Amazon versus eMusic?

When I last commented on the subject of Amazon.com and digital music I had some rather scathing things to say. Now, according to a Hypebot article Amazon is rumored to be rethinking its former idea of setting up yet another DRM-hobbled would-be competitor to the iTunes Store, and considering selling DRM-free MP3 tracks under a variable pricing model. Assuming that the rumors are true (not always a safe assumption), what conclusions can we draw from this?

To a certain extent Amazon may be forced into this strategy, given Microsoft’s de facto abandonment of its PlaysForSure system in favor of the Zune, and the lack of any other reasonable alternative DRM scheme to Apple’s FairPlay. However this also might be the basis of an interesting alternative approach for Amazon. Hypebot and others commenting on the Amazon rumor have pooh-poohed the idea of Amazon selling DRM-free tracks, based on the presumption that the major record labels won’t sign on to this idea. I agree that Amazon won’t get much if any major label cooperation (at least in the short term), but I disagree that this renders this proposed strategy senseless.

In fact, it may make much more sense for Amazon to forgo a full-frontal assault on Apple and the iTunes Store (at least for now) and focus its full attention on competing with eMusic (implicitly if not explicitly). This may seem like a wimpy sort of strategy, but I think there would be real benefits to Amazon of supplanting eMusic, not least of which would be moving into the role of the (perceived) #2 power in the digital music business after Apple. (As I’ve written before, I think eMusic’s claim to be #2 is somewhat suspect; however few if any people seem to share my suspicions.)

A fight against eMusic would also be a winnable fight for Amazon, given the strengths Amazon brings to the table:

  • As a long tail Internet retailer Amazon already sells a lot of music from independent labels, certainly significantly more than the three retailers ahead of it in terms of overall market share (Wal-Mart, Best Buy, and Target). Amazon thus already has a built-in audience for selling digital downloads from independent labels, and thus the lack of major label content would not hurt it as much as it would others.
  • Amazon would be able to leverage all the infrastructure and content it’s built up for selling CDs, in particular its recommendation engine and its database of user reviews and lists. (When deciding what to download from eMusic I make extensive use of Amazon reviews, which are much more comprehensive than eMusic’s.)
  • Amazon could position digital downloads as just another option for buyers, similar to the way it positions used CDs today. Someone initially intending to buy a CD may buy a digital download instead, given that there’s no waiting time as there would be for a shipped CD, and in many cases the buyer would probably just rip the CD and then forget about it. Digital downloads would thus be attractive both to Amazon customers (especially if priced relatively low compared to CDs) and to Amazon (no need to carry inventory or do shipping).
  • Amazon already has a significant business presence in lots of countries around the world, and would be able to relatively easily match or exceed eMusic’s non-US offerings.
  • Since it’s a major seller of major label products Amazon may have enough clout with the major labels to be able to persuade them to provide at least some back-catalog content for sale in MP3 format. This would be a significant differentiator compared to eMusic, and again would fit well with Amazon’s long tail orientation and experience.

What strengths would eMusic have in such a battle? Maybe I’m missing something, but I can only think of the following, with counter-arguments as indicated:

  • eMusic would still have cheaper prices (on the order of $2-3 for a typical album). However getting these prices requires signing up for an ongoing subscription, while Amazon would offer the ease of a one-off transaction. Also, Amazon could (like Wal-Mart and others) use digital downloads as a loss-leader for other products (e.g., iPods and other devices); if Amazon offered full MP3 albums at a low enough cost compared to the corresponding CD prices (say $5-7 as compared to $10-15 for CDs) then eMusic’s price advantage may not be significant in practice.
  • eMusic has at least some lock-in of existing users, especially for those (like me) who’ve signed up to annual or bi-annual plans. This may help eMusic protect its customer base from switching en masse to Amazon, but it doesn’t really help in growing that base–and judging from its recent reluctance to release updated subscriber figures, eMusic may be having exactly that problem. The danger for eMusic would not be Amazon taking its existing subscribers, but Amazon taking a disproportionate share of new customers for digital music.
  • eMusic has good original content for music discovery, including the eMusic Dozens, the eMusic Magazine columns, and so on. Much as I love reading this material, I don’t see it as a major competive advantage given Amazon’s strengths in user reviews and recommendations.
  • eMusic has a reasonably thriving user community. Again, much as I love reading the eMusic message boards I don’t see them as a killer feature of interest to typical users.
  • eMusic is totally focused on independent music, while it’s just one piece of the overall business for Amazon. Sorry, focus didn’t help Tower Records against Wal-Mart et.al., and I don’t see it as being a decisive factor here.

Would eMusic be doomed in a head-to-head fight with Amazon? I think there are things that eMusic could do that might be helpful and that it’s not doing today, in particular taking a much more Web 2.0 approach and looking at tight integration with the music blogosphere, online music recommendation services like Pandora and last.fm, more creative approaches to fostering community among its members, and related ideas. Whether it can actually do such things is an open question, and whether they would help is another one. In any case if I were an eMusic senior manager I’d take any entry by Amazon into the DRM-free digital music market as a definitely serious competitive threat.

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