Apple shifts music strategy with Lala shutdown

There is speculation that Apple is set to shift its iTunes download store strategy and enter the cloud-based music streaming market, after it shut down Lala, the music streaming service it acquired last year. If so, it will compete with platforms such as Spotify and We7. Spotify recently rolled out an upgrade that allows users to import their music libraries into Spotify, putting the platform in direct competition with iTunes.  

In a brief message on the website, Apple says Lala is no longer accepting new users and will shut down completely on May 31. Apple will convert any money users have spent purchasing streaming music into iTunes credit. Wallet balances and unredeemed gift cards can either be converted or refunded.

Apple faces growing competition in the digital music space from the likes of Spotify, which recently overtook iTunes in its native Sweden as the biggest source of digital music revenue. Free music streaming services are growing in popularity, and Spotify already has 7m subscribers. Users can now import their music libraries into Spotify meaning they are available from any internet-connected device. It has also introduced social features which allow users to import friends from Facebook and interact with contacts via an inbox. iTunes, on the other hand, is still a desktop client based around paid music downloads.

Apple may be planning to mimic many of Spotify’s new features by integrating Lala with iTunes. In particular, Apple is thought to be interested in using Lala technology which can scan music stored on users' computers and allow customers to access their previously downloaded tracks from anywhere through the cloud. Reports in the Wall Street Journal last year suggested that Apple could launch an service as soon as June. The company may even announce the service at its developers’ conference on June 7.

NPD analyst Russ Crupnick says Apple is in a strong position because it has shown it has a viable business model. Although it is late to the cloud-based music sector, Apple is responsible for the growing market for legal music downloads, and already has a huge audience of tens of millions through its iPhone and iPod devices.

"You have to keep in mind that, in the US at least, Apple owns the desktop for music, is dominant in the portable player and smartphone markets, and has the app store which gives them a tremendous platform," he tells StrategyEye. "But it's not necessarily a David and Goliath story. The key is to attach value and revenue to your service through sales, sponsorship, ad revenue or subscriptions. The long-term solution will need to be a mix of these."