU, and Lala CEO Bill Nguyen told Wired’s Epicenter blog recently that “its paying customers spend an average of $67 on Lala music”.

Lala could offer value in other ways, Epicenter notes: Lala sells pre-paid blocks of music credits, rather than individual songs, which could help iTunes save a bundle on credit card transaction costs.

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