Amazon MP3 #3

I got a viral email about free Christmas MP3s on Amazon this morning. They’re doing a giveaway song every day, cheesy things but free is free so I clicked through to the promotion.

The song didn’t impress me enough to bother downloading, but while I was looking at the page I realized that their recommendation engine had coughed up something that I really was interested in. I clicked through to the recommendation. After ten minutes I had a $40 book in my shopping cart for later and a $8 album download on my hard drive, and not a Christmas song in sight.

Peter Kafka reads the math on the Amazon store to mean that same math means that Amazon grossed all of $39 million from its music store.. This is correct but misleading.

It’s a decent ballpark estimate of how much direct revenue Amazon made on download sales, but that’s not how Amazon makes money on the MP3 business. Its business model is about upselling to transactions big enough to matter. The download business isn’t necessarily a loss leader, but the point is mainly customer acquisition.

Note that this is a very different business for Amazon and Apple than for a pure-play like Rhapsody. Rhapsody makes a living on music sales, while Amazon and Apple do fine as long as the music downloads don’t become a big cash suck.

I doubt very much that the customers are, as Peter says, a handful of dedicated MP3 fans/anti-DRM zealots who are actively shunning Apple. Ideologues will go to eMusic and filesharing networks. These are mainstream users who find Amazon’s offering a compelling product.

Amazon works in a regular browser, while iTunes requires their client software to be able to browse. Amazon can recommend MP3s while you’re shopping for CDs. Amazon has great SEO, while iTunes has zero SEO. Amazon works on Nokia, SanDisk, and Zune players. Etc.

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