Omar El Akkad
From Monday's Globe and Mail Published on Monday, Nov. 23, 2009 12:00AM EST Last updated on Thursday, Jan. 14, 2010 1:07PM EST
It was once painted by critics as ground zero of copyright crime on the Internet. Today, it's where the Web's most innovative business models are coming from.
The digital music industry has seen, in relatively quick succession, extremes of business success and failure. When the free music-sharing service Napster launched about a decade ago, record labels and many big-name artists launched a legal and public relations campaign against what they saw as a direct threat to their revenue stream. Napster eventually crumbled, and the software's resurrection as a pay service didn't prove nearly as popular with users as the original.
Today, however, there is a pay service that is thriving - Apple's iTunes. Offering singles, albums and video files for sale, iTunes has done for the online media business what the iPod did for the MP3-player business. According to Apple chief executive officer Steve Jobs, iTunes is now the largest music retailer in the world.
But now a host of startups, some of them in conjunction with the world's best-known Internet company, are trying to disrupt the same industry Apple disrupted when it launched iTunes.
Several small- and medium-sized online businesses - including Rhapsody, Pandora and Lala.com, which allow users to listen to music for free at least once, as well as purchase it - teamed up with search giant Google this month to launch a service aimed at making music easier to find.
In effect, Google recognizes music-related search queries, everything from song titles to lyric snippets, and returns as one of the top results a link that allows users to play the relevant song or album from one of its music partners.
(Like Rhapsody, Pandora and Lala, Google's new music feature is restricted to the United States, and so will not show up for Canadian users yet).
Google's new foray into music may not relax Apple's stranglehold on the digital music business any time soon, but it does represent an effort taking place in all corners of the Web to try to find different ways to make money selling music online.
"It is absolutely true ... that iTunes still dominates in the digital marketplace," said Geoff Ralston, CEO of Lala.com. "But that doesn't mean that there aren't other models that can't gain traction."
Lala.com, a 35-person operation based in Palo Alto, Calif., is betting its future on one of those new models. Lala.com allows users to listen to a song for free only once. Afterward, a user can buy unlimited online plays for 10 cents (U.S.), or download the song for about 90 cents.
For both Google and services such as Lala, a partnership makes sense. Mr. Ralston said his company first suggested the idea to Google about a year ago, but the search company only really got excited about it after the launch of Microsoft's Bing, a search engine designed with an emphasis on getting users easy access to goods such as vacation packages, clothes and entertainment.
For the music services, a partnership with Google gives them front-row seats to music-related requests, which usually constitute two of the top 10 queries on Google at any given time.
But the drive to find new revenue sources in online music isn't confined just to the computer - the music revolution is quickly going mobile, and smart phone makers are starting to take notice.
Earlier this month, an online music store called 7digital won the $100,000 (U.S.) grand prize in the 2009 BlackBerry Partners Fund Developer Challenge. The service, developed by British-based developIQ, allows users to view music charts, buy MP3s and listen to them using a built-in media player - all through a single Blackberry application.
Indeed, some companies are trying to relaunch music business models that didn't quite take off just a few years ago. Qtrax, a company that hopes to pioneer an advertising-based but otherwise free music service, announced a partnership this month with China's leading search engine, Baidu.com. The deal is similar to Google's, but Qtrax's business model is dependent on users willing to put up with advertising in exchange for free legal music.
It's not a straightforward proposition - Qtrax tried the same thing almost two years ago, but the launch was marred by revelations that the service had failed to actually sign deals with several major record labels. It is also still unclear whether Qtrax's advertising revenue will be enough to offset the royalties it must pay those labels.
For now, Qtrax is launching in a handful of countries in Asia, and positioning itself as an alternative to the high music piracy rates in that part of the world.
"We believe we can pioneer free downloadable music in that area," Qtrax CEO Allan Klepfisz said in a recent conference call.
"Free and legal downloadable music, I should say."
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