The reaction was predictable: Watch out Apple, a new Internet-savvy competitor is about to join the party and capture a chunk of the growing digital download business.

But is all the hype about an Amazon product justified? Many other major brands have taken on Apple and are failing. For example, Wal-Mart, the largest and most important physical distributor of CDs in the US market, has offered digital downloads for years and has had almost no impact on the market. Napster, the brand that launched the digital download revolution (the illegal, file sharing revolution), is also struggling to make a profit. Massive, global brands like McDonald's have offered free downloads that relied on Microsoft music solutions, and they have all been complete and utter flops. So why give Amazon the benefit of the doubt?

Let's examine the three pieces of the digital download puzzle that make Amazon unlikely to make much headway, even with its consumer-friendly brand. To succeed, Amazon needs:

1. Killer portable players. Apple dominates the portable music player market, plain and simple. Amazon is unlikely to find a consumer electronics partner that will out-design the iPod family or have anything like its cachet.
2. Great PC software. iTunes remains the PC app to beat. Amazon will have to either rely on Microsoft's software like every other Microsoft digital download solution provider or develop its own, which would be cost-prohibitive.
3. A popular music store. Amazon's music store would need to be easy to browse and offer music in a form consumer want. Subscriptions have proven to be only mildly popular, and all of the Microsoft-fueled stores fail to sell even a fraction of the downloads Apple has managed to sell. In fact, Apple is on the cusp of selling one billion downloads, while others are counting in terms of thousands.

When Amazon launches its digital download store, expect much fanfare and promotion from Amazon, Microsoft, and the loosely affiliated anti-Apple and anti-iPod crowd, but little change in the market.

Brands and digital music: Settle, wait, or work with Apple

Because success in the digital music business requires the seamless interaction between devices, players, and online stores, Apple is currently in the driver's seat because it controls and delivers high quality solutions in all three areas. Brand owners that want to participate in the digital music space have limited choices:

• Settle for working with ineffective Microsoft solutions. Brands that want in on the game today and can't find a way to work with Apple, can move forward with stores and promotions based on Microsoft technology. However, retailers and those running promotions should expect to get little or no return for their investment. While this strategy has been embraced by many high profile organizations, companies should save their money and protect their brand by choosing one of the following options.
• Wait for Microsoft to go head-to-head with Apple. Apple's toughest competition would be a two- or three-pronged, branded assault from Microsoft. In the two-prong scenario, Microsoft would promote its family of players (like its game console, the Xbox), its PC software, and rely on third-party stores. The problem for retailers like Amazon is that the competition will only be one click or one Google search away -- customer loyalty will be non-existent. In an unlikely and unwise three-pronged effort, Microsoft would mirror Apple and tie its own store tightly to its player and software. In this approach, third-party devices and retailers would be left out, but WMP-based digital download promotions would be much more successful.
• Hope Apple is forced to open up its DRM. The courts, legislative actions, or record label pressure through the withholding of content could force Apple to change its strategy and license its DRM, allowing third-party devices and stores to support both Microsoft and Apple DRM systems. But Apple won't voluntarily sacrifice its golden goose. While this solution would be a boon for retailers and those offering digital music promotions, any forced action would be fought for years in the courts and the court of public opinion.
• Join with Apple. Today, organizations can work with Apple to offer downloads redeemable at the iTMS just as Pepsi did (its high profile effort was thwarted by late or inconsistent delivery of redeemable products). But what about retailers? The best way for a retail brand to get a slice of the music pie from Apple would be to co-brand a store with Apple, similar in appearance to Apple's program with universities, but with revenue splitting on music sales. Would Apple go for it? As of today, we don't know of Apple's interest in this strategy, but you can bet that at some point Apple must either work to include the leading (CD) music retailers, such as Wal-Mart, Best Buy, and Amazon.com, or eventually be squeezed out when a Microsoft solution finally becomes viable.

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Carl Howe

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