How Apple Killed an iTunes Competitor

An anonymous reader writes "Ed Bott recounts the story of Lala.com, an innovative online music service that reached the top of Google search rankings for consumers seeking music. Their prices were frequently better than the prices on iTunes, and they partnered with Google for the search giant's Music Beta. Lala's founder, Bill Nguyen, decided the time was ripe to sell, entertaining offers from both Google and Nokia. Unfortunately, Nokia's offer was poor, and Google tried to lowball Nguyen. Apple, however, was not so foolish. Correctly identifying a threat to its growing music empire, Steve Jobs offered $80 million for the company, and Nguyen accepted. 'The ultimate irony in this story is that quite a few notable members of the Lala-to-Apple team followed Bill through the door and onward to his next venture. They left millions in options at a the $196.48 exercise price they had from the 2009 sale/retention bonuses. Some of those same engineers returned to Apple in the highly covered [Color Labs acquisition] rumor that 20+ engineers went to Apple for $7M. Apple obtained the same employees for pennies on the dollar. This time with even more experience and startup life under their belt. Paying twice was genius.'"

Comments

and they paved the way for spotify

[alen]

if we have learned one thing with IBM and Microsoft is that you can't stop technological and cultural change

subscription music is here to stay and apple can't do anything about it

Re:and they paved the way for spotify

[alvinrod]

And let's not pretend that buying through iTunes or any other competitor is doing the content producers any better. They're still getting pennies on the dollar. If you have $20 and want as much of that to go the artist as possible, go see them live or buy a shirt at a show. They'll make far more money from that than they'll ever see from proceeds from subscription or album sales.

Re:and they paved the way for spotify

[alvinrod]

Regardless if which you buy, the actual artist gets next to nothing. The indie labels probably have a better deal, but there are still a lot of artists that aren't on iTunes. Maybe things have changed more recently, but there was a time where you couldn't find anything that wasn't from a major label through them and it's been pretty well established how badly they screw over the artists. They might not be getting paid either way given the usual studio accounting practices and all of that 'expensive studio time' and other costs that went into making the album.

So the point still stands. For a lot of bands or artists, if you actually want them to see any money you're far better off going to a show or buying some merchandise. Otherwise it's not exactly easy to tell if someone is signed to a label that isn't completely shafting them.

Re:and they paved the way for spotify

[mysidia]

For every track played on spotify, the "label" gets $.0017. Buying through iTunes is vastly more beneficial to content producers.

OK... but what happens when the track is in your playlist, and you listen to it every day on a subscription service, for 2 years (assume about once a day); in other words 365 x 2 = 730 times spread out over 2 years?

OK, discounted ~5%/Year = 0.0137%/Day , the present value of that stream of revenue for the label would be:
( $0.0017 / 0.000137)*(1-1/(1+0.000137)^730) = $1.18

And despite them having gotten $1.24 from you worth $1.18 today..... you still don't own the sound track. You have to continue the subscription, if you want to keep hearing it :)

So... the question becomes... what happens, if you keep listening to the track once a day one third of the days of the rest of your life? Assuming you are age 30, and live until age 70, that's 4870 listens, or $0.017 * 4870 = $82.79

Which is worth approximately ( $0.0017 / 3 / 0.0000102669)*(1-1/(1+0.0000102669)^4870) = $2.69

In today's dollars, and $2.69 is a heck of a lot more money for the label than $0.70, hell, it's over 3 times as much.

For you to subscribe to the service, and listen to your music through that, as long as they get their little .17 cents every time :)

Lala was not the threat

[Fnord666]

Lala was not the threat. The threat was that Google would acquire Lala and in turn would combine it with their position in the search engine realm. That was the threat and Apple paid the price to keep Lala out of Google's hands. It would have been interesting to see what would have happened if Google hadn't tried to lowball them and had bought Lala at the time.

Re:Lala was not the threat

[DogDude]

That DID happen. For a few months, you could search for any song, and Google would display the song with "play" button at the top of the search results that played the entire song. It worked flawlessly.

Actually a competitor sold out ...

