Cloud music round two: Apple vs. Rdio

Judging from the response of tech companies (and the bloggers that cover them) this is the year of the cloud music service: Amazon came out of the gate a bit early, followed by Google and now Apple later this year, the details of which will be announced next week. I’d bet heavily on Apple and their stellar design work coming out on top, especially if rumors are true that Apple will provide cloud streaming for iTunes Store music sans uploads.

Yet the Apple vs. Amazon vs. Google music locker battle in the end is minor; the far more interesting question is Apple vs. Rdio; ownership ? la carte versus a nearly limitless collection for a flat subscription fee. It’s in that battle that I think Apple/Amazon/Google could lose. A few reasons why:

Music’s half life is short; ownership is overrated

One of the primary arguments made against music streaming is that its lack of ownership is a significant downside; unlike movies or TV shows that are only watched once or twice, good albums are listened to tens, even hundreds of times. I disagree; music is a lot more fickle than people give it credit for. In particular, people’s tastes can change quickly; hard core niche music fans look aggressively for new material while more mainstream users want to hear the latest pop hits, the roster of which changes often. In addition, streaming’s sound quality and mobile connectivity have improved a lot over the past year, blurring the lines between a streaming experience and true song ownership.

Rdio’s unlimited selection is one giant positive feedback loop

As I noted earlier, music fans almost always appreciate something new, but new with Apple/Amazon/Google will cost you; with Rdio it’s free. The more time Rdio users spend with the service, the more music they tend to connect with. More music and more selection begets more tastes, and in turn more music and more selections–positive reinforcement at its best. Because of this, I’d bet Rdio’s retention rate is very high, far higher than the rate of heavy iTunes or Amazon music downloaders.

The Apple Tax plays right into Rdio’s hands

Apple doesn’t have a track record for providing things for free (e.g. Mobile Me) even in the face of strong competition. I’d therefore predict either a flat monthly or yearly rate to use its cloud storage or a small charge to host each song ? la carte.

Overall, I’d estimate the total cost for an Apple iCloud service to run above $60 a year for most users, roughly the same as Rdio’s web streaming prices. That pricing structure favors Rdio: For the same price, users can either have the selection of what they already own on iTunes, or with Rdio they can have that iTunes collection (for most users, though Rdio does have a few glaring exceptions in its offerings) plus another nine million on demand for free.

Rdio has the right skills

It’s true few can go toe to toe with Apple in terms of design and delivering an amazing user experience, yet Rdio is no slouch: Their colorful design is great looking and easier to navigate than its streaming competitors. Their founders have great pedigree being the original founders of the hugely popular Skype and Kazaa services. Improvements are made frequently to their mobile apps. Their music selection, usually the biggest weakness of any streaming service, has increased radically since its debut a year ago.

Apple won’t offer streaming subscription options (for now)

Admittedly, if Apple added an unlimited streaming subscription to its iTunes catalog, most of my arguments fly out the window, yet I don’t see them making the move now. The 99 cents ? la carte model is too entrenched and is too much of a cash cow for Apple to add a full streaming service. It’s also a significantly different business model to wrap their heads around, not to mention the extra negotiations needed with already wary record labels.

Instead, a more likely route would be to partner with an existing streaming provider, like when Netflix was added to Apple TV. Along those lines I wouldn’t be too surprised if Apple, Amazon or Google would just outright buy Rdio, Mog and the other streaming services.

Regardless of the outcome we’ve got an interesting six months ahead. I’d predict it won’t be before the holiday season that we’ll see one or more of the music download or streaming services start to pull ahead of its competition.