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Google Music: Big Opportunity, Big Hurdles

Google to host Android-themed event in Los Angeles
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It’s finally time to see what Google’s got up its sleeves when it comes to digital music.

At a Los Angeles event today, the tech giant is widely expected to launch a music download store that could rival Apple’s iTunes and Amazon.

Last week, Google got the rumor mill rolling with an invitation to an Android-related event, cryptically referencing the mockumentary “Spinal Tap” with the phrase, “These Go to 11.” In the past few days, industry reports have pointed to the introduction of a music download store to fill out Google's Music Beta cloud service released in May.

At the time, the company released a service that would let users upload and store music, but it lacked a critical component: deals with music labels that would actually allow it to sell titles.

This time around Google is reported to have secured almost all of the major record labels. EMI is on board, according to All Things Digital, and Universal and Sony have also reached deals, Bloomberg reported yesterday. Warner Music Group is reportedly the odd man out.

At All Things D’s AsiaD conference in Hong Kong last month, Android chief Andy Rubin said that the company was “close” to releasing Google Music and revealed that it would include a “twist.”

A Tuesday report from The Wall Street Journal suggests that the “twist” could be a tie-in to the social network Google+. After purchasing songs for about $1, the report said users may be able to share potentially a couple of listens with contacts in their Google+ circles.

But industry observers say that while the potential opportunity for Google Music is huge, especially considering its ability to reach millions of Android users and connect with Google+ and YouTube, the challenges it needs to overcome are not insignificant.

“Its competitors have set the bar very high,” Mike McGuire, vice president of research firm Gartner, told Adweek, referring specifically to Apple and Amazon.

In the years since they each launched their own digital music stores, they’ve created such seamless shopping and payment systems that they’ve “raised that to an art form,” McGuire added.

Considering the vast fragmentation within Google’s Android system (between different devices, versions of the operating system, etc.), McGuire says creating an easy-to-use ecosystem could be more challenging.

But the company obviously needs to balance that with another equally important part of the experience: the content.

“The greatest payment system in the world will be worth nothing if they can’t find content people will want to buy,” said McGuire.

At launch, McGuire said, Google will need to have the four major record labels on board, or be able to say that they’ll have them locked in by a certain not-so-distant date. It will also need to have deals with the major independent labels.

Once the company achieves that, they’ll need to replicate the process for each of the countries in which it hopes to offer the service. Not a trivial matter, McGuire says.

The rise of music streaming services, such as Spotify, Pandora, and Rdio, has also made the digital music space more competitive.

But considering the amount of growth expected in the online music space, it’s no wonder Google wants a piece of the action.

According to Gartner, worldwide online music revenue from user spending is expected to reach $6.3 billion this year, up from $5.9 billion in 2010. In 2012, they expect it to top $6.8 billion and total $7.7 billion in 2015.

McGuire also says it would be interesting to see whether Google uses its own Google Checkout e-commerce platform for the music service and which versions of the Android operating system are compatible with the service. (Android has a dominant position in the smartphone market, but because of fragmentation, not all of them run the most recent version of the operating system.)

Incorporating Google+ features, such as hangouts and circles, or including users’ history of YouTube music videos, could help give the new service an edge over incumbents iTunes and Amazon. But with years of experience with customers and rights holders, those companies have a big head start, he says.

“With the reach they have with the devices, [Google Music] could potentially be very powerful,” he says. “But there’s a whole lot of . . . stuff that has to happen.”