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How Apple Killed an iTunes Competitor 143

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.'"
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How Apple Killed an iTunes Competitor

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  • And yet.... (Score:1, Insightful)

    by Anonymous Coward

    I still go out of my way to give my business to Amazon or any other legal alternative to avoid doing business with apple whenever possible.

    Really not sure what it was they did to piss me off (probably a huge pile of small things over the years) but man I just do not like them.

    • Re:And yet.... (Score:5, Insightful)

      by Anonymous Coward on Saturday January 19, 2013 @09:38PM (#42636507)

      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: (Score:2, Informative)

        by alen ( 225700 )

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

        and then apple had the nerve to charge you $.30 per song to undrm it?

        • by SuperKendall ( 25149 ) on Saturday January 19, 2013 @10:04PM (#42636609)

          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).

          • Yep, it was up to the labels. emusic was always drm free for example.

          • Being able to sell tracks for prices other than a uniform 99 cents was part of it too. Apple caved on that in order to get the right to sell DRM-free music. Here's an article from the time of the switchover [macworld.com]
          • Comment removed (Score:4, Interesting)

            by account_deleted ( 4530225 ) on Sunday January 20, 2013 @04:30PM (#42641321)
            Comment removed based on user account deletion
            • An epic rant you have there, but there's a lot to agree with. All three of these have been known to buy a good idea, just to put it into the trash can, in an attempt to chill out a market segment that they want to control. Sometimes a few good features might find themselves into the codestreams of a project, more often than not, it's: go away kid, ya bother me. Here's some candy, now get outta here.

              Is it anticompetitive? In certainty, and it's business-as-usual and a seemingly accepted tactic that skirts Ta

            • 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%.

              Because a few factors (1) Having a monopoly is not the only criteria to getting investigated. (2) Abusing a monopoly (ie MS) will get you investigated. Unlike MS, Apple did not go out of their way to harm competitors through their partners (like telling OEMs their prices would rise if they installed Netscape). Apple simply doesn't care if you buy your music from Amazon or Google. They set up their music service because easy access to music would sell their MP3 players. And guess what? Convenience sells

            • Don't get me wrong I think ALL of these anti-competitive lock in horseshit needs to go DIAF

              x Do It After Fudge?
              x Dial a fone?
              x Days Inside A Fly?
              V Die in a fire?
              x Desperately Inside A French?
              x Dancing in American Farms?

        • Re: (Score:3, Informative)

          by milkmage ( 795746 )

          amazon DRM free first? impossible. they didn't even have a music store yet.

          http://arstechnica.com/uncategorized/2007/06/emi-says-drm-free-music-is-selling-well/ [arstechnica.com]
          Although the iTunes Store was the first online store through which EMI sold its DRM-free tracks, Amazon recently said that it will also be selling DRM-free EMI songs through its newly-announced music store later this year

          "apple had the nerve to charge"
          no. "price increases by the record labels, which were made possible by Apple's capitulation."
          http:// [cnet.com]

          • by Smauler ( 915644 )

            Amazon was DRM free first of the major online retailers. There may have been some DRM free offerings at itunes previously, but checking each song is not practical. I only started buying music online when the entire catalogue was DRM free. That's why I only started buying music online when Amazon went DRM free... since I started there, I've stayed there.

            Prior to buying music online I just pirated it, because buying it was not a real option.

          • by Anonymous Coward

            amazon DRM free first? impossible. they didn't even have a music store yet.

            Amazon MP3 Store launched in August 2007, DRM free.

            Sorry to disrupt your little Apple World with facts.

            • last I checked April comes before August.. and where did you get August?

              http://techcrunch.com/2007/04/02/emi-apple-are-announcing-sale-of-non-drm-music/ [techcrunch.com]
              April 2, 2007: The day DRM died.

