Its good to see Apple looking to innovate while it has such a dominant position. the streaming music market growth is accelerating and there are many signs that this will be a dominant market form. I am a firm believer that the record labels are sitting on a goldmine here and that payment for access to unlimited music will take off in a big way, especially as network operators (ISPs) will start offering access to their subscribers as a value add (e.g. last.fm and xbox).
Apple has agreed to purchase the innovative, streaming music service LaLa, according to multiple reports (updated). LaLa fills a big hole in Apple’s digital music strategy and could bring streaming down music from the cloud into iTunes-ready devices everywhere.
Integrating Lala’s ad-free music service — which stores music collections online and sells streaming songs at a deep discount — would mark the first major step forward for iTunes since its music download store launched in 2003.
Lala recently announced a deal to play free songs on Google, but Apple is reportedly particularly interested in the engineers who built Lala’s “payment and fulfillment system[, which] could save Apple millions of dollars a year,” according to a CNET source. Lala sells music fans pre-paid chunks of music credits, rather than individual songs — an approach could help iTunes cut down on its credit card transaction costs and sell songs as streams and as downloads.
This Lala acquisition could also help iTunes increase its revenue-per-user. Steve Jobs admitted in 2007 that the average iTunes user had only bought an average of 22 songs. By contrast, Lala CEO Bill Nguyen told us in October that its paying customers spend an average of $67 on Lala music, which is available both as 10-cent streams and normally-priced downloads (buying a stream is a down payment on the download).
LaLa also has technology that copies users’ iTunes music collections into the cloud servers, so that users can play back the songs on internet-connected devices. This feature would ease an Apple transition from locally-stored to cloud-based music.
That’s attractive to Apple because the iPhone and iPod Touch use flash memory, which is limited in its capacity compared to the hard drives in earlier iPods. In addition, that scarce memory gets shared with video, photos, apps and data associated with apps, whereas the hard drives in iPods were used mostly or even exclusively for music.
And as a bonus, Lala can play the last few hundred songs from a cache when there’s no internet connection which lets it play cloud-based music in subways, highways and remote locations.
This wouldn’t be the first music start-up Apple has purchased. In 2000, it bought a music player application called SoundJam MP. It formed the core of the first version of iTunes, and its developers helped build subsequent versions of that software. Nor would it be the first time Nguyen has sold a company. In 1999, he sold his first company, OneBox, to Phone.com for $800 million — one reason he was able to experiment so much with Lala’s business model before arriving at its current iteration.
If this deal goes through, the next version of iTunes could introduce more music fans to the idea of buying cheap music streamed from the cloud and listening to a huge catalog on a device with limited memory.
Investors in Lala include Bain Capital, Ignition Partners and Warner Music Group.