Fear the Slacker

You probably haven't heard a lot about Slacker. The music-playing device doesn't hit the market until June, and the world assumes that Apple (Nasdaq: AAPL  ) is going to own the digital-music space for several more years at least. Naysayers who claim otherwise are just showing up too soon -- or is that too Zune? -- for their own good.

But the key here is that Slacker doesn't have to be an iPod killer to emerge as a truly disruptive innovation. Actually, the more I learn about Slacker, the more I am starting to believe that it will be music-subscription services like Napster (Nasdaq: NAPS  ) and growing broadcast technologies such as HD radio and satellite radio that need to be looking over their collective shoulder.

A Slacker in your pocket
What exactly is Slacker? Heading out to Slacker.com isn't exactly love at first site. It's a free music-streaming service, where visitors pick from genre stations. The interface gets to know you better whenever you click on a heart icon when an enjoyable track is streaming or simply skip past a dud.

Yes, you've seen this kind of personalization before. Whether it's Motley Fool CAPS or Stockpickr for stocks or Netflix (Nasdaq: NFLX  ) for online DVDs, a software-driven platform that gets to know you better with every positive or negative rating is old hat. And Slacker certainly isn't the first music-discovery site to warm up to user input. Pandora.com's Music Genome Project has excelled in this niche since 2005, and a slick recent entry is ILike.com.

However, what sets Slacker apart is that it will be rolling out its own branded digital-music player in a few weeks. Does the world really need another iPod wannabe on the market? Probably not, but hold back on calling up the eulogizer until you learn about the refreshing approach that Slacker is taking here.

The portable devices, which start at a reasonable $150 for a 2 GB version, use Wi-Fi functionality to load up on freshly recommended tunes. The service is free if you're willing to put up with ads that come up on the 4-inch screen that also shows cover artwork and music reviews. So if you're within range of a Wi-Fi network, you have a perpetually replenishable music source.

Take that, Apple.

And Napster, too
Slacker owners can also pay $7.50 a month for an ad-free version of the service that allows patrons to keep storing the songs they like for as long as they're active subscribers. This sounds a lot like media-device subscription services that Napster and RealNetworks' (Nasdaq: RNWK  ) charge twice as much for. Sure, Napster To Go and Rhapsody To Go offer a wider variety of tunes. They are also more user-directed listening experiences. However, the media players typically need to be tethered to computer connections. Companies such as Yahoo! (Nasdaq: YHOO  ) are starting to hop on the Wi-Fi band-wagging bandwagon, but it's nice to see Slacker get this correct from the start.

Besides, it's not just the music-subscription services that should be quivering in fetal positions. The free ad-supported offering sounds like a pretty compelling substitute to terrestrial radio and even satellite radio.

Yes, even XM (Nasdaq: XMSR  ) and Sirius (Nasdaq: SIRI  ) should fear the Slacker. You won't find Stern or Oprah on Slacker's player, but for satellite-radio subscribers who commit to paying $13 a month mostly for the dozens of music channels, a one-time investment will run them about as much as the price on a satellite-radio receiver before they even get to the monthly tollbooths.

Further blurring the difference between its service and satellite radio, a car kit will be available, complete with a car dock and antenna that will use satellites to feed new music to your player. Temporary satellite signal disruptions won't get in the way, since the players always have a ton of preloaded music.

There is a silver lining here for Sirius and XM. Sirius CEO Mel Karmazin will have one more product on the market to point to in justifying the merger between XM and Sirius as fair to consumers. However, since the argument probably hits too close to home, Slacker can be another thorn in the side of an industry that is growing more slowly than it did a year ago.

Late to the party, early to the disruption
The hype over Slacker has been subdued for now. The Slacker.com site is still in beta, and media reports have been mostly limited to blog entries and reviews on CNET.com, Fox, and the latest issue of Business 2.0

That is surprising, because the product makes too much sense to fail. Oh, and the company's brain trust is top notch. It was founded by ex-CEOs of digital-music pioneers iRiver, Rio, and Musicmatch. These are seasoned guys who have made their marks on the software and hardware sides of the business.

Naturally, everything always looks good on paper. Will the player deliver come June? Will consumers flock to the portable devices? If the answer is yes to both questions, brace yourself for a shift in digital music. Slacker will be an ironic moniker indeed if this concept becomes a real workhorse.      

Digital music is a high-growth industry that's often explored as part of the Rule Breakers newsletter service. Netflix and Yahoo! are both Motley Fool Stock Advisor picks. You can check out either newsletter absolutely free with a 30-day trial run.

Longtime Fool contributor Rick Munarriz isn't a subscriber to any digital music service, but he does have satellite radio. He does own shares in Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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