A friend used the phrase completely “white” services to describe internet music projects that are pure as the driven snow on a legal level. It’s about being unsuable. I was struck by this wording because it pinned down an idea that needed a name.

I think that both Rhapsody and CC Mixter would fit, while Hype Machine, LimeWire and Girl Talk would be excluded.

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.

Apple’s DRM puts network effects to work against it

Following up on the thread about Amazon’s MP3 sales in its first year of business, Finance Geek concludes that:

  • Few people care about copyright protection, which was supposed to be Amazon’s main selling point.
  • And we think many people — the kind of people who pay for music online, at least — still prefer iTunes’ easy, all-in-one music shopping/playing/iPod management experience, versus buying music on the Web and having it imported into iTunes.

It’s true that users don’t care about DRM, but they very much care about being able to shop around, and DRM locks them into a single vendor for every part of their stack for all time.

Buy a Sandisk MP3 player instead of an iPod and DRM becomes impossible. Prefer Windows Media Player to iTunes and you can’t use the iTunes music store any more. Get an eMusic subscription. Try to get rid of Quicktime on your Windows machine. And on and on. Do any of a million little things and you find yourself outside the town limits of Apple’s Celebration USA.

…with a big stack of DRMd files that have become worthless in an instant. You can’t even sell them used to somebody who’s still in the Apple stack, like you can with MP3s.

Don’t underestimate the power of Amazon’s market share. Every single vendor outside of Apple has a common interest in interoperability with one another. Amazon was able to become the #2 download vendor in large part because the lack of DRM made its downloads interoperable with portable music devices and smart phones aside from Apple’s. Ensuring that there is a user-friendly download store adds value for every other vendor outside of Apple. It makes SanDisk more valuable to users, it adds value to Nokia music phones and Windows Media Player. And vice versa — the more Nokias that get sold, the more important Amazon’s music store is.

Just across the border from Apple’s Celebration USA is not just Amazon, but *everybody*, including all the network effects.

Lack of DRM is not Amazon’s main selling point and never was. Interoperability with every device and bit of software ever is the selling point. And what they have accomplished with this selling point is substantial. 10% of this market is not chump change.

Amazon grew PPD business ~ $82 MM

Amazon’s MP3 store was about 8% of the pay-per-download market in its first year of operation, and only about 10% of that business was taken from the iTunes music store. So Amazon made the PPD business as a whole about 7% bigger.

This info is per Reuters on Yahoo News, which positions the story within the iPod narrative — Amazon as a failed iPod killer.

Amazon’s moved about 130,000,000 tracks. Assuming the labels get the same $.70 price (rule of thumb, anyway) as at the iTunes store, and subtracting 10% for business that moved over from one store to the other, that means Amazon injected $82 million into the record business. About half of that probably went to Universal.

After other costs Amazon’s net was probably pitiful. But, just like Best Buy’s deal with Guns N Roses, the point for Amazon is to get customers into the store and then upsell to more profitable stuff, like electronics. The key to whether or not these numbers are winners from their perspective has absolutely nothing to do with whether they are killing the iPod.

Eyeballing the 8% figure, I see rough parity between non-iTMS downloads and non-Apple portable MP3 players. If you own an iPod you’re buying downloads at the iTunes music store, if you own a Zune you’re buying downloads at Amazon. So what Amazon has accomplished is to get (some) owners of non-Apple devices to enter the PPD market.

chart of market share of music player Music device market share numbers show 20% disparity between Amazon’s store and non-Apple devices. That’s probably upside waiting to be captured by Amazon.

tipping Corey Smith

Check out this bit in the Leftsetz letter about the web strategy of a rock star named Corey Smith:

You can buy the tracks on iTunes. They’ve sold 420,000 so far. When they experimented last summer, and took the free tracks down from Corey’s site, iTunes sales went DOWN! So, they put the free tracks back up.

This tidbit struck me as confirming a recent bit of conversation here about iTunes sales being a tipping behavior. In conversation about the move from album sales to to singles sales, somebody suggested that listeners get their everyday music from filesharing networks and other free sources. What they bother to buy on the iTunes music store are the standouts, songs that are special to them.