              Amazon was the first to bag the 4 majors.. in 2008
              http://en.wikipedia.org/wiki/Amazon_MP3 [wikipedia.org]

              Launched in public beta on September 25, 2007,[1] in January 2008 it became the first music store to sell music without digital rights management (DRM) from the four major music labels (EMI, Universal, Warner Music, and Sony BMG), as well

        • Re:And yet.... (Score:4, Informative)

          by beelsebob ( 529313 ) on Sunday January 20, 2013 @07:15AM (#42638231)

          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.

        • and then apple had the nerve to charge you $.30 per song to undrm it?

          Erm, first of all, they charged you $.30 per song to upgrade to a higher quality version that happened to be DRM free.

          But let's pretend for a moment that they did - who ever offered an upgrade to DRM free music - or video, or programs; free or paid? Who but Apple ever gave their customers that? Or for a higher quality version of the media? Who?

          Actually, others who dropped DRM, dropped the right to play the media you already paid for.

        • Yes and no. Amazon was first to have the majority of their catalog DRM free but Apple got permission from EMI to sell DRM free music before Amazon. It would be a few years before Apple got the other major music companies to agree.
      • Yep, and actually they did even more than that, Apple had the first unprotected music legally available too –they got EMI to make the switch. The rest of the then big 4 then decided to use it as a bargaining chip.

    • I still go out of my way to give my business to Amazon or any other legal alternative to avoid doing business with apple whenever possible.

      Really not sure what it was they did to piss me off (probably a huge pile of small things over the years) but man I just do not like them.

      It was only apple that gave use MP3 players and downloadable music and touchscreen phones and tablets, so you should hate them. What about the 32 megabyte Diamond Rio? Yes other MP3 players existed, but Apple made them popular and simple and stopped the music industry from claiming MP3 players were designed to steal music. Then after years of napster and limewire, apple finally gave us a legit way to download music cheaply. Then after years of awful windows mobile phones and Palm insisting touchscreens

  • by alen ( 225700 ) on Saturday January 19, 2013 @09:21PM (#42636441)

    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

    • by jaymz666 ( 34050 )

      ultimately subscription music costs more to the end user and pays the content producer less. Then there's all the music not available through sub

      • by alvinrod ( 889928 ) on Saturday January 19, 2013 @11:44PM (#42636947)
        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: (Score:2, Interesting)

          by idobi ( 820896 )
          This isn't even a fair comparison. For every track sold on iTunes, the "label" (by label, it could apply to an actual label, or the artist themselves if they self published) gets $.70. For every track played on spotify, the "label" gets $.0017. Buying through iTunes is vastly more beneficial to content producers.
          • by alvinrod ( 889928 ) on Sunday January 20, 2013 @02:11AM (#42637471)
            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.
          • by mysidia ( 191772 ) on Sunday January 20, 2013 @03:34AM (#42637715)

            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 :)

            • by mysidia ( 191772 )

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

              Or rather, 5% at 365 days a year = of the 14610 days, that's actually 0.0001 per interval, and there are 14610 intervals, (so the above is actually an underestimate, of the worth to the label, of you subscribing) -- but the story is still the same, it's still more profitable to the label if you subscribe for 2 years, and then it's potentially several times as profitable, if you keep subsc

            • Actually it doesn't matter if you listen to one song of the label 100 times, or 100 songs of the label 1 time each. The label will get the same money. However if you have to buy the songs, you'll only buy those which you intend to listen to repeatedly.

              • by mysidia ( 191772 )

                However if you have to buy the songs, you'll only buy those which you intend to listen to repeatedly.

                Whether you buy a song you won't necessarily listen to repeatedly -- does depend on how well your curiosity about the song is satisfied by the 30 second preview, or what other means you might have available to "try out" a song you don't know about, to decide if you might like to listen to it repeatedly. :)

            • Jesus. I had no idea listening to music involved so much math.
        • Increasingly musicians (and movie makers, and writers) are realizing that they can cut the middle man out entirely, become their own label, and deal with Apple/Amazon/etc. directly. It's a lot of freaking work, but it gives artists total control, and have longer and more profitable careers than record labels that want to churn flash-in-pan artists for maximum profit before going on to the Next Big Thing.