[perpenso]

Apple didn't kill a competitor, a competitor simply sold out, taking $80M and abandoning their creation to others. They apparently made no provisions in the contract with Apple to continue the service and protect existing Lala customers. They could have required that these existing customers continue to be provided the Lala service for a reasonable timeframe but apparently they did not. Apple was free to shut it down in what looks like 5 months.

It seems biased to blame it all on Apple.

Re:Actually a competitor sold out ...

[wickerprints]

Indeed. It sounds to me like the lesson to be learned here is that you don't throw out lowball offers when you have an opportunity to disrupt the market. Google made a miscalculation. Spend generously when you need to, in order to reap greater value down the line.

Now, whether that is ultimately important in light of Android's undisputed success and Apple's seeming disinterest in continuing to innovate with iOS, is another story. iOS has basically stagnated, and that's coming from someone who has stayed with Apple since the original iPhone. I've never purchased an Android device and even I can tell that it is a more flexible and capable platform.

Re:And yet....

[Anonymous Coward]

Don't you forget that Apple played a huge role in making non-DRM protected music from majors available through online stores in the first place?
First majors started to make unprotected music available through competitors so Apple coudn't control the prices and then they made a bold move and made DRM go away from iTunes for the price of some songs being slightly more expensive than the others.

Re:Disappointing to read

[Anonymous Coward]

Are you sure you read the article? LaLa approached Apple and asked to be purchased.

That's what he was saying

[SuperKendall]

wasn't amazon selling non-drm music for years before apple?

About a year.

It was the music companies last ditch attempt to break free from Apple.

It failed so finally music companies allowed Apple to sell DRM free music (which was never under Apple's control, it was up to the labels which is why Amazon got to do so a year earlier).

Re:That's what he was saying

[hairyfeet]

It doesn't change the fact that Apple and MSFT have ALWAYS seemed to have a little game called "Who can fuck the consumer worst" going between each other. Honestly I don't know WTH is going on with Apple not being investigated for iTunes since they pretty much fucking own the PMP market (last numbers I saw had it at over 90%) and almost no business will ever reach 100%. This is why the official definition includes having undue influence and control over a market which seeing how many companies roll over and play dead if faced with Apple such as Adobe bailing on Flash when Steve said no Flash, or how Opera for the first time in their history is having to use webkit and put out a lame ass Opera "skin" because they can't get their actual product on a locked down Apple controlled device, just blows my fucking mind.

But frankly this whole "RDF" idea has always just blown my fucking mind, you take 3 companies, Apple, Google, and MSFT, have them all do the exact same anti-competitive behavior and one or more of them will be lauded while the others condemned, for the same fucking shit! Apple is just as big of a monopolistic douchebag as MSFT, Google has shown "do no evil" is just "think different" in a geek friendly wrapper, yet nobody will fucking acknowledge or do a damned thing about it as long as the "right" company is doing the fucking. MSFT locks their tablet? Rightly pointed out as shitty, Apple been doing the same for years? Well that's just protecting the users! Google makes their own flavor of UEFI on "their" ChromeBooks (since you don't really control it I'd call it a rental more than a purchase) that is so fucking nasty that you can't even boot a bog standard Linux X86 distro on X86 hardware? Oh that's perfectly okay while just the thought that MSFT uses the same trick while giving you the incredibly easy option to disable? Well Whargarrbl its the end of the planet.

Don't get me wrong I think ALL of these anti-competitive lock in horseshit needs to go DIAF, I'm just sick and fucking tired of it being perfectly okay for the corp to kick you in the nuts as long as the corp is wearing the right logo on their shirt. A kick in the nuts is a kick in the nuts is a kick in the nuts, I don't give a rat's ass what logo shirt they are wearing.

80 Million Isn't Exactly Death

[Anonymous Coward]

The company I own is worth approximately that much, and if ever anyone offered me 80 million for it, the only part of me that would remain would be the cloud of dust dissipating where I had my last presence within its walls.

I didn't start my business because I'm "passionate" about what I do or because I "love" my work. I started it to make money, and for no other reason.

One of the biggest mistakes so-called entrepreneurs make is getting emotionally attached to their work - and I see it happen all the time in my VC club. I've been an angel for a number of startups, but we almost always turn down the ones where the pitch is not much more than how "passionate" the people are about their companies.