Which suggests a tipping kind of behavior where listeners fall in love with songs they downloaded for free, then give back to the artist by buying a copy. Or maybe they don’t see it as “giving back” or “tipping”, maybe they’re just creating a moment of personal connection by sending a cash-o-gram.

Your mileage may vary. But it’s an interesting possibility. If I worked at a label I’d look into studying this behavior to see the magnitude and factors that affect it. Getting a thank-you (autogenerated) email from the musician might have an unexpectedly large impact, for example.

when Google comes for your liver

Cringely thinks that The Google’s motivation to do Chrome is fear that that Microsoft will turn off ads in IE:

Microsoft can do pretty much whatever it wants in this area. There is plenty of browser competition. They can hobble their own product if they like, though it would drive users away from IE — from a product that brings Microsoft no direct revenue anyway — so what’s the risk?

Microsoft turns off the ads in IE and what happens? Google takes a huge revenue hit, is knocked down three pegs in the eyes of Wall Street, while pretty much nothing happens to Microsoft, which would have just shown the world who is still the sheriff.

I am not saying this is going to happen, but I AM saying that it COULD happen — and that very remote possibility is, by itself, enough to make Google have to produce its own browser.

This is a fun premise for a potboiler, but M$ wouldn’t do it because it would drive developers into Apple’s arms, and Apple is coming on very strong.

I imagine that the best reason to do Chrome is in the finance, though I don’t have the data on where that is in their balance sheet. But, for example, Google pays big bucks to companies that sell PCs to pre-install Google Desktop aka Gadgets. I imagine this is overall for strategic reasons and not for day to day revenues. However once those thingies are pre-installed there are a lot of revenue opportunities. Firefox makes a living on search referral fees from Google, and Google is losing that money by having Firefox pre-installed with Desktop rather than Chrome. The major expense for Google is probably paying for distribution rather than developing the browser, so given that they’re already laying down the money, why not send the user into a Google property?

But whatever. IMO this is Goog jumping the shark, but so what. I realize that I am totally on my own in this. A lone voice in the wilderness. A guy with a battery powered megaphone reading out the old testament on a busy street. Just remember you heard it hear first when Google comes for your liver.

ragging on chrome #2

Commenters on the Google blog entry about Chrome:

Commenter #1:

Isn’t Google Chrome just using the same rendering engine (Webkit) as Safari so you don’t have to test a site with Chrome if it works with Safari

Commenter #2:

the answer to your question is “no”. Web browsers are more than just a rendering engine. Chrome, for example, has an entirely different JavaScript engine than Safari so if you employ any JS at all in your site, you can’t rely on it working across browsers. They also use an entirely different graphics sub-system. I’m sure there are other large components that are different too.

Even if they all used the same JS engine, Graphics sub-systems, layout modules, parsers, storage systems, networking libraries, etc, you’d still have the problem that they’re not all using the same versions of those components.

Webkit is just a small piece of those browsers. It’s an important piece, but it’s not the whole story so, no, one Webkit-based browser is not the same as another Webkit-based browser.

And how is it good for the world for web sites like Google to own the browser? Won’t they use browser dominance to disadvantage web competitors like Yahoo?

Chrome no!

Making high-quality software is hard. Every feature is a promise to the user that you’ll fix the bugs, and to keep your promises you have to minimize the number that you make.

I’m not supporting the Chrome browser.

If there are bugs, they belong either to Google or to the users. Google can make its browser similar enough to the others that I don’t have to do special work for it. The users can switch to a better browser.

used mp3

Let’s say you can buy a new CD for $15 and sell it used for $5. And let’s say that you can buy that same CD in MP3 format for $10 but you can’t sell it used at all.

If you could sell an MP3 used, wouldn’t you be willing to pay more in the first place? Like, for example, $15?

What I’m thinking about is how much a secondary market for MP3s could do to grow recording industry revenues as a whole. It could be enough to have a substantal impact.

See also: insane-tastic startup with annoying name

See also: CNet story