Apple Inc. (AAPL)’s Quest to Kill Pandora Media Inc (P) May Make Itself the Victim

It is no secret to Apple (NASDAQ:AAPL) followers that the company is widely expected to unveil some sort of online radio service. Many anticipate that the service could launch this year, and that it could wreak havoc on Pandora Media Inc (NYSE:P)’s business. Yet, such a move might put Apple itself at risk.

Apple bulls stress the company’s ecosystem

I’ve written previously about one of the most powerful arguments in favor of Apple: that it has an ecosystem that will keep its customers loyal. As I laid out in this previous post, such an ecosystem is largely built on a cursory argument, and the supposed factors that make it hard to abandon Apple products are, for the most part, exaggerated.

However, if there is one feature of Apple’s core business that keeps its customers loyal it is iTunes. Media purchased on iTunes — whether it be music, books, TV episodes or movies — is best consumed on Apple’s own devices.

Music bought from iTunes can be burned to a CD, or otherwise played on a non-Apple device. But it is most convenient for users to listen to the songs they’ve purchased on an iPod or iPhone.

If a consumer has a large iTunes library, composed of hundreds of songs, they may be loathe to abandon Apple’s devices. After all, that’s potentially hundreds or thousands of dollars they have sunk into media — songs they might have to repurchase or otherwise jump through hoops to get them onto their non-Apple devices.

Google Inc (NASDAQ:GOOG), perhaps with this fact in mind, launched Google Music late in 2011. On the surface, the service seems like just another music store, no different from or iTunes. And yet, Google’s Music store has one key difference.

Google Music allows anyone with an account to upload as many as 20,000 mp3 files free of charge; files that will be hosted on the cloud and tied to the account for streaming or downloading purposes.

The feature appears to be almost a direct shot at Apple. Users with large iTunes libraries, fearing losing them should they abandon the iPhone in favor of an Android device, can use Google Music’s uploading feature to maintain access to their music library.

Offering a subscription radio service would threaten Apple’s iTunes

If Apple shifts away from this model to one similar to Pandora, it risks losing this advantage. A consumer who pays a set monthly fee to get access to music (rather than having sunk untold dollars into building a library) is a consumer with very low switching costs.

But Apple might not have a choice.