          And Apple and Amazon, for all the bitching people do about them, are the ones whose domination of Interne

          • It's a ton of freaking work. The reason there *are* middlemen in the first place is becasue most artists are simply not skilled (or don't have the time) to write, produce and record albums AND handle all the business and sales crap. Middleman services like TuneCore or Reverbnation have replaced an active Agent or A&R guy in a lot of cases, but it's still a middleman, in a way. Even if you're a fulltime musician, sometimes there just aren't enough hours in a day to do everything without cutting corner

    • by Tablizer ( 95088 )

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

      But they did a hell of a job in slowing it down.
         

    • by Osgeld ( 1900440 )

      as much as I hate to say it there was no such model before apple

      its one of the few things they actually did do themselves (unlike drop down menus, icons or rounded rectangles)

  • by Anonymous Coward

    I like that this same story was on macrumors as "how Steve jobs acquires a company" and on /. It's how apple KILLED a competitor. Dramatic much?

    • Technically /. was more accurate in that Jobs bought it almost exclusively to keep iTunes as the predominate selling theme of iDevices. I mean it is possibly the biggest selling feature after the social hierachy implications.

  • by Fnord666 ( 889225 ) on Saturday January 19, 2013 @09:25PM (#42636461) Journal
    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.
    • Given that, as you say, Google tried to low-ball them... why is Apple getting the blame here? We're not exactly talking about YouTube - Google could easily have coughed up more than 80 million if they really thought the business was worth spending the money on.

      • by Anonymous Coward

        Google probably didn't think they were worth it. While Google's Play Music isn't the greatest by any means, yet, it is growing constantly and getting better and better. Google probably looked at how Lala would have helped them but really didn't find it would help them enough to pay $80 million or something for it.

        • Google probably didn't think they were worth it.

          The thing that would have killed iTunes wasn't even worth $80M to Google? Okay, is it just me, or doest the argument not make a lot of sense?

    • by DogDude ( 805747 ) on Saturday January 19, 2013 @10:20PM (#42636651)
      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.
    • by fermion ( 181285 )
      The first mistake was partnering with Google. There is not a service that Google does want to give away to sell advertising. So while Google was bidding on the assumption that it would never make any direct cash, just build market dominance, Apple could build based on real value of the service. In this side Lala was doomed. Either Apple would bought it, or google would have put it out of business.
      • by Anonymous Coward

        [quote]There is not a service that Google does want to give away to sell advertising.[/quote]

        Google Apps would like a word with you. Same with Google Play, Google Wallet, and Google Drive. Oh, and Google Calendar and Blogger. And Android. And Chrome.

        • Usage statistics are a form of data collection to use in ad targeting.

          Wallet is the most glaring example. What advertising data could you want more than what people are buying, and when? Blogger is indexable, and works with account targeted ads based on interest. Chrome pushes html standards that allow more dynamic delivery of Google's products in general -- they even explicitly state that in the Chrome mission statement.

          fermion is 100% correct. Google is a business first.

  • 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. Up until the day before they were purchased, so many people I knew were using Lala on a daily basis. And why wouldn't you use it? Lala had a great catalog, came up high on Google results, offered full songs for preview, and worked in any web browser. And this was all 2-3 years before Spotify was available in the US.

    When Apple bought them, I naturally as

  • by perpenso ( 1613749 ) on Saturday January 19, 2013 @09:27PM (#42636467)
    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.
    • by mysidia ( 191772 )

      Why would they add that restrictions? Adding conditions could have reduced the profits for Lala's shareholders, by reducing the selling price.

    • by wickerprints ( 1094741 ) on Saturday January 19, 2013 @09:51PM (#42636551)

      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.

      • Google made a miscalculation.

        That's only true if they actually had a chance to disrupt the market. HP and Autonomy might teach you the opposite lesson.

      • I've never purchased an Android device and even I can tell that it is a more flexible and capable platform.

