Omnifone's Musical Challenge to iPhone

Its subscription tunes service, MusicStation, debuts abroad well before Apple's phone. Nokia handsets will carry it. Will consumers go for it?

by Jennifer L. Schenker

It is being billed as the mobile industry's answer to Apple's (AAPL) iTunes and iPhone: An all-you-can-eat, over-the-air, full-track music download service that will work across handsets from most manufacturers.

Offered by London-based startup Omnifone, the new MusicStation service will make its debut in Sweden on June 14 and be rolled out to other markets outside the U.S. in subsequent weeks. That means it will beat Apple's much ballyhooed new phone-and-music-player to market in Europe and Asia by months. Omnifone currently has no plans to enter the U.S.

"We will already be in all of the major European countries and many of the Asia-Pacific territories when iPhone hits the streets," says Rob Lewis, one of three founders of Omnifone, which was formed in 2003 with the aim of bringing digital music to the mass market. The company has $8.5 million in funding, primarily from its founders.

Keeping Good Company

No question, Omnifone has ambitious plans. Apple has set a sales target of 10 million iPhones within the first year, but Omnifone aims to have 100 million handsets around the world loaded with its MusicStation software over the same period. That would seem an outrageous goal except that giants such as Nokia (NOK), Sony Ericsson (SNE, ERIC), and Samsung already have added the software to their handsets and will start shipping preconfigured models in Sweden this week. Motorola (MOT) intends to follow soon after, Lewis says.

Music industry titans also are on board. Omnifone has struck international licensing deals with Sony BMG, EMI, Universal Music Group, and Warner Music Group (WMG), as well as a number of independent labels. And 30 mobile operators in Europe, Africa, and the Asia-Pacific region plan to offer the company's service in the coming weeks and months. First out of the chute is Norway's Telenor, which will launch MusicStation in Sweden and, if it's a hit, later consider rolling it out to the rest of its 80 million customers around the world.

Think of it as the anti-iTunes. Apple already has sold more than $1 billion in digital content from its popular online music store, and its move into handsets with the hotly anticipated iPhone—due in the U.S. this month and in Europe by the end of the year—is sending shivers through the mobile industry. MusicStation, though hardly the first mobile music service, looks to be the strongest contender so far to fight off an incursion by Apple into mobile music. Veteran mobile industry analyst Ben Wood of CCS Insight, a tech consultancy in Britain, calls Omnifone's success at pulling together its panoply of industry partners "a real achievement."

Mobile operators are looking to mobile music to drive growth in use of data services and counteract sagging voice revenues. The business is small today: only about $160 million in 2006 including à la carte downloads and subscriptions, according to Screen Digest, a market research company. But it should grow to $1.7 billion in 2011. (By comparison, Internet music downloads are projected to grow from $1.6 billion this year to more than $5.7 billion in 2011.)