"Watch your back, Mr. Mac," fellow Fool Tim Beyers warned last month, when Billboard magazine unearthed a promotional deal through which PepsiCo
Well, the news became official last night. On the eve of Apple's
The Pepsi Stuff promotion kicks off next month; during this promotion, buyers of Pepsi products will be able to redeem unique codes online. The deal has changed a bit since last month's leak. Instead of 1 billion MP3 downloads, soda sippers will be able to apply the points to other Amazon.com offerings, like Unbox digital video downloads, CDs, DVDs, and clothes. In other words, even though a fraction of the "up to $1 billion in prizes" will ever be claimed, an even smaller fraction will go for free Amazon downloads.
This doesn't mean that Apple can breathe easy. Video downloads are another punch in the gut for Apple. One can argue that some of those points will go toward Apple product purchases, but it's going to be an interesting few months on the iTunes front as Apple's store competes against a glut of freebies on Amazon.com.
Apple and Pepsi pulled off a similar stunt on a smaller scale four years ago. It was a different climate then. Apple was really only competing against itself when it came to digital downloads. The major labels were sobering up after their own failed endeavors, and Apple was seen as a lifeline from the sea of peer-to-peer piracy sites.
Obviously, kids are still downloading songs illegally for free, but now several retailing heavies like Amazon and Wal-Mart
But even though it's hard to compete on price you'll still find willing takers when you're giving something away. Since Amazon's MP3 files are compatible with everything -- iTunes included -- they become a feasible alternative for a penny-pinching teen who was going to buy the same song on iTunes.
This brings us to the power of giving something away as a strategy for motivating future sales. I go to warehouse clubs like Costco
A lot of soda drinkers will be giving Amazon's storefront a free taste test later this year. What if they like the ability to port an MP3 anywhere? What if they like the sonic quality of Amazon's product better?
You would be an idiot to predict that Amazon can take down Apple with a box of toothpicks, but it will introduce many iPod users to the open world of legal alternatives.
Subscription services like Napster
Apple will need to remain competitive over the next few quarters by promoting its own library of DRM-free tunes, beefing up its own freebies, and making enough noise until the Pepsi-Amazon spigot is shut tight.
Watch your back, Mr. Mac? Forget your back. Look in front of you. They're coming right at you.
For musical Foolishness:
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Longtime Fool contributor Rick Munarriz has been shopping online for about as long as Amazon.com has been in business, but he rarely has all the answers. He does not own shares in any company in this story. 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.