Omnifone Offers Operators a New Tune

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"MusicStation Max represents the next generation in music mobiles, where unlimited music comes out of the box, with the handset," said Rob Wells, senior vice-president for digital at Universal Music International, in a statement. "It provides a groundbreaking way for Universal Music to monetize its entire music catalogue on mobile."

Omnifone's MusicStation Max is the latest entrant into what amounts to a gold rush for the mobile platform as legitimate digital music sales on PCs remain relatively modest—failing to counter declining CD sales. Apple and Nokia are seeking to blur the boundaries between mobile and PC digital music with platform-agnostic services that compete directly with existing operator offerings. But "Omnifone's service reinforces the distinction," between pure mobile-oriented music services and blended models, says Mark Mulligan, an analyst at consultancy Jupiter Research.

Indeed, Omnifone is hoping to position itself as a far more operator-friendly alternative to Nokia's service (which is part of a broader consumer strategy called Ovi). Omnifone stresses over-the-air delivery, rather than direct-to-PC, as a differentiator to operators. "There is clearly a demand for an operator-centric approach," says Rob Lewis, Omnifone's chief executive.

A Balancing Act with Nokia

But Nokia has already convinced three large operators—Telefónica (TEF), Vodafone (VOD), and Telecom Italia (TI)—to be Ovi partners. And Omnifone's mere presence in the marketplace could persuade Nokia to enter into even more inclusive relationships with operators, says Jupiter's Mulligan. That's a risk, because Omnifone also counts Nokia—which has agreed to bundle the startup's software on its N95 phone—among its customers. If Omnifone's strategy alienates the Finns, the company could find itself sidelined in future models from Nokia, which commands 40% of global market share in handsets.

Jupiter's Mulligan says he sees the entry of MusicStation Max and Comes With Music as positive, with the long-term potential to drive mainstream adoption beyond paid digital music's current niche: Just 6% of European Internet users now buy online, and only 12% listen to music on their mobile phones.

In the near term, though, analysts warn that things will get messy for consumers. Handsets could offer seven or more different ways to get music, which could confuse and potentially turn off mobile users.

Schenker is a BusinessWeek correspondent in Paris.