How Amazon’s MP3 Store Will Challenge iTunes, and Why Steve Jobs Doesn’t Care

This week the long anticipated Amazon digital music store finally launched. Unlike recent efforts from the likes of Wal-Mart, Amazon’s DRM-free store could pose a substantial long-term challenge to iTunes. While that may sound like bad news for iTunes, it could prove to be a good thing for Apple.

Here’s why I think Amazon will pose a serious challenge to the iTunes music store:

• Amazon’s retail dominance should not be underestimated. Amazon has a huge customer base, most of whom have never considered buying downloadable music. Now, every time an Amazon customer buys a CD they’ll be tempted by the option of buying the same album at a discount. Customers with digital music players are going to be ripping their CD’s to MP3s anyway. Why not save time and money and get the music right away? Amazon’s new offering will reach a whole new segment of the music buying public.
• Amazon’s new store eliminates format confusion for novice digital music consumers. While early adapters understand the intricacies of digital music formats and DRM restriction, consumers who haven’t yet bought into the concept of digital music are confused by competing standards. By choosing to use MP3 in the name of their new store, Amazon is sending a clear message to consumers that everything they buy from the Amazon will play on any digital media player.
• Amazon’s new store is an open marketplace that requires nothing more than a standard web browser to access. By contrast, the iTunes Music Store is a classic walled garden. Consumers have to open a special application just to browse the iTunes store. While this may seem like nit-picking, the walled garden approach has numerous limitations. For example, it’s nearly impossible to link directly to an album in iTunes (yes, it can be done, but the link also triggers iTunes to open). Compare that with a link to the Tom Waits album I bought from Amazon yesterday afternoon. I suspect we’re going to see a lot of linking to Amazon’s MP3 selection in the near future.
• API’s and affiliates. Speaking of links, Amazon has a huge number of affiliates who actively link to Amazon products and get a small percentage of each sale. Additionally, Amazon encourages third parties to build entire stores around the Amazon inventory. Amazon’s API for developers is quite robust and I suspect we’ll soon see the emergence of boutique MP3 shops built on top of the Amazon MP3 inventory.

Obviously the Amazon MP3 store is not perfect. There a few areas that need improvement, most notably the selection of available music. However, recent reports indicate that Warner Brothers is considering jumping on the DRM-free bandwagon. When that happens it’s only a matter of time before Sony gives in. When that happens Amazon will have an inventory to rival the iTunes music store.

So, why is it that Steve Jobs would not be concerned about Amazon’s MP3 store?

• Competition is good. Especially when you’re in danger of being accused of having a monopoly. As the digital music market grows, iTunes dominance will begin to look more and more like a monopoly. Any competitor that poses a serious challenge to the iTunes store will only serve to make the market appear more open to competition.
• Steve Jobs cares more about selling Apple hardware than he does about selling songs for RIAA affiliated labels. Anything that increases the availability of content for the iPod is a net plus for Apple. The early thinking was that iTunes music drove iPod sales (well, that’s what the major labels thought). The truth is that iPods drive iPod sales. Consumers love iPods and the Amazon MP3 store provides consumers with another source of reasonably priced iPod compatible music. If any thing, the Amazon MP3 Store will sell more iPods. The fact that Amazon also sells iPods is not just a happy coincidence.

All-in-all, the new Amazon MP3 store is a great development for consumers. My first experience buying mp3’s from Amazon could not have been smoother. While I remain a happy eMusic subscriber, I look forward to using Amazon to fill in the gaps in my digital music collection.