Yahoo Adds Online Music Service

By Richard Menta 5/11/05

As Apple's iTunes store continues to chug along it is no surprise that more major web providers are jumping into the mix with their own services. It isn't so much that after two years iTunes is about to hit the $400 million sale mark. It is the fact that with the iTunes expansion overseas pundits expect the service to hit the $1 billion mark by the end of this year, nearly trippling the $350+ million sold to date in just several months.

It is hard to ignore that growth, especially if your firm is publically traded.

Richard Menta

Apple, of course, dominates this market as competitors struggle so this isn't a cakewalk. Still, this does not mean that Apple is not vulnerable over the long run and that means there is money to be made.

Today, Yahoo will launch a beta of its new music service. Choosing to focus onNapster's all-you-can rent subscription model rather than Apple's pay-per-song-and-own-it model, the new service has priced itself aggressively - at least initially.

Yahoo's music service will cost users $4.99 per month. Compared to Napster's $14.95 a month fee and Rhapsody's $9.99 a month fee this should prove particularly appealing to existing users of those services. The reason is because once users stop making payments, for any reason, the music purchased from Napster and Rhapsody disappear. It makes sense for users to switch to a lower carrier anytime they can save money.

"We're not saying it's this price forever" Yahoo Music General Manager David Goldberg told Reuters."But we're assuming it's the price throughout the Beta (trial) period, which is an undetermined amount of time,"

Like Napster, Yahoo has adopted Microsoft's Janus technology that allows music rented from the service to be transferred to select portable music devices. Only a handful of newer players support Janus right now and early reports show it is a buggy technology, though that should improve over time. The iTunes/iPod shopping combination already works very well and this has helped Apple continue its dominance over the competition. Apple also uses a different codec so users who switch from iTunes will have to repurchase songs if they wish them to play on a non-Apple portable.

This is why Yahoo's strategy to tap into a growing market isn't initially going head-to-head Apple, at least not yet (users can also purchase tracks at $0.79 per, $0.20 less than iTunes). Yahoo is first targeting the more vulnerable non-iTunes share of the market that Napster and Real presently hold. This is why both of those companies took significant hits on Wall Street yesterday. Real lost 12% of its valuation and Napster a whopping 20%.

Personally, I like the fact that prices are going down, not up as the record industry would like. The only question is will Yahoo's service be any good? That is the first requirement for success.


The iPod Shuffle is available on Amazon

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