5 Reasons Google's Music Store Will Fail

Google (Nasdaq: GOOG  ) is great, but this doesn't mean that it will be great at everything it does.

The Wall Street Journal is reporting this morning that the superstar of search is gearing up to take on Apple's (Nasdaq: AAPL  ) iTunes with its own digital music store. It's a bad idea -- even if it makes perfect sense on the surface.

After all, Google Music launched in beta earlier this year as a digital music locker service. Users can upload their song libraries to Google's cloud, streaming their music wherever they are. Google Music offers free tracks to keep users coming back, so why not break out the cash registers?

We also have Google's success with Android. The dot-com giant revealed last night that there are 190 million activated Android devices out there, largely smartphones, naturally. If Apple can make its iOS ecosystem rely on iTunes, why can't Google be successful despite Android's more open platform?

Unfortunately, the positives end there. Google is unlikely to make this work, and let's go over the five reasons that Big G is in big trouble.

1. Google still isn't playing nice with the record labels
WSJ reports that Google is close to a deal with Citigroup's (NYSE: C  ) EMI, the country's fourth largest music label, to begin selling its music. Google is apparently far away from a deal in negotiations with the three larger record companies. Citi may also be unloading EMI if it finds a buyer, so Google needs to move fast.

The article claims that Google is going to open its virtual storefront even if it's missing the biggest recording stars.

If this sounds eerily familiar, revisit last year's launch of Google TV. The smart television platform was launched without Hollywood's blessing. The result is that networks blocked access to its online streams and Google TV was a flop in its freshman season.

Without the content, Google Music is just a glorified digital locker service.

2. The cloud advantage isn't really an advantage
Amazon.com
(Nasdsaq: AMZN) introduced Cloud Player in March. Apple rolled out an iTunes update this week that supports iCloud.

In other words, it's not as if Google's cloud-savvy ways are a differentiator here. Amazon and Apple are already there, and they both have the rights to sell digital tunes from all of the major labels. Apple also goes one step further with its premium iTunes Match, giving paying members instant access to their libraries without having to physically upload every single track. Amazon and Google require users to go through the painstaking task of uploading to the cloud.

3. Apple and Amazon have the market cornered
Wal-Mart
(NYSE: WMT  ) is the country's biggest seller of CDs, yet even the discounting giant couldn't make a dent in digital music by offering slightly lower price points. Wal-Mart shut down its MP3 store two months ago.

Why would Google succeed? Apple sells the vast majority of the digital tracks purchased in this country. Amazon is a distant second, but is relevant because it's a place shoppers naturally gravitate to when they're looking to buy something. The occasional $0.99 Lady Gaga digital CD promotion doesn't hurt either.

4. It's been a struggle for Google to sell digital media
I love Google. I'm on Google, Gmail, and YouTube daily. I never feel as if I'll have to hit a checkout cart screen on Google. Isn't that how everyone approaches Big G?

When YouTube began offering premium rentals last year, it was a flop. Folks hit the video-sharing site to see free short-form videos, not pay $3.99 to stream The Cove on their PCs.

Google's hoping to change that. It has been trying to take on eBay's (Nasdaq: EBAY  ) PayPal with its Google Checkout transaction platform. Five years later, it's still a hard sell. 

5. Patience isn't always a virtue at Google
Google can be finicky. Its avatar-based Lively community lasted just four months. Dodgeball, Catalog Search, Google Video, and Google Notebook are just some of the services that Google has nixed because they didn't catch on right away.

Knowing that Google may launch an incomplete music store that won't catch on at first, how patient do you think the company will be? This is a company that rides its winners -- AdWords, Gmail, Android, and more recently Google+ -- and buries the rest.

Why would its change its tune, even in the pursuit of selling tunes?

If you want to follow Big G developments as they happen, add Google to My Watchlist.

The Motley Fool owns shares of Google, Apple, Citigroup, and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, Google, Amazon.com, eBay, and Apple. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores, as well as a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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