Tuesday, January 31, 2006

Strategy Analytics: Trouble Brewing For iTunes As Verizon Launches Microsoft-Based Music Service

Strategy Analytics has issued new research that "estimates that sales of digital music (online music plus mobile music and ring tones) within Western Europe and North America accounted for 13.9 percent of total consumer spending on music last year," and "projects that by 2010 more than $8.2 billion worth of music will be delivered via digital platforms in the same regions, accounting for almost 30 percent of total music sales."

Strategy Analytics also predicts "Apple's dominance of the online music space will come under increasing pressure as competitors target the shortcomings of Apple's iTunes Music Store."

Martin Olausson at Strategy Analytics said, "As a strategy to bring it into mobile, Apple's partnership with Motorola has failed. Its lack of a subscription payment model as well as the fact that it is currently limited to iPod music players, will increasingly put Apple at a disadvantage to services such as V Cast Music. The speed with which sales of music player enabled mobile phones will overtake dedicated music players will accelerate this trend."

Philip Taylor at Strategy Analytics added, "We believe that Apple's experience with Motorola rules out any quick launch of an iPod with built in cellular radio, and that Apple will continue to build resources towards bringing a wireless enabled product to market in 24 to 36 months. As a result, Microsoft will gain strength as the most viable immediate alternative for manufacturers and service providers seeking to gain share for themselves."

I don't expect Apple to maintain its stranglehold over the mobile music market, but I think positioning Verizon's V Cast Music as a threat is going a bit too far. Strategy Analytics, while pointing out Apple's weaknesses, fails to mention that V Cast Music is expensive (monthly service fee plus cost of downloads), available only on a couple of handsets, and most of all limited to Verizon's customer base.

The music on cellphone market is still in its infancy and whether it ever grows to surpass the standalone player market remains to be seen. Greedy carriers and music industry alike are not helping the situation by pricing services and OTA full music downloads too high.

Yes, there is an opportunity for someone to take control of the market, but it seems like no one has learned why and how Apple got to where it is now as the undisputed leader. Maybe Apple is missing a golden mobile opportunity, but I don't see anyone else stepping forward to claim market leadership in their place....