Re:80 Million Isn't Exactly Death

[Jah-Wren Ryel]

But the world definitely would NOT be a better place if all businesses were run like you suggest. Many of the achievements of the modern world required hard nosed business decisions based on purely on profit and without those people the world would grind to a crawl.

That logic is weak sauce all around. The best you can say using that line of reasoning is that the world would not exist the way it does today if not for the decisions that made it that way. There is no way you can say the world would be better or worse using that logic. For all you know, those hard-nosed business decisions killed off a line of research that would have produced cold fusion in the 1900s that would have averted all the world wars and made today a utopia of essentially zero-cost unlimited energy.

Lala was better than iTunes.

[theedgeofoblivious]

I remember using Lala, mostly at work. At the time it was much nicer to use than iTunes and Pandora.

I remember the day when I found out that Apple was shutting down Lala, and I was very disappointed, because Apple is very insistent that people only use technology in the way that Apple wants them to. I do generally like Apple's interface design, but Apple is very insistent that its way is the best, and they have been insistent even in the cases that they've been wrong.

Lala had then what Amazon, Google, and Apple have only recently added, which is the ability to basically mirror your library from their website, and when Apple bought the service it was a big loss. I think Google or Amazon would have actually built on the service, but Apple just killed it, and that sucked.

Re:Disappointing to read

[DogDude]

It's disappointing how the Microsoft-pioneered "buy up your competitors before they can afford to buy you" technique has become standard practice for Apple.

Oh, child, read some history. That had been going on for at least 100 years before Microsoft existed.

Lala approached Apple, offering itself ...

[perpenso]

From the article: "He [founder Bill Nguyen] called in a few favors and got a meeting with the leadership at Apple. He explained that he had offers from the largest mobile OS competitors and that they wanted to acquire his music startup."

That is not Apple hunting down and killing a competitor. That is a company shopping itself around and playing potential buyers off of each other to maximize the sale price.

My point is that the loss of the Lala service is not entirely Apple's fault. Lala's management deserves to share in that responsibility. They chose a buyer unlikely to continue the service. They apparently did not require a commitment from Apple to continue the service for current customers for a reasonable timeframe.

I doubt they would have stayed around long anyway

[pushing-robot]

I used Lala quite a bit, and in all honesty, I didn't expect it to stick around even before Apple bought the company. You could preview an entire track for free, then pay ten cents for unlimited listens with no ads and no subscription fees. With payment processing fees, servers, storage, and bandwidth, I doubt Lala was making anything, much less paying the record companies. Heck, you would have had to buy six hundred songs a year just to match Spotify's cheapest subscription. Twelve or eighteen hundred to match Zune or Rhapsody. Oh, and did I mention Lala would even scan your existing music library and then let you stream all your songs from their servers for free? Yeah, that's a sustainable business model.

I'm sure Lala was nothing but acquision-bait, like Youtube and Instagram. Offer a good service for way below cost, get a huge following, find somebody with deep pockets to buy your "community" and retire to a tropical island.

Another Casuality of the Lala Acquisition: WOXY

[virb67]

WOXY was the single best radio station I've ever come across to discover great up-and-coming new indie bands. It was a longtime terrestrial radio station that operated out of Cincinnati. When you watch dustin Hoffman annoying the shit of Tom Cruise by incessantly repeating "97X, BAM! the futurrrre of rock-n-roll", he's repeating WOXY's tagline. The station switched over to an internet-based ad-free model in the early 2000s and got into financial trouble. Lala became the station's patron savior, financially keeping the station alive, hoping to parlay its relationship with the station into indie credibility and an instant customer base. It worked too well. When Apple bought Lala there were many that hoped the company would continue to support the station, but alas, Woxy shut down almost immediately after the purchase and has been dead ever since. RIP WOXY.

Title is misleading

[Taco Cowboy]

I am no Apple fanboys, but the title "Apple kills competitor" is misleading.

Lala.com was for sale. Apple bought it fair and square.

If only Google wasn't so foolish to play lowball, Google would have a powerful franchise right now to out-compete Apple on its own turf.

Re:And yet....

[beelsebob]

wasn't amazon selling non-drm music for years before apple?

No, Apple were first with EMI. The rest of the big 4 held back from apple, so amazon were the first to have all their catalog unlocked.