Today Hypebot posted the promised article discussing how Amazon can succeed in the digital music business. Also as promised, I will now comment on Hypebot’s advice and how it compares to [my own][] on an Amazon digital music service"):

Be the first major US store to sell EMI in the mp3 format.

This advice seems overly short-term: Sure, Amazon might get some initial press for being the first major US store (note the qualifiers!) to enter the digital music market with major label MP3 offerings, but this does not a long-term strategy make. I think it needs to be coupled with something else, and I think that that something else is Amazon having a clear and public goal to be the market-leading commercial provider of digital music in the MP3 format—a goal which in essence amounts to supplanting eMusic as the perceived number two player behind the iTunes Store. As [I’ve written previously][Ive wr] I think this is a realistic goal, and achieving it would pay big dividends for Amazon in terms of market credibility, just as [it has for eMusic][it has].

Offer labels and consumers variable pricing.

I agree that any Amazon digital music store will use variable pricing, so Hypebot and I are in sync here. The key point (as noted by Hypebot) is that for variable pricing to succeed in the marketplace it must offer benefits to both labels and customers—it can’t just be an excuse to charge people more for the latest Justin Timberlake hit. Given that Amazon is already known as a place to get good (though not necessarily the best) deals on CDs, having a variable pricing scheme that offers (at least some) music at prices below the iTunes Store will reinforce Amazon’s existing music marketing strategy.

(By the way, Hypebot gives the example of a music label “netting 15 cents a track from eMusic for that old Joy Division track.” To my knowledge there is one and only one Joy Division track on eMusic, on a [soundtrack album][soundtr].)

Offer multiple formats.

I’m not convinced that Amazon should offer music in formats other than MP3, despite the claim that “UK’s 7Digital and indiestore are already doing it with great success.” There are at least three differences between [7digital][7digita]’s case and Amazon’s:

  • Unlike 7digital Amazon sells digital music players, and in particular sells a lot of iPods. Given that a key part of Amazon’s strategy is cross-selling across different product categories, why would Amazon offer to sell customers digital music in formats like WMA that can’t be played on the iPods Amazon is trying to sell those exact same customers?
  • Unlike 7digital, for Amazon selling digital music will not be the main event, but will likely be a supplement to selling CDs. Given that, it is not necessarily essential that Amazon offer digital versions of every major label release that it’s already selling on CD. If a particular label doesn’t care to offer its releases in MP3 format, Amazon can simply not offer a digital version to customers as an option when displaying its (existing) pages for those releases. (In some ways this situation is analogous to Amazon’s “Search Inside” feature for books, where some publishers allow Amazon to do this and the more paranoid or hidebound ones do not.)
  • Unlike 7digital, as a top 5 music retailer Amazon presumably has some actual influence over the major labels, and may be able to help push them kicking and screaming into the post-DRM world, especially now that EMI has broken away from the pack. Why give in to major labels’ demands at this time, as opposed to waiting until they might be more eager to make a deal?

By offering only MP3 tracks Amazon would simplify choices for customers and offer compatibility with all digital music players they sell—why would it do otherwise?

Why not sell CD’s alongside downloads?

An obvious piece of advice, and one with which I agree wholeheartedly. However it would have been good for Hypebot to go further and offer more detailed advice on [how Amazon could combine CD and digital sales][how Ama02]. I can’t overstate how important is Amazon’s ability to offer an integrated CD/digital offering; in my opinion it is the only thing that gives Amazon a realistic shot at threatening the dominance of the iTunes Store.

(Incidentally, with regard to selling downloads alongside CDs Hypebot is wrong in saying that “amazingly no other download service does it.” [Magnatune][Magnatu] does this, and perhaps others as well, though to be fair Magnatune is a special case since it is not a general digital music retailer offering releases from multiple labels.)

Enable over-the-air downloads.

I don’t know enough about the market for OTA downloads to venture much in the way of an opinion here. However I will say that, unlike selling CDs and MP3 tracks, selling OTA downloads will require Amazon to go outside itself and its own technical infrastructure and rely on partners, and I don’t know whether the benefits of participating in the mobile market would be worth the costs and complexities of doing so.

Overall I don’t disagree with any of Hypebot’s advice, and it’s great to see some Amazon predictions from someone who’s actually in the business. However I felt Hypebot’s treatment of the topic was somewhat superficial, and I’d really like to see more people take a detailed look at the options open to Amazon in the digital music market. Is anyone out there already doing that?

[my own]: http://swindleeeee.com/2007/04/11/final-thoughts-for-now-on-an-amazon-digital-music-service/ “Final thoughts (for now [Ive wr]: http://swindleeeee.com/2006/12/20/amazon-versus-emusic/ “Amazon versus eMusic” [it has]: http://swindleeeee.com/2006/09/20/emusics-positioning-its-just-itunes-and-us/ “eMusic’s positioning: It’s just iTunes and us” [soundtr]: http://www.emusic.com/album/10750/10750966.html “Music From The Motion Picture” [7digita]: http://www.7digital.com/ [how Ama02]: http://swindleeeee.com/2007/04/07/amazon-predictions-part-2-selling-digital-music-and-cds-together/ “Amazon predictions, part 2: Selling digital music and CDs together” [Magnatu]: http://www.magnatune.com/

tj halpin (tjhalpin@gmail.com) - 2007-04-12 19:03

wal-mart.com sells cds and downloads as well.

Frank Hecker - 2007-04-12 19:57

You’re correct, Wal-Mart does sell both CDs and digital downloads on its web site, as does Best Buy for that matter. However neither of them sell CDs and downloads in an integrated fashion. Instead they have in essence separate music stores that just happen to be under the same domain name. I mentioned this in one of my prior posts but forgot to reiterate it here.