Amazon Music – Table stakes.
40m tracks and a search box does not a service make.
• Amazon has plugged an obvious hole in its push to create a consumer ecosystem with the launch of a music service that brings its catalogue into line with that of Apple Music, Spotify and so on.
• The new service called Music Unlimited costs $9.99 per month ($7.99 for Prime members) and features the now standard 40m tracks and a search box.
• In addition, Amazon is also clearly reacting to the very real threat posed by Google Home by offering the music service for just $3.99 a month on the Echo.
• For $3.99 the service is only available on the Echo and we see this as Amazon attempting to compensate for the fact that Google’s Assistant is far brainer and more useful than Alexa.
• We also suspect that Amazon had a very easy time licensing the music as we see the labels being keen to democratise music streaming as much as possible.
• This is because the writing is on the wall for the music labels as the music streaming companies will soon be able to distribute music from artists much more effectively than the music labels can.
• Furthermore, once the artists have figured out that distribution via streaming can be just as good, if not better and they get to keep far more of the revenues, then an exodus will begin.
• However, the more the labels can keep the market fragmented, the less power each service will have to replace them slowing their inevitable obsolescence.
• Consequently, we think that it is easier than ever to licence all the music a service needs which will hasten the commoditisation of music streaming.
• This is why we have long believed that the music itself is incidental and what really matters is the data that the service generates and the algorithms that make sense of it.
• This is what allows a music streamer to understand its subscribers and match them with great accuracy to the bewildering 40m items that are available for them to listen to.
• This also allows the addition of innovative features to be deployed on top of the service which is becoming an important area of differentiation.
• On this front, we do not see Amazon doing very well.
• The Alexa digital assistant underperforms Google, Cortana and Siri indicating that a vast amount of work is required to improve it.
• This is a major reason why we think that as long as Google executes well, it should be able to dominate the segment that Amazon has created.
• The net result that Amazon is a me too service that will have some attraction for existing Prime members but is not going to cause Spotify or Apple Music to lose much sleep.
• Hence, we see no change to the landscape where Spotify is adding subscribers at double the rate of Apple Music despite Apple Music being installed on over 1bn devices.
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