Today Apple announced DRM-free music on iTunes.

It’s curious to note where this leaves Spotify, a company that I believe is positioned to become a serious iTunes competitor at least in certain geographical areas.

What does going drm-free tell us about Apple’s future direction for iTunes? It shows that Apple is pushing hard to break the locks that are keeping it from exploiting the full value of iTunes’ impressive catalog. If this spirit continues, it’s not unthinkable that a little way down the road iTunes will look a lot like Spotify.

Spotify makes an iTunes-like music app that differs from iTunes in that the music is freely accessible for listening, but the user can’t (as of today) download copies of tracks to their hard drive.

Spotify CEO Daniel Ek has explained his strategy is to simply provide access to music. He sees Spotify as the supplier of social objects for other social networks.

“We think music data is social objects, and we focus on building tools around them. We don’t necessarily want to be a social network ourselves. That’s also a hint on the future,”

he wrote in a thread on Jaiku earlier today.

iTunes’ per-item sales and Spotify’s freemium subscriptions may seem like competing business models.

However, the two are not mutually exclusive. Spotify could start to offer downloads, essentially turning into iTunes.

Similarly, Apple is not going to abandon sales of music tracks in favor of subscriptions to a streaming service. But it could easily add a free, ad-supported streaming mode (and an ad-free subscription mode) to help drive its per-item sales — essentially turning into Spotify.

If iTunes were to offer free access, where would that leave Spotify? Remember, iTunes killed another promising startup Odeo by becoming a podcasting platform…

Spotify’s success against iTunes is determined by how well it can exploit the fact that as both an online distributor and device manufacturer Apple wears two hats. As a result, the iTunes store is not available on non-Apple portable players (save for the Motorola rokr failure).

The interests of Apple the device manufacturer and Apple the online distributor are fundamentally in conflict. It’s in the iPod unit’s interest to keep iTunes proprietary to the iPod; whereas the iTunes music store would increase its sales significantly if it shipped on third-party devices like Nokia phones the way it does on the iPhone today.

In the end this is a business equation to Apple. As long as Apple makes more money selling iPods, iTunes is likely to stay proprietary. But if the iTunes store were to outgrow the iPod business into the company’s de facto cash cow, or the iPod started to lose market share, Apple could ditch the iPod and integrate iTunes with other portables.

It’s in Spotify’s interest, therefore, that the iPod does well but not too well. Apple has to be compelled to keep iTunes proprietary, but worldwide sales of music players has to be made up of a significant percentage of other manufacturers who want iTunes but are left to look for other options.

As long as iTunes remains locked into the iPod, Spotify has a shot at becoming the de facto music distribution platform for the rest of the world. Of course it’ll face tough competition from other proprietary and open initiatives.

Comments

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Carl Byström
January 7th, 2009 at 2:38 pm (#)

In absence of a Jaiku account, I’ll post my 2 cents of worth here.
Spotify really needs to start exploiting their position as a MaaS (Music as a Service). As Mr Ek says himself, they provide the “social objects” for other people and services to use. Absolutely great freaking idea! MaaS is here to stay. It will be the way to consume music (on stationary devices, for now). Other providers will follow, believe me!
Even though they’re the underdog, competing with big players such as Last.fm and iTunes. I haven’t seen anything yet that can exploit the fact they’re offering “social objects” (Spotify URIs aside). Last.fm is a closed music community that are keeping their music and members for themselves, and probably for good reasons. The same goes for iTunes. Apple actually _hates_ openness. Until today, everything was DRM protected and integrating with them isn’t easy and some extent, quite pointless.
I know you are working hard on integrating with the rest of the internet. But please, please Spotify, I beg you, release your APIs now. I’d love to see third party sites exploiting what the web is all about – integration! Give me that XMPP feed, open up your desktop client, let me modify my playlists through REST and allow me to use the browser to search your database.
It’s the integration that _will_ make or break Spotify. Their approach is different from all other major players. Guess iPhone support is included in this too :)

Jyri Engestrom
January 7th, 2009 at 2:41 pm (#)

Carl, you just earned yourself a Jaiku invite.

Brynn Evans
January 7th, 2009 at 11:32 pm (#)

Can’t the same argument be made for Songbird if they’re able to nail a few content deals? There are lots of non-Apple media devices that need access to content and to decent players… clearly Spotify has something of an advantage with the model that you never “own” music — but the requirement of both a connection, and a European address — is something of a buzzkill…

Carl Byström
January 8th, 2009 at 11:28 am (#)

Sure, that certainly is one approach Spotify could take, providing downloads instead of a service. But their only threat right now is Last.fm. Even that service isn’t available in all countries (Sweden is one of them). They are to some extent suffering from the same problems as Spotify.
Unless Apple launches a similar service to Spotify, I think they have a card that, if played right, can turn them into winners.
Record companies seem to be jumping ship from the old plastic sales and perhaps they are finally opening their eyes for alternative sources of income, i.e Spotify-alikes. Even if Spotify wouldn’t become the sole suppliers of a service like this they certainly have the opportunity of becoming the biggest. Just as pioneers in new lines of business do (think Flickr).
Being first out often allows one to set the stage too. People at Spotify aren’t morons and birds have whispered in my ear that new ways of integrating with the service are coming.
I need this concept to succeed! I’m tired of managing my old MP3 collection like it was 1997 :)
MaaS FTW!

Fredrik Olsson
January 8th, 2009 at 1:48 pm (#)

With iTunes dropping DRM the argument of iPod lockin become void.
Sure enough automatic sync only works with iPod, but the files are on disk in standard mpeg4 audio. So any user who already manually copies files to his device have support. Likewice any other player with it’s own sync software could just as easy copy the files from itunes’s music folder.
Therefor I argue that only the failure of iTunes can be beneficial for spotify in the term of the next years. Best option would probably be to provide spotify access in iTunes as a plug-in, Apple has bought promising techs before. Not web iTunes itself was started by Apple.

Lasse Enersen
January 25th, 2009 at 2:57 am (#)

Spotify = User doesn’t want to own the music
iTunes = User wants to own the music
I think that these are two widely different markets. Two different sorts of people. Two different Whole Product Universes. How could a radio station compete with a record store (that makes portable players), or vice versa. Sure, they have an effect on others markets, but I think that it doesn’t overlap as much that is usually thought.

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