There's another revolution afoot in the music industry. And wouldn't you know it -- Apple (Nasdaq: AAPL) is leading the charge again.

The first upheaval
It was big news when Apple's iTunes music store passed traditional leaders Wal-Mart (NYSE: WMT) and Best Buy (NYSE: BBY) to become the largest distributor of music in the world. iTunes brought the beginning of the end of shuffling physical artifacts like CDs, LPs, and 8-track tapes through equally physical stores. Independent record stores are a dying breed; Tower Records and its ilk are mostly dead already. And Billy Crystal isn't going to save them.

So that was Revolution No. 1: Digital files have become the standard medium for music buyers. CDs and LPs continue to exist, but mostly as items for collectors who love the smell of vinyl in the morning, and who appreciate liner notes.

Let's get it started!
And now the next evolution of digital music is upon us: Apple and Google (Nasdaq: GOOG) are moving our music libraries into the cloud. It's all so very Web 3.0.

Google got off the ground first by launching its long-awaited Google Music service during this month's I/O conference. It's in a closed beta stage right now, meaning that you can't try it out without a direct invitation from the powers that be. But it's an entirely new paradigm in music consumption, and one that should resonate very strongly with consumers if or when it goes mainstream.

Here's how it works:

  • Upload your music to Google's digital locker. Google lets you grab file folders of the stuff or simply your entire iTunes library.
  • Tap into your new, centralized music library from any Web browser or reasonably recent Android phone.
  • Enjoy your music to your heart's content.

The service is akin to carrying a large memory card around at all times, packed with up to 20,000 songs. Except there's no card -- all you need is an Internet connection, and you're good to go.

Unlike a Sirius XM Radio (Nasdaq: SIRI) subscription or a Pandora feed, you control exactly what you want to hear next. You're not depending on some potentially incompetent DJ (real or digital) to spin the good stuff. Sirius fans will rightly point out that the service works only as long as you have a decent Internet connection and will fill up metered data plans rather quickly. But if those concerns don't bother you, this could very well be your ideal music service.

Apple thinks different
Apple's version of the same idea doesn't quite exist yet, because the company is working to remove a potential problem that Google did an end-around run on.

Welcome to the tangled web of music licenses.

Numerous reports say that Apple already nailed down licenses for a service like Google's with three out of the four major record labels. Universal Music Group is the supposed holdout, and it's also the largest music company in the world.

But that's only one half of the puzzle. The labels own the rights to recorded performances of their music, but not always the rights to the songs. To keep a certain kind of digital locker, you'll probably need both kinds of licenses in place.

Oh, what a wicked web …
For example, EMI owns the rights to recordings by The Beatles, but Sony/ATV owns the songs.

Many bands have split over publishing royalties; Georgia rockers R.E.M. have stayed together for 30 years because they always took care to share publishing credit equally. Drummer Bill Berry wrote most of mega-hit "Everybody Hurts," but the song was credited to Berry/Buck/Mills/Stipe like everything else. This seemingly esoteric licensing point is a big deal, and it gets complicated very quickly.

Given that Apple most likely will pay license fees to both labels and publishers for its cloud-based music service, the company will probably slap a fee on the service itself. Google hopes to avoid all of that by simply providing a place for users to store their music and a simple way to consume it. The company has no licenses in place, reportedly isn't even discussing them with the music industry, and hopes to skirt by on the fact that you already own the materials in question.

With or without service fees, Apple could beat Google with a better service. With all the proper licenses in place, Apple could simply scan your music collection and then give you access to a centrally stored copy of the same stuff. No slow uploading, no fuss, no muss -- but you're paying for the privilege.

Who will win?
Apple's proposed service sounds a lot like a Netflix for music. For a low monthly fee, you can stream your songs where, when, and how you like it. The fees would have to be lower than the $9.99 charged by Rhapsody or the $5 that Best Buy's Napster service asks for. After all, you're supposedly only gaining access to your own paltry collection of a few thousand songs and not the multimillion-tune library of those other services.

If Apple can't do this for free (or at least a ridiculously low price such as $0.99 per month), that gives Google a serious leg up. There are too many free music sources out there to make an expensive one worthwhile, from terrestrial radio to Pandora -- that is, assuming that Google Music survives the inevitable legal challenges. The service looks a lot like good old, which used a similar method and legal tactics but was forcefully shut down by the courts.

I'd prefer the Google service, and I believe that I should have the right to move my legally purchased music files into any medium I want. But Apple is not taking any chances, and its negotiations might pave the way for a flood of similar services once the licensing precedents have been set.

Cloud computing is revolutionizing the entire IT industry, and this musical showdown is just the latest example. Take a minute to watch this free video right now, and you'll walk away with a richer understanding of the cloud model.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.