What Amazon Needs to Do to Compete With iTunes

It has good deals, but still can't grab market share from Apple

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Amazon's greatest asset in its war against iTunes has been a little promotional box labeled "Daily Deal." Inconspicuously displayed in the upper left hand corner of the online retailer's MP3 music store the "Deal" usually offers steeply discounted (usually $3.99 or $5.99), sometimes newly released, albums from well-known artists. Some of the biggest names that have participated in the cut-rate promotion have included high-profile releases by U2, Green Day, Arcade Fire, Kid Rock, Vampire Weekend and many others.

These albums, which Amazon reportedly sells at a loss, "are a cornerstone of Amazon's strategy to gain traction in a market in which iTunes remains the dominant player," say The Wall Street Journal's Ethan Smith and Geoffrey Fowler. Yet, according to the latest market share numbers by research firm NDP, iTunes has little to worry about: it still controls more than 66 percent of the paid digital-download market. Record industry executives have told The Wall Street Journal that the number may be even higher--something like 90 percent market share in certain weeks. Simply put, it appears as if Amazon may have to adopt a different strategy than steeply discounted albums. "The Daily Deal numbers are fantastic," a senior major-label distribution executive told Reuters. "It's crazy that the consumer is so fickle and won't stay shopping there."

Business/Tech reporters parse the NDP group's numbers, offering their prescriptions for digital music's other retailer:

  • To Compete With iTunes, Create Something New offers Jeffrey Van Camp at Digital Trends. Although digital music sales are rising, they are growing slower than CD sales are falling, he writes. So maybe Amazon should create features that iTunes can't provide: "Why not lift some of the restrictions on MP3 downloads and also give users unlimited access to a cloud-copy of their music library? Imagine being able to purchase an album on your computer and instantly download it to your MP3 player, TV, or any other device with ease, much like the Whispersync service Amazon offers for Kindle." Or another idea: let new customers "do whatever they want with the music they purchase. If only record labels and the RIAA would see the light."
  • The Real Reason Apple Is Ahead? Convenience, figures Houston Chronicle Technology blogger Dwight Silverman. "Apple's music store lives in the same software used to manage music on iPods, iPhones and iPads." On iTunes, buying music is an "impulse purchase" where on Amazon it's "active shopping." Customers want their music in "a simple way." Still, that isn't the way that Silverman buys his music: "Personally, I find new music at iTunes, but then buy it at Amazon MP3. But the vast majority of iTunes users won't go to that trouble. Amazon is stuck "until [it] can find a way to beat Apple at the simplicity game."
  • It Just 'Can't Dent iTunes' say Ethan Smith and Geoffrey Fowler in their Wall Street Journal report. When Amazon promotes a daily deal album, it pays the "full wholesale price" ($7 to $8) and "eats the loss." The Journal then summed up the two labels with a quote from a college student who noticed that iTunes has a "better selection" while Amazon is "cheaper." And artists and industry exec aren't exactly happy that Amazon is helping drive down the value of their product, they note. Fleet Foxes, an indie rock band, wrote on their twitter feed last month: "Been working for nine months on something that will sell for 3.99 on Amazon MP3...that's about the price of a whoopie cushion."
  • Amazon Is Growing, But by 'Millimeters'  Before the release of the NDP marketshare numbers, Ed Christham at Reuters profiled the strategy of Amazon and Target as they tried compete iTunes and Wal-Mart in the digital music arena. While Amazon execs have been excited about the daily deal numbers and not that "loss-leader pricing has helped it grow market share and transform itself from a catalog retailer to a potent force for new releases," it still hasn't been enough to gain ground. The takeaway: "While music industry executives acknowledge that Apple enjoys the enormous advantage of selling iPhones and iPods that seamlessly integrate with iTunes, they still wonder why Amazon's pricing strategies don't steal more business from Apple.":
  • A Potential Silver Lining: Mobile  In a Wall Street Journal article focusing on Amazon's mobile growth, Geoffrey Fowler notes where Amazon may have a "leg up" on it's rivals: mobile phones running Google's Android operating system. Amazon's music store, DoubleTwist, comes bundled with some of these smart phones, and the demand for these phones has been steadily growing: "Google Inc.'s Android operating system accounted for 42% of the market, up from 27% in the first quarter, according to market-research firm IDC."
This article is from the archive of our partner The Wire.