Google's YouTube Hits Another Roadblock For Its Long-Awaited Music Service

YouTube's music service has suffered several setbacks this year. When will it launch?

Aug 6, 2014 at 1:00PM

Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is facing its second setback in a matter of weeks when it comes to the launch of its long-awaited YouTube Music service. Last week, Shiva Rajaraman left YouTube for the rockin' offices at Spotify. About a week earlier, Chris LaRosa left YouTube to work on an independent project.

These two were previously working closely together on a music subscription service for YouTube. LaRosa had been the liaison between YouTube and music publishers and was responsible for bringing official music videos to YouTube. He reported to Rajaraman.

YouTube, in short, has been in flux most of the year, and many observers had expected to see its music service by now. Meanwhile, Spotify is growing rapidly and now has 40 million active listeners and 10 million paid subscribers. At what point does it become too late for Google to compete with the Swedish streamers?

Youtube Logo Full
Source: YouTube.

YouTube: the most popular music streaming site
LaRosa did a lot of good for YouTube before he left, transforming the video streaming site into a music streaming paradise. Google has a joint venture with Sony and Universal to publish official music videos through Vevo, the most popular YouTube network.

Indeed, YouTube is great for streaming individual songs. The experience may be even better than on Spotify. YouTube's global reach also far exceeds Spotify's presence in just 56 countries. As a result, YouTube's most popular music videos far exceed the number of streams of the same song on Spotify. The most streamed song on Spotify, Avicii's "Wake Me Up," had 235 million plays as of May. The same song had about 500 million plays on YouTube around the same time. Of course, "Gangnam Style" takes the prize for most popular song on YouTube, with over 2 billion views.

The popularity of YouTube as a music streaming destination gives Google a wide window through which to launch a dedicated YouTube music service. With a built-in audience, Google just has to serve them what they want. It can easily place ads around music videos to entice users to sign up and try the service. The question is: What can YouTube do that Spotify can't?

Spotify Logo Primary Horizontal Light Background Rgb
Source: Spotify.

YouTube Music needs more than playlists
The obvious answer is that YouTube has a treasure trove of music videos it can integrate into its service. At the same time, a service that just produces auto-playlists of music videos probably won't produce significantly more engagement for YouTube. People put on playlists and go off to work on something else; they don't stare at their computer screen.

Nonetheless, Google has been taking steps to improve its playlist-making functionality. It recently purchased Songza, which specializes in curating context-appropriate playlists for its listeners. Google said it plans to integrate Songza's data into its current music service, Google Play Music. In addition, Apple has been collecting data from its own Google Play Music All Access subscribers to improve playlist technology.

YouTube recently redesigned its site to feature playlists more prominently. Source: YouTube

Playlists were integral to Spotify's initial popularity. Being able to easily share playlists and find new user-made and curated playlists from magazines and bloggers was something unique. The model has been copied since, most notably with Beats Music -- which hasn't exactly captured a huge audience.

YouTube's music streaming service will have to offer something more than another playlist maker. I expect Google will find a way to integrate YouTube's video library, as well as its All Access and Songza properties, into whatever it pushes out to music fans, but it probably needs to be more than that.

One property that Google could leverage is Android, as smartphones have become most people's primary music listening device. Just as Apple integrated iTunes radio with iOS, Google could do the same for its music streaming service and Android. Android's share of the market continues to climb, reaching 85% last quarter.

You've got their attention; now keep it
YouTube is in the excellent position of owning the most popular music streaming property. If Google wants to build a dedicated music streaming service on top of the video platform, it certainly will attract a large initial audience -- just as Apple was able to do with iTunes Radio. Keeping that audience, however, may prove quite difficult unless Google is able to offer something nobody else can. Certainly, video will be a part of that, but people sign up for music streaming services for the all-you-can-stream buffet of listening, not to watch videos for hours.

Google has a wide window into which it should be able to successfully launch a YouTube music service. But as more people sign up for Spotify, the more it has to differentiate its product from the competition to keep listeners around after the launch.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.

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