Bloomberg News

Google Music Store Chases Apple’s ITunes 8 Years Too Late: Tech

November 16, 2011

Nov. 16 (Bloomberg) -- Google Inc. is entering the online music market almost a decade too late to pose a threat to Apple Inc., the largest seller of songs on the Web.

The service, scheduled to be unveiled at a Google event in Los Angeles today, will let users store songs online and listen to tracks on multiple devices, people familiar with the matter said. Apple opened the iTunes store in 2003 and made popular the legal downloading of music from the Internet.

Google’s new challenge to Apple escalates the rivalry between the two companies, already locked in a fight for smartphone users and mobile-advertising customers. The Internet- search giant also faces budding competition from Amazon.com Inc., which has bolstered its music-download and storage service, and Spotify Ltd., whose partnership with Facebook Inc. has buoyed U.S. membership this year.

“They’re coming into this market rather late in the game, where there are large, established players,” said Ray Valdes, an analyst at Gartner Inc. in San Jose, California. “You can say it’s a saturated market.”

Google, the owner of the biggest Internet search engine, has expanded into music, television and movies to bolster sales of devices running its Android mobile software. The company, based in Mountain View, California, is also seeking rights for its Google+ social-network users to share music with each other, people familiar said.

Randall Sarafa, a spokesman for Google, declined to comment.

Sony, Vivendi, EMI

On the eve of the debut, Google reached an agreement with Sony Corp.’s music unit, a person with knowledge of the situation said yesterday. Vivendi SA’s Universal Music Group and EMI Group Ltd. have already signed on, said two people with knowledge of the plans, who weren’t authorized to speak publicly. Songs will cost 99 cents to $1.29, though Google may offer discounts, said one person.

Warner Music Group hadn’t yet reached an accord with Google because of pricing and piracy concerns, two people familiar with the matter said earlier this week.

Apple first unveiled its iPod music player in 2001, and in 2003 started the iTunes music store, offering songs for 99 cents apiece. The company, which makes its own hardware and the software that runs it, has benefited in the past decade as consumers shifted from CDs to online music services. Apple’s iTunes service works on its own devices, such as the iPod, iPhone and iPad tablet, as well as personal computers from other manufacturers.

Android Versus IPhone

Google fights back in the smartphone market by letting multiple phonemakers customize the Android system. T-Mobile USA Inc. introduced the first phone powered by Android software, made by HTC Corp., in October 2008, more than a year after Apple’s iPhone debuted.

Android garnered 53 percent of the global smartphone industry in the third quarter, making it No. 1, according to Gartner. Apple’s iPhone software had 15 percent.

Still, Google may have a harder time narrowing Apple’s music lead, given the longer head start and how established iTunes has become. ITunes customers have downloaded 16 billion songs, and the store had $1.5 billion in revenue in Apple’s most recent quarter.

“They have to overcome the No. 1 incumbent in this area,” said Mark Little, an analyst at research firm Ovum in London. “That’s not an easy company to grab share from.”

Amazon, Spotify

Amazon.com, the world’s largest online retailer, offers MP3 song downloads from the major labels with a service that began with a public test in 2007. Amazon also unveiled a storage service for users earlier this year.

Music provider Spotify, helped by its partnership with leading social-networking service Facebook, is emerging as another online-music alternative. Since its start in the U.S. in July, Spotify has grown to about 2 million subscribers who pay $5 to $10 per month for a premium service, according to Ken Parks, chief content officer for the London-based company.

Another startup, Rdio Inc., will offer free song streaming without advertising. Users of the free service are granted a limited amount of music each month and access is available only for listening on computers, San Francisco-based Rdio said last month.

The new online store won’t be Google’s first effort in music. Earlier this year, the company rolled out a service that stores song libraries and playlists, and suggests music based on listeners’ collections. That offering lacked the ability to purchase songs directly from Google after some labels stymied the effort, Jamie Rosenberg, director of digital content for Android, said at a conference in May.

Web Reach

Even if it takes a while for Google to secure an agreement with Warner, whose artists include Green Day and Madonna, the company’s reach on the Web may help it succeed. Google’s network of websites had the most visitors worldwide in September with 1.1 billion, according to ComScore Inc. Microsoft Corp. sites had 914 million, and Facebook was No. 3 with 770 million.

“I doubt they’ll meet with immediate success,” Valdes said. “If they fail, it will take a while for that to become evident because they have enough presence to make at least slow progress for some time.”

--Editors: Jillian Ward, Tom Giles

-0- Nov/16/2011 16:26 GMT

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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