Wal-Mart Goes Digital

Think everyday low pricing can't be applied to digital music? Think again, Fool.

Wal-Mart (NYSE: WMT  ) began testing its online music store today, offering up songs for $0.88 a pop. It will officially launch its download store in 2004, after seeing exactly what customers respond to -- and what they don't -- in the preliminary version. The world's largest retailer joins a crowd of digital music competitors including Microsoft (Nasdaq: MSFT  ) , Sony (NYSE: SNE  ) , Hewlett-Packard (NYSE: HPQ  ) , Dell (Nasdaq: DELL  ) , Roxio (Nasdaq: ROXI  ) , and, of course, Apple (Nasdaq: AAPL  ) .

Digital music is a hot business, and is growing even steamier. Jupiter Research predicts that today's $80 million market could explode to $1.6 billion in 2008. Wal-Mart, never one to shy away from potential profits or the opportunity to put its pricing muscle to work, understandably wants a piece of the action.

Wal-Mart has a history of seismically changing just about any industry it dares step into, driving down prices and making competitors' lives much more difficult. However, this may be a case where Wal-Mart won't crush the competition. That's not to say it won't succeed in skimming some green off the top, but Apple's Steve Jobs isn't losing sleep over Wal-Mart. Can't say I blame him, either.

First, while $0.88 a song is certainly cheaper than the $0.99 a song Apple's iTunes is charging, there's more at play here than strict price competition. For one thing, Wal-Mart's digital music store only supports Windows. For another, it abides by the same censorship policies that Wal-Mart implements in its stores. Songs will be tagged "edited" to show that "offensive lyrics" have been changed. That may be enough to keep some audiophiles away.

I'm not shortsighted enough to completely discount Wal-Mart's entry into digital music. I do think, though, that it will be the competition from all the combined entrants into this field next year that will create the most change, instead of Wal-Mart causing it alone.

For Wal-Mart, this is hardly a mission-critical business extension, so whatever it makes here will be gravy. Next year, however, developments in the world of digital music will be even more interesting to watch.

Want to talk about Wal-Mart with other Fools? Check out our discussion board dedicated to the company.

LouAnn Lofton owns shares of Microsoft.


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