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.
At present, Google Now is capable of doing only basic tasks. (For example, Google Now can do things like warn the user that traffic is heavy on the route to work, or give sports scores of a favorite team.) But Google continues to work on improving the service.
Collecting data on listening habits could thus prove useful. Someone who frequently listens to Taylor Swift would probably like to be alerted when her concert tickets go on sale. On the business side, Google could collect data on its users’ listening habits and sell advertising based on that knowledge.
Is Google’s All Access a threat to Pandora?
With Google Music being a tiny sliver of the search giant’s business, and other streaming music companies being private, Pandora is really the only stock available for investors to play the trend.
Is Google Inc (NASDAQ:GOOG)’s service a threat to Pandora Media Inc (NYSE:P)’s business? Not directly. Despite the fact that the streaming music business is increasingly crowded, Pandora has one feature that separates it from others — it’s free on mobile devices.
With the exception of Grooveshark (of dubious legality), all other streaming services — including Google’s — require a monthly fee for access on mobile devices. That means, for users who want streaming music on their mobile devices and don’t want to pay for it, Pandora remains the only option.
But that could change. Spotify has been fighting to bring free streaming music to mobile devices, and though it hasn’t succeeded, if it ever does, it would be a tremendous blow to Pandora Media Inc (NYSE:P).
Still, Google’s decision to jump into the market brings forth yet another competitor to Pandora — and one with a big name.
Google Music in context
So, while Google’s All Access won’t revolutionize the world of streaming music anytime soon, the service isn’t a failure. It puts pressure on Apple’s competing mobile ecosystem, and allows Google Inc (NASDAQ:GOOG) to collect data on its users’ listening habits, data that could prove to be immensely useful at some point in the future.
The article Google’s Me-Too Music Service Isn’t a Failure at All originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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