Amazon.com Is Preparing to Challenge Apple Yet Again

With an entry into streaming music, Amazon.com is once again fighting against Apple to create a compelling digital ecosystem.

Mar 5, 2014 at 9:00AM

Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) are the epitome of the term "frenemies." Sure, Apple's full array of computers, tablets, and other devices are available for sale on Amazon.com's core e-commerce site. While this mutually beneficial relationship is likely to continue, there is a building tension between the two companies. This tension will increase further as Amazon.com works to secure the deals with record labels necessary to launch its own streaming music service. 

A logical extension of Amazon Prime
Amazon.com has millions of subscribers to its Prime service. While Prime started as simply free two-day shipping, the service has quickly grown to contain value-added services including a library of over 41,000 streaming video titles and 500,000 free Kindle book titles. 

Amazon Prime has sparked intense debate regarding whether it is a viable alternative to Netflix's streaming video service. While most analyses focused strictly on video streaming tend to favor Netflix based on its video library and original programming, there is compelling value in the combination of Amazon.com's services.

Streaming music would be a perfect compliment to Prime Instant Video. For customers that shop online and consume video and books using digital platforms, music is a logical extension. A single payment for unlimited streaming of digital video, music, and books combined with fast and free shipping from the world's top e-commerce company creates a significant value proposition that no other company can match.

Streaming music is integral to digital sales
Apple and Amazon.com have both grown digital revenues significantly in recent years through the sale (and rental) of video and music content. While the purchase model will remain a key component of digital revenue going forward, it is important to recognize the surge in popularity of streaming.

Billboard declared 2013 as the first year in history in which the number of digital tracks sold actually declined. The decline from 1.34 billion tracks sold in 2012 to 1.26 billion in 2013 represents a decline of only 5%, but the shift in momentum is significant. Pandora Media's (NYSE:P) wildly popular streaming service reported 16.7 billion total listener hours during 2013. Not only is this an increase of 23% over the prior year, the strong results came in a year in which Apple's iTunes Radio streaming services and other competitors launched streaming music alternatives in recognition of the growth potential of streaming.

For ad-free streaming, Apple requires an iTunes Match subscription for $25/year and Pandora requires a $36/year upgrade to Pandora One. As a result, Amazon.com is presented with an opportunity to differentiate itself by providing millions of Prime subscribers with a comparable service free of charge.

More importantly, Amazon.com has likely recognized the same opportunity that Apple has: streaming audio with a convenient way to add songs to a wish list or purchase instantly will help drive digital music sales. Apple has made impulse buys easy with iTunes Radio, and there is no reason to doubt that Amazon.com will have its own one-click purchase alternative.

The next battle in the digital ecosystem war
Perhaps more interesting than the impact of an Amazon.com streaming music service on iTunes Radio and Pandora is how such a service will shift the balance of the iOS and Android ecosystem wars. Presently, Apple's iTunes offerings are only available on Apple devices such as iPad, iPhone, Mac, and Apple TV. Amazon.com has a far broader reach in digital video, including Mac, PC, iOS, Android, Roku, and a number of other platforms including blu-ray and smart televisions. However, Amazon Instant Video is conspicuously missing from Apple TV. 

Will a competing streaming music service be the move that ousts Amazon.com's apps from iOS? If not, Amazon.com's streaming music service has the potential to be as ubiquitous as Pandora's app. In a battle for market share, there is significant value in having availability on as many devices as possible. 

Competition in streaming music is likely one of the big reasons behind Apple's push to release CarPlay; access to vehicles would maintain Apple's ability to allow its fan base to enjoy streaming music in each of the most popular places to listen to music, including mobile, computer, vehicle, and home audio systems. 

More than one winner
While it will be interesting to see how the fight for market share in streaming music plays out, it is also important to remember that there will be more than one winner. If Apple's iTunes Radio didn't turn out to be a "Pandora killer" as many (myself included) thought it might be, the roll out of Amazon.com's streaming music service likely won't achieve that distinction either.

However, streaming music is yet another way that Amazon.com can expand its ecosystem and encourage the sale of its digital products. This fits nicely into the company's long-standing strategy of creating a compelling value proposition for customers in an effort to gain market share over the long term.

As a result, the roll out of a streaming music service would further strengthen the investment thesis that Amazon.com has tremendous opportunity for growth.

The Motley Fool's Chief Technology Officer is investing a TON of money in this one stock
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Brian Shaw owns shares of Amazon.com and Apple. The Motley Fool recommends Amazon.com, Apple, Netflix, and Pandora Media. The Motley Fool owns shares of Amazon.com, Apple, Netflix, and Pandora Media. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers