Why Big Tech Wants to Rule Online Radio

Perhaps you've noticed, but competition in the online radio space has heated up lately. This month alone, tech giants Apple (NASDAQ: AAPL  ) and Microsoft (NASDAQ: MSFT  ) released significant updates to their respective online music presences.

So what do these new or updated music services look like, and what are their implications for this growth market?

Crowded party
Apple, of course, was the among the first-movers in digital music when it launched iTunes in 2001, and it recently unveiled the most aggressive advancement to iTunes in some time in its iTunes Radio service, which made its debut in the United States last week.

Source: Apple.

The service most closely resembles online radio pioneer Pandora Media (NYSE: P  ) . Both services come in free and paid versions, with each company's free version being supported by advertising. However, the pricing differs slightly for the two companies' paid versions. Pandora's streaming service will set you back $36 for an entire year, while iTunes Radio's paid version costs only $25 a year and includes iTunes Match cloud services.

If early indications count for anything, the service stands to become immensely successful. After being released late last week, Apple gave word that iTunes Radio had already registered 11 million users. This is just a fraction of the 575 million iTunes users that already have credit cards linked to their accounts, implying the service's future growth potential could still just be getting under way. No matter how you slice it, though, Apple is clearly doubling down on online music.

Video games meet music
Turning to Microsoft, the software giant launched its Xbox Music service nearly a year ago, but recently took perhaps its most aggressive step to date by making Xbox Music available on both Android and iOS mobile operating systems. And while the odds are against much traction across platforms, its release does indicate that Microsoft is serious about expanding its presence in digital music. 

The service itself is something of a hybrid, incorporating both free and paid subscriber tiers. The free streaming service is once again supported by advertisements, but features a cap to user listening hours after six months. Pandora once imposed a 40-hour monthly listening limit for its free users as well, but dropped the restriction last month.

The subscription version of the service, Xbox Music Pass, is slightly pricier than other options in this space. It will set back users $99 for a one-year pass or $9.99 for a monthly plan. However, the service also goes beyond streaming radio, allowing on-demand access to Microsoft's 30 million song library both online and offline.

So why is online music so important here?

Power to the platform
For Apple and Microsoft, the strategy goes beyond pure money-making. At the end of the day, the motivation for both companies is all about the ecosystem. As these companies each struggle to find a much-needed edge in the highly competitive market for mobile users, providing these services helps to make the overall user experience within a given ecosystem stickier.

These differ strongly from stand-alone services like Pandora and Spotify. Although each of these companies already sports robust user bases and probably enjoys at least a degree of brand loyalty, the growing emphasis on online music from Apple, Google, and Microsoft presents a very real threat to these smaller competitors. iTunes Radio could even one day be a Pandora killer.

Foolish bottom line
So the investing narrative is somewhat muted here. Rather than simply making money, the big tech names that are increasing their investments in this space simply want to remain competitive relative to one another in a perpetual battle for consumer loyalty. This might not seem important, but over time the companies that can create and extend these kinds of competitive advantages are the ones that usually end up winning. And while this storyline in online radio is still evolving, it's certainly still worth noting for investors looking for opportunities in this space.

The titans of tech
The growing competition in online radio is just one example of how today's biggest tech titans are increasingly invading one another's turf to grab a greater share of the trillion-dollar revolution underway in mobile. To find out which of these giants is set to rule the next decade, we've created a free report called "Who Will Win the War Between the 5 Biggest Tech Stocks?" Inside, you'll find out which companies are set to dominate, and we'll give in-the-know investors an edge. To grab a copy of this report, simply click here -- it's free!


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