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Amazon Music Strategy a Wrong Turn

The WSJ reported Amazon’s plans to offer an Amazon-branded iPod competitor and digital music download store.  I haven’t done much work in this area yet, so please weigh in, but this strikes me as a startlingly bad move.

First, Amazon’s entry into this business is shockingly and annoyingly late.  As with the Netflix DVD business, Amazon could have owned this category, but in the name of moving deliberately (or of trying to become all things to all people), it allowed other competitors to build a dominant market position.  No matter what the company says, winning significant market share in digital music is going to be much harder now than it would have been three years ago.

Second, non-iPod digital music players are a dime-a-dozen.  The reason they haven’t taken off, in part, is that they are not compatible with what has rapidly become the (legal) industry standard–iTunes.  Some of them, at least to these rapidly aging eyes, even look cool, but this has proven irrelevant.

Third, the hardware business sucks.  Unless you have a unique product, as Apple does, it’s the last place you want to be.  Why Amazon wants to become yet another manufacturer of branded music players is beyond me–especially when there seems to be another, far better, strategic alternative.

Lastly, on this point, Amazon would seem to be in an ideal position to launch a digital music store featuring all music standards, one that allows users to choose formats, payment plans, etc.  The labels must be clamoring for this (anything to disrupt Apple’s dominance) and even Apple would probably benefit from having another source of distribution.

Yes, the latter would be a tough sell, but the mistake Apple made in the PC business was not separating its hardware and software products.  The Apple OS could have pounded Microsoft Windows for years if PC manufacturers had offered it as a pre-installed option, but because one was forced to also buy an Apple PC to use it, the OS became an also-ran.  Right now, there are enough competitors in the music business that Apple would benefit from allowing a few, carefully controlled licensors to distribute the iTunes format, especially licensors like Amazon, which can sell a boatload of iPods.

The WSJ story also suggested that Amazon’s jumping into the hardware player business might cause Apple to shut it down as an iPod distributor.  If this is really a risk, it seems a dumb one to take.  Amazon isn’t the dominant global powerhouse it once was–and even in those days, it had trouble cracking some new categories.  In digital music, moreover, Amazon needs Apple more than Apple needs Amazon.

Disclosure: I’ve owned Amazon for years.

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