Monday, December 7, 2009

The Real Reason Why Apple Bought LaLa

By know everyone has heard that Apple has bought the semi-subscription service LaLa and there's a lot of industry speculation as to why. I'd like to give you my personal speculation, but first some background.

Everyone, and I mean EVERYONE, who knows anything about the digital music business has predicted for some time that digital downloads would give way to subscription at some point. The reason? Why pay $10 to download and own 10 songs when for the same amount (approximately) you can stream millions of songs any time and anywhere you want. While subscription service Rhapsody has set everyone up for subscriptions and Spotify threatens to gradually put it over the top (whenever it finally reaches the US), it's pretty much a given that the digital music world would change to subscription overnight if Apple suddenly offered it.

Although it seems that subscription isn't exactly in Apple's best interest since it takes in a lot of dough by selling downloads, iTune's profit margins are razor thin and the downloads from the store primarily act to promote sales of Apple's hardware. Would that profit margin be any better with subscription? Would it serve the same purpose promote iPods?

That's what makes LaLa such an interesting purchase. LaLa isn't exactly a subscription service and it's not exactly a download service - it's a hybrid. First of all, it's streaming from the "cloud" (that's a network that stores all the content online - see the picture at left), not a download, but it's the pricing that's interesting. The customer can listen to any song for free once, but has to purchase the right to listen to it again for 10 cents. You have the right to listen to that song forever and ever thereafter.

So for Apple, it's the best of both worlds. It's in the streaming business, it's still gets individual purchases (although at a reduced rate), and it'll have the infrastructure and brainpower to implement a true subscription service at a later date if needed. Sounds like a win to me.

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