Big G is pretty comfortable with fighting Apple from the underdog position, and has a unique set of weapons at its disposal. Android phones are set to eclipse iPhones in quarterly sales as we speak, and in total installed base as early as next year. That's a testament to Google's capacity to disrupt an established market with new products. Lessons learned from the Android campaign will apply neatly to this Google vs. Apple music challenge, too.
What's going on?
Google is not looking to just copy iTunes and hope for the best. Instead, it looks like Google Music will be a cloud-based service based on technology from freshly acquired Simplify Media. If you never used Simplify Media, you can think of it as a way to listen to your own library of digital music tracks from anywhere. All you need is a Web browser with Flash from Adobe Systems
Simplify is dormant at the moment, not accepting new users or handing out software downloads. The whole service should come back to life under the Google banner later this year, according to CNET sources. Google showed a Web-based music service to guests at last month's I/O Conference and promised an Android version of it for the Gingerbread/2.3 version of that platform.
If Google sticks to the twice-a-year release schedule we've seen in Android's early days, that means we're looking at something like a November release of the Android app. General availability for other platforms should not be far behind.
What's at stake?
The symbiotic iPod/iTunes ecosystem contributed a staggering $12 billion of sales to Apple in 2009. iPods are still outselling iPhones, but only by the slimmest of margins; Apple is shifting its customers from single-purpose media players to all-purpose smartphones with astonishing efficiency.
Of that $12 billion market (or $19 billion if you count iPhones as music players), a new music store that doesn't sell hardware is aiming for only $4 billion of the net sales. In a pure thought experiment, let's assume that Google equals Apple's music sales right now. The extra $4 billion of annual run-rate would represent a 16% boost to Google's top line, while diversifying the company's operations quite severely from the current addiction to online ad sales.
Big G is reaching into other non-AdWords revenue sources as well, including TV advertising and paid information services, but these efforts have yet to pay serious dividends. Getting Google Music up to speed quickly would serve nicely to show the market -- analysts and all -- that there really is more to Google than endless floods of banner and text ads. If distrust of an ad-only revenue model is keeping the stock price down, then we're talking about a watershed moment in Google's history.
Google Music could take off quicker than you might imagine. Warner Music Group
Nobody else can match a user-friendly music service in the clouds to an appropriate marketing channel the way Google can. Music fans who use the leading search service (that would be Google) to find out more about their favorite bands, albums, or songs now get pointed to mostly noncommercial resources like Pandora, Rhapsody, and News Corp.
Google Music won't kill iTunes outright; there are too many diehard Cupertino loyalists to ever achieve that. But check back in a year or two, and iTunes might finally have the serious rival that Amazon MP3 never quite was.
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Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers recommendation. Apple, Adobe Systems, and Amazon.com are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.