Amazon gains on iTunes

By leading the way on DRM-free downloads, and on the strength of a joint promotion with Pepsi, Amazon is apparently gaining share on Apple’s iTunes store.

CNET quotes NPD as saying that in 2008, 87% of US digital music buyers used iTunes and 16% use Amazon (I would have expected more overlap).

Some 18 months after launching, Amazon is now in a credible 2nd place, at least in the US market. It appears — as the Big Four labels intended — that Amazon is having more impact on Apple than I had assumed.

Both Apple and now Amazon and Wal-Mart will be charging more (as labels long demanded) for current, more popular titles.

However, PaidContent (great site) has some news that has to be worrying for Apple’s rivals. Citing a Piper Jaffray report, Joseph Tartakoff writes:

…a new report from Piper Jaffray says that iTunes is now essentially the only option teens consider. Forty percent of high school students in the investment research firm’s bi-annual teen survey legally purchased music online. Of those, 97 percent said they used iTunes, up from 81 percent a year ago. Piper Jaffray attributes the growth in large part to slowing momentum from newer competitors, like Rhapsody, eMusic and Amazon MP3.

The way I read this:

• Amazon is cross-selling MP3 files to its core customer base — people in their 30s and 40s who saw Amazon as breakthrough technology when it came out during the dot-com era.
• Apple has a lock on selling trendy iPods to the affluent teen market where parents out of guilt pay for their kids’ legal downloads.
• Kids whose parents won’t pay for downloads are using second-tier players and bootlegging music.

This is a really odd business relationship. On the one hand, Apple gives the labels exactly what they want: creating a new market that gives people a chance to buy legal downloads, and perhaps prevent an entire generation (just most of it) from thinking digital music is free music. The labels repay it by encouraging rivals like Amazon to Apple to put pressure on it.

In turn, Apple complains bitterly to the public and regulators that the big bad labels made it use DRM. When the labels help Apple’s rivals go DRM free, then it uses that precedent to ditch DRM too, enabling the same music copying problems the labels vowed to prevent.

I would say that’s just business, but this is a particularly thorny problem for which there is no good answer. Or perhaps we just have a test of wills between the one and only Steve Jobs-sized ego against Hollywood-sized egos (which are pretty big too).