Apple Positions Mobile With Lala Deal

With its acquisition of online music start-up Lala, Apple appears to have bet on a digital music strategy that places ownership—no matter how ephemeral—over subscription. And more than competing services, Lala best fits into Apple’s desire for well-designed applications that complement other Apple products. The iPod wouldn’t be the same without iTunes, and the iPhone should be better with Lala.

Apple’s interest in Lala is not surprising. Compared to other services, Lala has an iTunes-like approach to music. Unlike Spotify, Lala does not have advertisements or a subscription model. Unlike MySpace Music, it encourages purchasing over loitering. And like iTunes, Lala facilitates the management of a user’s music collection. Even though Lala sells MP3s, it differs from iTunes in one major aspect: Lala is in the clouds. The service is a unique hybrid that acts as an online music locker (by syncing a user’s stored music collection to Lala’s servers) as well as a store. And unlike most online music stores, Lala sells MP3s, CDs (for many, but not all, titles) and what the company calls “web songs.” For 10 cents, a user can add a song to his collection and stream it an unlimited number of times.

The immediate question is: what will happen to the current incarnation of Lala? Apple’s resources could make it a more formidable opponent to the handful of streaming services hoping for mainstream appeal. On the other hand, Apple could use Lala as the technological basis for a service of its own. Current Lala users must wonder how they will be affected by the acquisition.

Apple’s acquisition of Lala will be successful if it helps the company do any one of three things: fend off new competitors in cloud-based music services; establish a better mobile presence; and sell more high-margin hardware. In Lala, Apple gets a service with a penchant for creating excellence through programming. The technology behind Lala’s iPhone app, not yet released but said to be superb, would grant Apple mobile users access to their music collections through any Internet connection. And, in a best-case scenario, the integration of Lala’s technology could help Apple sell more hardware. Post-acquisition, Lala may be either an Apple-only mobile application or part of a new Apple service. Either way, Lala would provide a point of differentiation that could help bolster smartphone sales amidst growing competition from Google, Blackberry and others.

Lala also has two key partnerships that give it additional momentum. First, Lala recently entered into a partnership with Google to provide song streams in search results. Second, the company also has a partnership with Facebook to power song purchased from the Facebook Gift Shop. Both could prove to be integral in separating Lala from the rest of the pack.

Nielsen Business Media