Lala.com's Make-or-Break Move

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iPod Potential

On paper, at least, La La offers some advantages over iTunes. Users' music libraries will no longer be shackled to their main Mac or PC. Since Lala.com can be reached from any browser, an iPod owner can synch to get music from any PC.

And La La is addressing two of the labels' top complaints about Apple. First, there's variable pricing. Rather than charge $9.99 for every album as Apple does, each album on La La has a different price. In fact, the prices don't just differ for each album, but for each consumer; the more you buy, the better price you'll get. Also, La La's heritage is as a social-networking site that specialized in letting people swap CDs for $1. Similarly, users of the new service can see other members' playlists and receive recommendations.

Apple is a big enemy to pick a fight with, but so far there's no indication the iPod maker plans to take any legal action. That could be because La La could potentially make the iPod even more useful for its customers, even if they don't buy music from iTunes—which brings in tiny profits compared with the iPod gold mine anyway.

Karma Points

And music industry analysts say the La La approach could theoretically help the labels regain some leverage against Apple, which they charge has commoditized their content while hooking consumers on its iconic hardware products. "It sucks when you win and your partners lose," says Nguyen of the labels' relationship with Apple. But with La La, "there's this whole kind of crazy goodwill thing that's been happening."

Nguyen believes tone matters if the music business is to get back on track. Rather than focus on problems like piracy and copyright protection, he says, the industry needs to face up to bigger mistakes. For starters, the commoditization of radio means the industry's most powerful promotional device is no longer introducing fans to new music. And the disappearance of the local record shop or music retailers like Tower Records means there's no place for such fans to shop on their own. What self-respecting music fan wants to hang out scouring the aisles at the local Wal-Mart (WMT)?

Still, Nguyen seems more likely to pile up karma points than profits. He says La La will need to generate revenue of $200 million in 2009 just to break even. That's no big deal for him personally. He says his net worth is north of $100 million. He credits the apparent nonchalance to his upbringing in Texas, where his family moved inopportunely just before the oil patch went bust.

That calm was on full display the day before the site's launch. "Everyone was so nervous," he says, doing an interview from the impromptu loft he and some colleagues built in their offices. Not even frequent outages on the site during that first day caused him much concern. "I like putting it all on the line."

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.