Lala could make iTunes' Genius smarter

Apple's apparent acquisition of music streaming service Lala is about improving iTunes music discovery and competitively combating Google search as a music discovery tool tied to free music streaming services. I say apparent acquisition because there is no official confirmation from Apple, although I'd be shocked if All Things Digital's Peter Kafka got it wrong. He has confirmation of a done deal, and Kafka's reporting record is outstandingly excellent.

Apple gets two major assets from Lala, some technology and the development team. While the development team is likely more important, the technology is valuable, too -- and both lead to the same place: Apple improving iTunes music discovery.

Apple also diminishes one of the most credible threats to the iTunes Music Store that has come along in years. Lala streaming costs loads less than buying music from iTunes -- 10 cents a stream, which can be applied to purchase of the track. But there is a glaringly free option, too, with Google music searches; that's something new (late October) and quite threatening to what has long given iTunes Music Store edge: The aforementioned music discovery.

The Google deal hugely raised Lala's profile and made a catalog of 8 million streaming tracks easily available to anyone typing "All American Rejects, "Lady Gaga," "Jason Mraz" or some other musician or band into Google search. Search for band All American Rejects brings up four tracks -- "Gives You Hell," "I Wanna," "It Ends Tonight" and "Dirty Little Secret" -- all available for immediate, free streaming in a Lala pop-up window; there is also an option to purchase the tracks. Lala charges 89 cents for "Dirty Little Secret" -- Apple a buck twenty-nine. You do the math, whether free or 89 cents, Apple loses.

Apple nabbed Lala, for which the power of Google search and its reaching free business model extends, before it could become a real competitor. But Google has other music partners, so Apple still faces competition from easily discovered -- hey, what's better than Google search -- and consumed music for nominal price, if any at all.

The Google-Lala deal also exposed a potential new business model for Apple, again, by making iTunes music discovery easier. But for Apple directly, Microsoft demonstrates the real power of streaming as a music discovery tool, as I explained in my Zune 4.0 software and Zune HD reviews. I described Zune's new Smart DJ feature as "music discovery on steroids, but without those nasty side effects." The feature plays music, based on style and genre, related to the currently playing track. Smart DJ uses the user's music library but can do much more. For consumers paying for a $14.95 Zune Pass -- a monthly music subscription service -- Microsoft's entire catalog is available to Smart DJ, whether by stream or subscription download to the PC. The feature beats the hell out of iTunes' Genius feature, which is a great discovery tool for finding new stuff to buy, not music to immediately listen to.

There are several ways Apple could incorporate streaming into the music discovery process, starting with full-song samples rather than 30-second ones. Apple could also incorporate a Smart DJ-like feature into iTunes Genius, where songs play streamed or locally in similar fashion but with only one play for unpurchased content; that would be equivalent to sampling, but provided through Genius with option to purchase track or album. Upsell would be Apple's primary motivation for offering streaming.

This weekend, there were numerous blogs or commentaries speculating iTunes streaming is coming and is likely reason for Apple buying Lala. I don't see streaming as a viable music business model for Apple; there's more revenue to lose than to gain. But streaming incorporated into iTunes as a discovery and sales mechanism makes loads of sense. That said, I could see Apple offering streaming for a substantial fee -- not free or near it -- on a subscription basis.

Apple's plans for Lala's team are bigger than most pundits are speculating. There is something about this deal that reminds me of late 2000. That summer, Apple released new iMacs missing something: CD-RW drives. Windows PC manufacturers were going CD-RW, but not Apple, which stuck with DVD drives. In August 2000, I wrote for CNET News.com: "Apple misses the tune on CD-RW drives." The Mac community flamed me. I got more than 200 e-mails (CNET didn't have comments back that), most of which essentially called me an idiot for not understanding that Apple was about movies not music.

Presumably, someone at Apple saw something in music, too; I wasn't wrong as Mac defenders claimed then (and many times since). Not long after my story posted, Apple bought SoundJam, which technology became the core of iTunes. Apple announced iTunes in January 2001. Suddenly Apple got music, and in a big way. The company launched iPod in October 2001 and opened the iTunes Music Store in spring 2003. The rest, as they say, is history.

My intuition is that Lala could be as big for Apple as SoundJam was. What do you think of Apple acquiring Lala? Please respond in comments.