Why Amazon Is Important

Thereís a lot of talk at the moment about Amazonís anticipated digital download service. It seems likely that Amazon will opt for an MP3 model, which if the case will most likely limit their content to indies and EMI in the near-term.

So why all the hype about Amazon? In short, Amazon are the sleeping giant of the digital music market. Digital music is still niche and waiting to break through to the mainstream online, let along more broadly. Amazon is perfectly placed to aid that transition. They have mainstream online reach and are a key destination for music for mainstream as well as aficionado music fans. High street retailers such as HMV, Virgin and Fnac have had mixed success with their digital initiatives, in no small part because of internal wrangles over protecting core physical product form cannibalization. Amazon have similar concerns of course but also have the advantage of explicitly building a broader retailer mix into their business model i.e. starting consumers off with low consideration items such as CDs and books and migrating them up to TVs and garden furniture.

Layering digital into the mix dovetails with that strategy. But it also serves a more important purpose: it is an essential defensive strategy for Amazon. The key buyers of digital music are technology and music aficionados i.e. a large portion of Amazonís best music customers. (iPod owners are more likely to buy CDs online than any other online consumer segment) iTunes is thus directly taking from Amazonís customer base. But for that very reason Amazon couldnít just launch a WMA service because it wouldnít be able to sell to itís core customers with iPods. So Amazon really needs to either be DRM free or interoperable, to sell to a massive potential customer base. All of which is why Amazon has the potential to shake up the digital music market.