Peter Kafka

Recent Posts by Peter Kafka

Why Digital Music Is a Terrible Business That Google Should Embrace

Digital music is a lousy business. Almost everyone who tries it loses money, and even mighty Apple says its iTunes Store is basically a break-even proposition after 10 billion songs.

But if Google (GOOG) does it right, it makes perfect sense for the search giant to jump in anyway.

As CNET reported last week (The Wall Street Journal followed up yesterday), Google has been talking to the big music labels about launching its own music service and has floated a 2010 launch date. But music sources I’ve talked to say the company has no deals with labels yet and that it’s still unclear exactly what kind of service the company would like to launch.

My suggestion: Start simple. Copy the iTunes pay-per-song model.

That’s not a revolutionary idea, and it’s not a super-lucrative one either, because most people don’t like to buy more than a few songs: Apple (AAPL) sells about two billion songs a year, and if Google launches a competing service, I doubt it’s going to grow the market by much. And given that about two-thirds of every digital download dollar gets passed back to the music labels/artists/publishers/etc., that’s a fairly modest market to fight over.

But a download store is a proven concept. And that may be a better one than trying to get people to pay the $5 to $10 a month fee that services like Napster and Rhapsody have tried with very limited success and that new entrants like Rdio, MOG and Spotify (one day) want to try again. And it’s a much better idea than trying to figure out how to sell enough advertising to pay for free music services (RIP, Imeem; good luck, MySpace Music).

Meanwhile, a viable music store gives Google the following:

  • A value-add for Android and a wedge against one-time ally Apple
  • An owned-and-operated destination for all the music search traffic Google currently sends out to MySpace Music (via iLike) and Rhapsody, Pandora, etc.
  • And just maybe, a reason for consumers to finally sign up for a Google Checkout account, which has had little traction despite years of effort. If Google can get Google Checkout up and running and create the billing relationship with its users that Apple and Amazon (AMZN) already enjoy, then all sorts of other businesses, from YouTube movie rentals to Android app sales, become much more interesting.

So what about the notion of a cloud-based service, wherein Google hangs on to your tunes and streams them to you on demand? Cool. But not crucial.

Apple has expressed an interest in something similar, but from what I can tell, it isn’t close to launching anything like it. So perhaps the Google guys see this as their chance to leapfrog Steve Jobs and company.

But successfully copying them would a fine start, too.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik