Mark Mulligan[Posted by Mark Mulligan]

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Apple got a rare taste of their own medicine today, as
Amazon gazzumped their variable pricing launch with a price cutting
spoiler.  This is already being viewed as
the opening salvo of a digital music price war, and to some degree it is.   But whereas 18 months ago this would have
been the battle for supremacy of the entire digital music space, now it is just
for the narrower confines of the paid download space.


Apple’s absolute dominance of the paid download market
illustrates that the sector hasn’t managed to break free of the base of iPod
owners (and even then, just a subset of them). 
The digital download market is an artifact of iPod sales, of a large
number of device owners buying on average a modest amount of music.  The tail is most clearly wagging the dog.


If anyone can challenge Apple it is Amazon (I used to think
the high street retailers could too, but they’ve proven unable to successfully
quosh their internal demons in order to compete).  But Amazon needs every advantage it can get:
it’s got to convince iPod owners to swap the convenience of the elegant iTunes
/ iPod / iTunes Music Store experience for a 3rd party that
basically offers the same product but slightly less conveniently.  As stores no longer differentiate on
catalogue, the only real differentiating assets left are quality of service and
price.  Amazon delivers on both.


Amazon is using variable pricing to bring music retailing
pricing mentality to a space which has been dictated by consumer electronics
pricing mentality.  A single in the top
ten is simply not worth the same as an obscure 1970’s album track.  Music doesn’t work that way. 


Realistically Amazon is unlikely to unseat Apple as the
music store of choice for the majority of iPod owners.  But it should be able to win over a chunk of
them (many are Amazon CD buyers already). 
And, most importantly, it will be hoping to convert many of its existing
CD buyers.


And yet, the holy grail of digital music isn’t who can
successfully compete with Apple anymore. 
It’s not even who can create an ‘iPod Killer’.  The debate has moved on to who can compete
where Apple isn’t.  How can digital music
successfully compete around Apple and engage the real mass market online
opportunity: the free music fans who won’t buy downloads, however cheap they


This is why whilst Apple and Amazon go 12 rounds in the ring
together the innovation is happening in consumption based services such as
Pandora, Last.Fm, imeem, Spotify, We7, MySpace music etc.  The future of digital music is a complex,
rich tapestry, in which paid downloads will be a crucial component (probably
the most valuable) but none the less, just a component.