Apple Buys Lala for a Song

I keep wondering when Apple (Nasdaq: AAPL  ) is going to make use of its $23 billion of debt-free cash. The house that Jobs built seems to prefer reinventing every wheel in-house, in stark contrast to Silicon Valley neighbors such as Cisco Systems (Nasdaq: CSCO  ) , Google (Nasdaq: GOOG  ) , and Oracle (Nasdaq: ORCL  ) , which like to go shopping for acquisitions with their cash-heavy wallets.

Now, Apple decided to buy something over the weekend, but it's nowhere near the multibillion-dollar splurges that everyone else is getting into. Apple plunked down an undisclosed but most certainly small pile of cash for music-streaming service Lala.com. It's similar to Apple's deal with media-processing chip company PA Semi last year -- The New York Times says the company simply wants to get its hands on the engineering talent found at Lala.

Lala's greatest claim to fame so far was the agreement to serve up free music streams to Google's updated music search functions. There's also a popular Lala application for sending musical gifts around Facebook, and there's a mobile application in the works. Lala sports a clever licensing scheme that allows you to buy songs for download at prices comparable to Apple's own iTunes, or pay a much smaller fee for the right to stream songs you own from "the cloud" on demand.

Apple should eventually put Lala's engineers to work on a streaming option within iTunes. The fixed-price iTunes model has worked well so far, but the times, they are a-changing. Services such as Hulu and YouTube have shown that streaming media works well for consumers, and now everyone is scrambling to figure out how to make it work as a business, too. Sometimes we forget that YouTube didn't even exist five years ago. What's more, streaming makes piracy walk the plank. Apple must change to keep up with customer tastes.

Of course, Apple could afford to make a much bigger bet than handing out pocket change for a few new hires. Apple has bought four companies in the past six years, according to Capital IQ, and none of those deals has been particularly large. I mean, if Apple truly wanted to kickstart a streaming service, Rhapsody parent RealNetworks (Nasdaq: RNWK  ) would be a mere morsel at less than $1 billion. Privately held Pandora wouldn't be terribly expensive, either, but it could make a big difference. Pandora is more popular than Sirius XM Satellite Radio (Nasdaq: SIRI  ) in some circles; it continues to be one of the most popular app-store downloads.

I'm not saying Apple will buy a big music-streaming service -- I'm just saying that it should. What do you think? Let me know in the comments below.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. The Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2009, at 4:00 PM, jjw120 wrote:

    Why pay a lot of dollars for Real, when you can pay less for the same thing. I suspect that Lala has a more compelling product over the long run. Remind me, how much money has Real made with their product?

    J.J.

  • Report this Comment On December 07, 2009, at 4:16 PM, TMFMarlowe wrote:

    I admit I haven't looked at this recently, but my memory is that YouTube is a ginormous money-loser for GOOG. Streaming media may "work" for customers, but is there a clear, workable route to monetizing it that most of those mainstream customers are likely to accept?

    I'm not sure I can see it actually happening, but AAPL buying Pandora is an extremely interesting idea.

    - John

  • Report this Comment On December 07, 2009, at 5:40 PM, Fredlee009 wrote:

    Ya, and in some circles, Hagas is eaten as a food. Pandora is a joke compared to Sirius XM Radio. One is free, and is overpriced, and the other is quality content, with ulimited distribution range. Get a clue buddy.

  • Report this Comment On December 07, 2009, at 10:14 PM, geoslv wrote:

    Google may have saved Youube financially, and provided copyright clearances. So Big Daddies can be useful. Google doesn't care. But the service is down the toilet. That's why I like independents with dedicated visionary minds. Don't really want Apple taking over much. Do what you do well.

    Real is a treasured company and leave it alone.

    Lala is great for selection. If Apple could help it with international clearances that might be a plus.

  • Report this Comment On December 07, 2009, at 10:15 PM, geoslv wrote:

    Google may have saved Youube financially, and provided copyright clearances. So Big Daddies can be useful. Google doesn't care. But the service is down the toilet. That's why I like independents with dedicated visionary minds. Don't really want Apple taking over much. Do what you do well.

    Real is a treasured company and leave it alone.

    Lala is great for selection. If Apple could help it with international clearances that might be a plus.

  • Report this Comment On December 08, 2009, at 5:48 AM, sosapalacio wrote:

    Apple's next buy is....hold your breath!!!!

    NETFLIX

    both platforms combined will be unbeatable adding several cross-selling channels boyh ways

    RGDS

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