        Can you give specific examples of how exactly Android is such from a user's (not developer's) perspective, i.e., things a typical Android user can do that an iOS user can not?

    • by Mitreya ( 579078 )

      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.

      Is that really so simple? Does selling a company (with paying customers) free me of all my contractual obligations to these customers? If Apple sold iTunes to Google, Google would be free to shut everything down in 5 months, killing everyone's music collections??

      Their customers should have sued them for everything they got in that deal...

      • 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.

        Is that really so simple? Does selling a company (with paying customers) free me of all my contractual obligations to these customers?

        I would expect that the contractual obligations would transfer with the ownership. Perhaps Lala's EULA/contract with customers always allowed for termination of the service at any time.

      • by clgoh ( 106162 )

        Is that really so simple? Does selling a company (with paying customers) free me of all my contractual obligations to these customers? If Apple sold iTunes to Google, Google would be free to shut everything down in 5 months, killing everyone's music collections??

        Their customers should have sued them for everything they got in that deal...

        Apple could shut down everything, without prior notice. And it wouldn't be a violation of its contractual obligations, since the users agreed to it (the TOS).

      • Depends on the nature of the contracts with customers. A company buying another must abide with any previous agreements. That's one thing SCO forgot; old Santa Cruz was only an Unix agent for Novell and did not own the copyrights. If Apple was able to shutdown the service, the Lala agreement may have had an exit option with their customers.

        Given the history of Apple they have bought companies before for singular purposes and shutdown the company otherwise. For example Fingerworks made mice and keyboards

  • by Anonymous Coward on Saturday January 19, 2013 @10:07PM (#42636615)

    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.

    • by Anonymous Coward

      Coming from a guy who runs a small business that I'm passionate about, and who is having trouble making it go how I'd like, I can't blame you for that stance.

    • I take the same approach with my investment portfolio, I know I am passionate about IT and hence I simply won't trust myself to invest in that market segment. Instead I research other sectors of the market that I can make investment choices where I can be certain my views are not clouding my financial decisions. If you can't divorce your business decisions from your passion then do like I do and avoid ever getting into those situations or be prepared to lose your pants.
    • 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.

      Could not disagree more. Everything that is wrong with VC and Capitalism in general in embodied in your reply IMO. The reason Apple did so well is because Steve Jobs was passionate about making the stuff he wanted to make. Sure, he was not _averse_ to making mountains of cash, but if he was purely pursuing profits (such as Steve Balmer, or any other shareholder beholden jobbing manager) he would not have been driven to make his perfect phone / tablet. It's all about what your intrinsic motivation is... if i

    • I "love" my work. I started it to make money, and for no other reason.

      Mr. Wonderful, is that you?

      (This is a reference to http://en.wikipedia.org/wiki/Kevin_O'Leary_(entrepreneur).) [wikipedia.org]

  • by theedgeofoblivious ( 2474916 ) on Saturday January 19, 2013 @10:20PM (#42636649)

    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.

    • I remember the day when I found out that Apple was shutting down Lala, and I was very disappointed

      Reading the article though it seemed you were doomed to disappointment no matter what. LaLa was not making money as was going to close down. I'm not even sure any of the other companies buying LaLa would have meant it would stay open.

      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

  • by pushing-robot ( 1037830 ) on Saturday January 19, 2013 @11:17PM (#42636875)

    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.

  • ...video killed the radio star.

  • by virb67 ( 1771270 ) on Sunday January 20, 2013 @12:48AM (#42637195)
    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.
    • Have you found anything good to replace it? My local public music station just switched formats a few months ago and I find myself listening to a lot fewer new bands these days as a result.
  • He put it up for sale. Apple made and offer and he accepted. End of story.

  • Bill Nguyen negotiates a better deal out of Apple and Ed Bott distorts this into Apple killing Lala. If apple owned both Lala and iTunes why wouldn't they merge the two?
  • Does it do anything useful?

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