December 15, 2008

Amazon Digital Music Second To iTunes

According to industry estimates, Amazon's digital music store has become the second-largest a la carte service after its first full year in business.

However, it is a very distant second to iTunes.  Major labels claimed that they hoped Amazon would have done far better than it did.  The company has not yet released any sales figures for digital music, and they did not respond to interview requests for this story.  Piper Jaffray, financial analyst, estimates that Amazon will sell 130 million tracks this year, a small estimate compared to the 2.4 billion songs iTunes has expected.

ITunes operates in over 20 countries, while Amazon just opened its first foreign store in the U.K. December 3.  Amazon's digital music market share was expected to raise about 8 percent above everyone else but iTunes, but that figure did not go up as the year went on.

"The market share has remained relatively stable throughout the year," NPD Group analyst Russ Crupnick said. "I didn't see anything out there that would be a major game-changer. I'm not all that surprised."

Amazon combated major challenges and entered a market saturated by an entrenched competitor.  Apple drives iTunes sales with its iPod, which is something Amazon lacks - a device to help push sales.

There are a few achievements Amazon does have, like digital album to digital single sales is twice that of iTunes according to NPD group.  But album sales by Amazon are boosted by weekly discounts, which offer catalog products for as little as 99 cents.

According to NPD surveys, Amazon's customers are 64 percent male, while iTunes is 44 percent male.  Also Amazon appeals to an older demographic with a third of its buyers between 26-35, and another third between 36-50.  Most iTunes users are younger.

"There's an increasingly difficult challenge in getting new digital users," Crupnick said. "It's becoming a bit of a mature market. The easy pickings aren't there so much. The biggest challenge is trying to convince the person in the iTunes ecosystem to get out of it."

Piper Jaffray projects that Amazon sales will surge 60 percent in 2009 to 208 million downloads.  Labels believe there is more potential in the companies integration with MySpace Music and other companies like it.

"Amazon was particularly interested in creating a seamless experience within MySpace Music," said MySpace CEO Chris DeWolfe, who added that more layers of integration are pending as the service evolves. "It's going to become more and more seamless (because) they were very serious about creating this experience and invested in it."

One deal Amazon allowed this year was for gamers playing "Grand Theft Auto IV" to tag songs in the soundtrack for later purchase on Amazon.  Also Google's G1 phone has one-click access to Amazon's MP3 store.  Developing more sales in 2009 will determine whether Amazon remains leader of the class below iTunes.


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