Google Inc (GOOG): A Pandora Media Inc (P) Threat?

Page 1 of 2

Google Inc (NASDAQ:GOOG)Google Inc (NASDAQ:GOOG) unveiled its subscription-based music service on Wednesday. Google Music All Access allows subscribers to stream millions of songs on demand for a flat monthly fee.

Many reviewers have panned the service, as it fails to push the envelope. There are already a plethora of similar services (Spotify, Rhapsody, Rdio, etc.) and Google Inc (NASDAQ:GOOG)’s app doesn’t offer anything new.

While these criticisms are valid, they ignore the larger picture: Google Music All Access is not intended to be a cornerstone of the company’s business, but rather, a way to support Google’s larger strategy.

A wave of streaming music services

Streaming music services have been around for at least a decade, but it wasn’t until recently that they took off in popularity.

Rhapsody was building the first service around the same time Steve Jobs was working on putting together the iTunes music store. At the time, Jobs doubted that they would ever become popular — people wanted to own their music, he reasoned.

Ironically, it was probably Jobs that made streaming music businesses viable. Prior to the advent of mobile devices, subscribers were limited in where they could get access to their music. Now, with smartphones and tablets, subscribers can get access nearly anywhere.

This has led to a wave of competing services — but slight nuances aside, most of the services are, at their core, indistinguishable. Pay $10 per month, get unlimited access to millions of songs. Google Inc (NASDAQ:GOOG) Music All Access is no different.

Not a lot of money to be made in streaming music

Is there money to be made in the streaming music business? Perhaps one day. At present, neither Spotify nor Pandora Media Inc (NYSE:P) are profitable businesses. Obviously that could change, but even if it does, the industry clearly has low barriers to entry.

Conversely, Google Inc (NASDAQ:GOOG) reported GAAP operating income of $3.5 billion last quarter, mostly on search, an industry it completely dominates. In short, even if Google created the best streaming music service ever, it would not have much effect on the company’s bottom line.

The same is true even for Apple Inc. (NASDAQ:AAPL). Despite the fact that Apple dominates digital music sales, the money it makes from iTunes is a relatively paltry figure. For years, it was assumed to be break-even.

And even if Apple Inc. (NASDAQ:AAPL) does make some money off music sales, it’s only $100 million or so — a tiny sum compared to the more than $50 billion Apple generated over the last year.

So why did Google waste its time building a service that will likely never make much money? There are two reasons.

Weakening Apple’s ecosystem

First, streaming music services are a threat to Apple’s mobile device dominance.

Much of Apple Inc. (NASDAQ:AAPL)’s famed ecosystem is built on iTunes. A user who has spent hundreds of dollars amassing a large iTunes library is more likely to stick with Apple devices than one who hasn’t.

Google Play (without All Access) was initially designed as an answer to this problem. With Google Inc (NASDAQ:GOOG) Play, Android users can upload the mp3s they’ve purchased to the cloud, and stream them to an Android device.

But, just in general, users with streaming music subscriptions are probably unlikely to buy music, period. As more consumers embrace this model, iTunes loses potential customers, and Apple’s devices lose some of their stickiness.

Given that Google Music is (right now) only available on Android devices, it won’t directly draw any iPhone owners away from iTunes. But, just by throwing its hat into the ring, Google is helping to move the industry forward.

Gather data on music habits

Big data will be a key driver of Google Inc (NASDAQ:GOOG)’s business in coming years. As search evolves, users will come to expect information to be given to them before they even ask for it. Google’s personal assistant app, Google Now, is an early example of the promise this technology holds.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!