Amazon’s MP3 Store, One Year In: No iTunes Killer; Probably Won’t Be

Amazon has been selling digital music from all the big music labels for nearly a year now. It’s the first major challenge to Apple’s hammer lock on that business. So how did it do?

If you view Amazon’s MP3 store as a would-be iTunes-killer, or even a would-be iTunes rival, it has failed miserably. Neither Amazon (AMZN) nor its big label partners–Warner Music Group (WMG), EMI Music Group, Sony (SNE) and Universal Music Group–is publicly releasing any sales numbers. But the best estimates I’ve been able to get from label executives give Amazon 5-to-10 percent of the digital music market, with Apple (AAPL) hanging on to its 70+ percent share.

Billboard reaches the same conclusion, pegging Amazon’s market share at eight percent. Lucas Gonze, a smart digital music guy who spent a brief stint at Yahoo (YHOO) after it acquired his start-up, does some back-of-the-envelope math and concludes that Amazon’s store contributed all of $82 million to the music business, and that Universal collected most of that. That same math means that Amazon grossed all of $39 million from its music store.

And while Amazon’s presence–and the fact that all of its music was sold as MP3s, meaning there were no DRM locks on the songs–was supposed to give the labels more leverage when they negotiated with Apple, we have yet to see Steve Jobs make any significant changes in his contracts.

But the labels would still rather have Amazon in the game. The fact that the world’s biggest e-commerce company is in the music business does have some tangible benefits, like giving players an easy way to get into the music business: Both News Corp.’s (NWS) MySpace and T-Mobile’s new G1/Google (GOOG) phone, for instance, use Amazon to sell downloads. There’s no way Apple would have worked with either platform.

And Amazon can afford to lose money as it figures out its digital media strategy–the company logged nearly $4.3 billion in sales last quarter alone. Right now, it seems content to serve a handful of dedicated MP3 fans/anti-DRM zealots who are actively shunning Apple. But I’m guessing Jeff Bezos and crew have bigger ambitions. So when do we see what those look like?