Amazon Gives Away a Billion

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Who says PepsiCo (NYSE: PEP) isn't a rebel?

Following the success of a 2004 team-up with Apple (Nasdaq: AAPL) in which the pair gave away 100 million songs in 60 days, Billboard reports that the cola connoisseur has inked a deal with Amazon (Nasdaq: AMZN) to give away 1 billion songs.

The kicker: As before, the promotion will kick off during the Super Bowl. Bummer for Apple ... or is it?

It sure looks bad at first. Amazon is hoping to make iTunes irrelevant by introducing lower prices for music not shackled to any one player, including the iPod, which is a top seller for the retailer (and has been for years).

Trouble is, iTunes is much more than a store. Amazon won't burn CDs for you, for example. Neither will rent-a-song small-timers such as Napster (Nasdaq: NAPS).

If you're used to iTunes, a $0.10-per-song difference isn't likely to matter much. Even a $0.30 discount for DRM-free music, while enticing, isn't likely to put iTunes out of business.

Free is another story, of course.

Giving away 1 billion songs over the course of a year will do more than capture attention; it'll capture market share. Apple has sold 3 billion songs via iTunes as of this past July, 1 billion of which were downloaded between January and July of this year. Do the math. With one giveaway, Amazon could grab 33% of the market.

That's troubling. Not so much for the lost iTunes revenue; I maintain that Amazon's DRM-free sales are good for Apple so long as the iPod is considered the best available digital media player. With the iPhone and now the iPod Touch, I don't see that changing soon.

What's worrisome to me is that, in losing market share, Apple would lose bargaining power with Hollywood, the music industry, and potential partners.

Put it this way: Would Starbucks (Nasdaq: SBUX) have done a music deal with iTunes if Amazon were a cheaper, though comparable, heavyweight? Probably not. Watch your back, Mr. Mac.

Take a bite of fresh, delicious related Foolishness:

• Apple is so awesome that the iPhone doesn't matter.
• The recording industry gets what it wants, but at what price?
• There are at least 100 million reasons to envy Apple.