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Napster v. Apple

Via Slashdot, a Business Week story on Napster's market position and strategy:

The cat in the Napster logo hasn't run out of lives just yet. It sells far fewer songs at its online store than Apple, which sells roughly 75% of the 3 million songs that are sold online each week. But [Roxio CEO Christopher] Gorog points out that based on the latest weekly data from Neilsen [sic] SoundScan, Napster's share equals all other rivals combined, including services from Wal-Mart, MusicMatch, and Best Buy. He says the data show that Napster 2.0 is holding its No. 2 position against Apple in this music-download business.
If the numbers quoted are correct, then Apple has a 75 percent market share, Napster 12.5 percent, and everyone else 12 percent. And Roxio is boasting about this?
Napster could start to increase market share in the more profitable business of selling monthly subscriptions, where customers can listen to -- but not own -- as many songs as they want each month for $9.95. While Napster is far behind RealNetworks' Rhapsody service, AOL's MusicNet, and others, it's taking the lead again in the old Napster's stomping ground: college campuses.
In the comments on the Slashdot story, there's a wonderful analysis of the subscription music model:
What does on-demand get you, really? It depends on your listening habits. Let's say you are starting from a blank slate, and have no music.

After three years of subscribing to Napster, you are still no better off than you were when you first started. You have paid out $360.

If you had spent this money with Apple, you'd have 360 songs on your hard drive, that would be in a lossy format, but otherwise yours to do with as you please.

If you had spent this money on CDs, you'd have around 25 albums, or approximately 300 songs. These songs would be completely unrestricted in what you could do with them, be in a non-lossy format, and able to be stored in a reasonably secure manner.

With the case of Napster, you end up with nothing, and they could go out of business at any time. However, you get to hear a wide variety of songs.

With the case of Apple, you end up with a lower-quality format than CDs, but you get the files to keep. You start out with a small selection of songs, but it widens each time you spend money. If your hard drive crashes, you've lost them all, unless you back up. If you back them up to CD, you should be aware that CDRs have a dramatically lower life than silver CDs.

With the case of CDs, you keep a high-quality copy of the songs that belong to you, they last much longer than CDRs, and are less susceptible to scratches/sulight/etc. However, you have to go outdoors to buy them, or wait for them to be delivered. There is the same problem as Apple, in that you start of with a limited selection of songs, but this constantly grows.

So basically, if you only listen to a few albums at a time, and you want to own your music collection, then Napster is right out. Apple is cheaper, but CDs have significant benefits. Apple is more suited to the impulse buy than CDs (when you are sitting in front of your computer, of course).

I think this analysis is very nearly spot-on, though it misses one advantage of Apple's approach: the fact that you pick each of the 360 songs you buy. That makes their entertainment value far higher than 300 songs taken from CDs, unless you buy only CDs for which you specifically want to listen to every single song (which seems unlikely).

I'm not a wild-eyed iTunes booster. I don't like the fact that they only allow one download of each purchased song -- it would be easy enough for them to give people two or three lifetime downloads (in case of data loss), or a recovery plan (say, $9.99 to re-download every song you've ever bought). I don't like the fact that they offer some albums for sale despite not having every track available for purchase -- this defeats the iTunes concept of only buying the songs you really want. I don't think Apple has done a good enough job of reaching out to the rest of the world to evangelize its hardware -- the HP deal is fine, but what I really want to see are auto and home stereo systems with iPod docking slots.

But I think that Apple has done a phenomenal job of creating the online music market, and I hope they're able to maintain their market-leading position -- it would be sad indeed if Microsoft were once again able to leverage its market share in operating systems to dominate another new arena.

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