5 questions surrounding Apple’s new streaming music platform
FORTUNE — It’s a Pandora-killer; it’s going to take on Spotify; it will be streaming and almost certainly free.
1. Apple upended the music industry once, can it do it again?
Probably not. The company is late to the streaming game and, besides, music — once the core of iTunes (just look at the name!) and Apple’s e-commerce business are lagging and not nearly as lucrative as Apps, which are going gangbusters. Horace Dediu, who has done more than any outsider to dissect the iTunes economy, told me that once Apple (AAPL) moved into this space it would be purely reactionary and “pragmatic. They feel the economics are suddenly favorable, the infrastructure is paid for [more on this in a moment], the bandwidth is cheaper. But I don’t really see this as an exciting thing. It’s just flipping a switch.” That’s exactly right. Millions of people already listen to streaming music on their phones. Remember this, next week, during all the hoopla: Apple isn’t reinventing the wheel here, because it doesn’t have to. Which brings us to question two …
2. Will it exist apart from iTunes?
That is: Will iRadio be a standalone app? Let’s hope so. iTunes is already trying to be far too many things — media player, store, library … It is a bulky mess, albeit a lucrative one. Dediu estimates the iTunes ecosystem is a $17 billion a year business that costs $5 billion to run. Apple won’t be abandoning this not-insignificant piece of company infrastructure anytime soon, but the margins are far better on apps, and video sales are growing far faster than music. iRadio may be a good way to bump music sales, though seeing as …
3. If iRadio is its own app, how will it be integrated with iTunes?
Because you know it will be. The oft-repeated Steve Jobs adage that “people want to own their music” is still mostly true (most of those people are oldish and getting older, that is.) And, again, iTunes costs too much to run, makes too much money, is too big a thing to ignore. What iTunes doesn’t do well at all — and the reason Pandora (P) and Spotify and YouTube are eating Apple’s lunch a bit — is music discovery. And this is what all the kids are up to these days. Teens use YouTube more than any other music service — it’s their MTV (because MTV isn’t playing music). Consumer habits tend to get locked in around 30, and Apple needs a better music discovery service if iTunes is to have any longevity. So it will send people to its store to buy songs, but how will that function? And will it function well? When Apple has flirted with music discovery in the past, it has not been very elegant. Also, remember, iTunes and everything around it, including iRadio, is building an ecosystem to sell more devices, which always have been and always will be the main event at Apple.
4. It’s likely free, but will there be a paid version?
And what will the pricing of that be? This may not seem crucial, but think back to how 99 cents for a song became the industry standard. If iRadio’s streaming service is, say, $7 a month instead of $10, that might just pull Spotify and Google (GOOG) and Rdio and others into line. It wouldn’t be too difficult to undercut the competition in this way, seeing as Apple already spends so much on streaming much bigger bandwidth items (movies, TV shows) on iTunes all the time.
5. The free version is advertising sponsored, but how lucrative will this be for Apple?
Ignoring any of the associated costs with a paid version, or the money Apple makes from users going from iRadio to iTunes to buy a song, the ad dollars the company brings in will be very telling indeed. Sure, in the grand scheme of Apple the numbers won’t be high, but consider how advertising has so dogged the mobile market. Traditional internet ads (popups, banners, and the like) work terribly on a small smartphone screen, and the money there has been minuscule But audio ads work the same way as ads you hear on the radio — only better. Ads can be placed according to specific users’ musical tastes (fans of Nickleback, not surprisingly, have different tastes than fans of Kendrik Lamaar). They’re more valuable, because they are more targeted. At least, that’s the theory (and what Pandora has been saying for awhile now). Now, with a mega-player like Apple in the mix, we might see if that really is the case.