Tuesday, May 29, 2007

Amazon's Music Store vs. iTunes

The Wall Street Journal reported recently on Amazon's entry into online music purchasing for digital players. Apparently, their major innovation is selling DRM-free tunes.

As the article noted, however,

"...it is unclear whether typical consumers even think about the kind of problems the Amazon service is trying to address. That's because Apple's tightly integrated iTunes Store and iPod so thoroughly dominate their respective markets that most people may not even be aware that there are restrictions on what they can do with their downloads."

If I recall correctly, Steve Jobs' recent memo arguing for the cessation of DRM systems cited a surprisingly low percentage of iPod capacity being filled by iTunes Store purchases. Most of the capacity, he contends, is ripped by users from their own collections of CDs, and stored onto an iPod.

If so, this suggests that Amazon is targeting an extremely small 'problem,' indeed. And, by being so late to the game, it's essentially paying up to enter a commoditizing market. There are several other MP3-compatible online music selling or renting services, so premium pricing would not seem to be possible.
This new initiative by Amazon causes me to wonder if this is the best they can do for growth now. Looking at the nearby Yahoo-sourced price chart, it's clear that Amazon has been essentially in neutral for nearly four years. It has outperformed the S&P500 for the period, but largely all in 2003. Since then, it's drifted lower, then slowly picked up again in the last year.
However, it doesn't seem to demonstrate the sort of investor confidence, by driving its price steadily higher, that one associates with a profitably growing, technology- or retail-oriented company. I'm guessing that this new digital music sales effort won't do much to change this picture.

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