Will The Future iTunes Look Like Spotify?

    spotifyHere’s a Jaiku thread from last night (GMT +2) that basically outlines what the future of the worldwide music consuption might very well look like sooner than we think. The tread started when after Apple’s announcement Jaiku Co-founder Jyri Engeström posed a questing to the Jaiku community “Wondering if DRM-free iTunes will affect Spotify‘s appeal”

    Here’s are some of the interesting thougths and ideas that were expressed. Pay especially attention to what Jyri concludes at the end of Spotify Co-founder Daniel Ek’s answer. You can see the whole thread here.

    Jyri Engeström: What does going drm-free tell us about Apple’s future strategic direction for iTunes? I don’t think it’s out of the question that the future iTunes a little way down the road will look a lot like Spotify. If that was the case, where would it leave Spotify?

    Daniel Ek, Spotify Co-Founder: Thanks for caring Jyri. I just think there’s a fundamental difference right now between us. iTunes is still about ownership and will still only work out of the box with iPod. It’s not like they’ve enabled support for a bunch of new devices. We on the other hand is more about an access model and the future will tell if we will go the Apple way and have a closed system, or actually open up to a variety of use cases 😉


    Daniel Ek, Spotify Co-Founder: @jyri: You know, a wise man talked about social objects cough ;-). We think music data is social objects, and we focus on building tools around them. We don’t necessarily want to be a social network ourselves. That’s also a hint on the future 🙂

    Adawale Oshineye: Let’s look at the financial aspects. Spotify’s premium account is £9.99 * 12 months. Apple won’t go after Spotify’s market unless they’re making less than £120 per average user per year from Itunes.

    The other big question is regarding Apple’s long term aspirations:

    • Option 1: they want lots of people (on the order of 100s of millions) buying lots of very cheap items from Apple. This has the advantage of being the same as their iPhone application strategy and lets them exploit economies of scale which would make it hard for anyone to compete with them. The bigger the market place the more customers you attract and the more customers the more likely people are to want to sell their products in your market place.
    • Option 2: they want lots of people (on the order of 10s of millions) to move to a subscription model for their music. This number is smaller than the first number as subscription requires a bigger commitment and that kind of commitment is likely to lose them some of the market. This has the benefit of a nice stable stream of revenue but fewer barriers to entry. Anyone can set up an equivalent subscription service (once they’ve got the record companies on board) and the only lock-in is the minimal length of the subscription contract.

    I think the record industry would like option 2 as they’d still have the power to take away their music from the users of any subscription service that didn’t play by their rules.

    I think Apple are ambitious enough to seek option 1 as it potentially gives them control over a huge market in very cheap digital content: games, apps, music, ringtones, photos, micropayments for online services, etc. The systems they would need to make this work for music and iphone apps+games can be adapted fairly easily to lots of other small transactions once they’ve got their users comfortable with paying for things with their phone. The Japanese mobile phone market is a clear example of how this scenario can play out.

    Jyri Engeström: @eldsjal I think I understand your approach fairly well although it’s been a while since we discussed it — which goes to show you’re not visiting us often enough 🙂

    As I recall pointing out before, Spotify’s success against iTunes is affected to a significant degree by how well it can exploit the fact that Apple (awkwardly) wears two hats.

    To be more precise, the interests of Apple the device manufacturer and Apple the online distributor are fundamentally misaligned. It’s in the device manufacturer’s interest to keep iTunes proprietary to the iPod; whereas it’s in the online distributor’s interest to sell music through as many channels as possible.

    In the end this is a business equation. As long as Apple makes more money from devices, iTunes is likely to stay proprietary. But if the iTunes store grows into the de facto cash cow, or the iPod starts to lose market share, friction is bound to arise between the two units.

    It’s in Spotify’s interest, therefore, that the iPod does well but not too well. Apple has to be compelled to keep iTunes proprietary, but worldwide sales of music players has to include a significant percentage of players that do not have iTunes. Spotify then has a shot at becoming the de facto music distribution platform ‘for the rest of us’. Of course it’ll face tough competition from other proprietary and open initiatives.


    Jyri Engeström: @adewale I believe you’re correct in that there are two business models, freemium subscription & per-item sales; however, they are not mutually exclusive. Of course Apple’s not going to abandon sales of music tracks for ad-supported subscriptions. But it could easily add a free streaming/subscription mode to support its per-item sales (bait-and-switch like @oscar mentioned).

    Daniel Ek, Spotify Co-Founder: +1 on @jyri 🙂

    Jyri Engeström: @eldsjal reading the tealeaves from your “+1”: the complementary nature of subscriptions and track sales means Spotify could just as well become iTunes 😉

    Not only was this an interesting conversation on the future of worldwide music consuption and the direction of Spotify is heading, but this Jaiku conversation thread is also yet another evident that Jaiku is so much more than Twitter when it comes to conversations. Twitter surely has it’s streghts, but Jaiku enables different kinds of communication. We need to have both(!), and as soon as Jaiku opens itself as well as its improved API to the public we will. Having Jaiku and Twitter sitting next to each other in a Tweetdeck would seriously change the way we communicate.