Why Amazon Need MP3

Both David and Michael have blogged on Amazon’s DRM free music news. here are my additional thoughts.

Amazon are the sleeping giant of the digital music space. Just like most high street music retailers, Amazon has been biding its time to jump in, not wanting to enter before the potential returns justify investment. However it does have to join the game. In doing so Amazon is following a predominately defensive strategy aimed at offsetting the impact of a consumer electronics retailer stealing spending from their music buying customers. But launching another me-too WMA service wouldn’t be fit for purpose. Amazon has a mass market audience and needs a mass market offering that is usable across its installed base of buyers. Furthermore many of their best customers are iPod owners: iPod owners are more likely than any other segment to buy CDs online. So unless Amazon sell in AAC / Fairplay (isn’t going to happen) or without DRM, they would have to kiss goodbye to selling to some of their best customers.

Of course selling iPods is big business for Amazon and they have the same dilemma as high street retailers such as Fnac and HMV: do you stop selling high revenue iPods for the sake of a no or low revenue digital music offering. The answer is always a resounding no. European high street retailers have pursued an unsatisfactory compromise approach of running WMA services but heavily promoting iPods and iPod accessories simultaneously…and they wonder why they have moderate success.

But by launching a service with just indies and EMI Amazon are in the unfamiliar position of offering an incomplete and limited product range…which will take some positioning to their customers. So why not wait until they get the other majors on board? Firstly they don’t think they can anymore. Apple’s inexorable rise shows no sign of diminishing. Secondly, there’s no guarantee they would without Amazon launching now. The other majors need to see EMI’s brave DRM move work (see our report for some more insight) Amazon think they have the best chance of showcasing this live beta test and converting the majors.

But if Amazon did manage to get comparable catalogue to iTMS, why would iPod owners buy from Amazon? Firstly, just as David says, Amazon are much better at selling music and they’re equally better at discovery and recommendation. Secondly iPod owners already spend a lot of time and money buying CDs from Amazon, having downloads well integrated would be a compelling proposition, perhaps even enough to negate the hassle of those extra couple of clicks to get the tracks into your iTunes library.

If Amazon do bring the other majors to the DRM-free table then they’ll have achieved something comparable to when Jobs got the majors to rethink DRM for iTMS the first time round.