Google (NASDAQ: GOOG ) makes a number of apps for Apple’s (NASDAQ: AAPL) iOS. Some of them, including Google Maps, YouTube, and Google Search, are among the most commonly downloaded. For the most part, outside of maps, these apps do not compete directly with Apple’s own — from a strategic standpoint, Apple shouldn’t particularly care if its users are flocking to Google’s apps. That is, until now. Google is preparing to release Google Music for iOS later this month and, when it arrives, it could weaken Apple’s ecosystem. Also, Pandora (NYSE: P) should also take note of this change. Apple’s…
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Google (NASDAQ: GOOG ) makes a number of apps for Apple‘s (NASDAQ: AAPL) iOS. Some of them, including Google Maps, YouTube, and Google Search, are among the most commonly downloaded.
For the most part, outside of maps, these apps do not compete directly with Apple’s own — from a strategic standpoint, Apple shouldn’t particularly care if its users are flocking to Google’s apps.
That is, until now. Google is preparing to release Google Music for iOS later this month and, when it arrives, it could weaken Apple’s ecosystem. Also, Pandora (NYSE: P) should also take note of this change.
Apple’s ecosystem locks consumers in
Apple doesn’t make much money off iTunes. For years, Apple aimed to run its digital store near “breakeven.” More recently, Apple is starting to turn a profit, but in the context of Apple’s larger business, it’s still relatively modest.
That isn’t to say that iTunes isn’t important for Apple — it’s crucial. The quality of Apple’s products attracts consumers; but, once they buy in, they’re more or less stuck. A consumer who has invested hundreds — or even thousands — of dollars into iTunes is likely an Apple customer for life.
Giving up Apple products would mean throwing away all that money. Apps purchased for iOS have to be repurchased on competing operating systems (like Google’s Android); iBooks can only be read on iOS devices or Macs. Even if a competitor puts out a more attractive device, longtime Apple customers aren’t likely to stray: Surveys indicate that more than 90% of current iPhone owners intend to stick with the device through their next upgrade cycle. This may be due, in part, to the money that the company has poured into the Apple ecosystem.
Apple continues to emphasise music sales, Pandora should be afraid
More than books and apps, iTunes music sales have been at the center of Apple’s resurgence over the last decade, and Apple continues to emphasise music, as evidenced by its recent expansion into Internet radio. iTunes Radio, a new feature included in iOS 7, brings built-in Pandora functionality to iOS devices.
Although Pandora isn’t necessarily a threat to iTunes — there are obvious differences between listening to the radio, and owning a song — it still makes sense for Apple to target Pandora’s market. Like Pandora, iTunes Radio offers users the ability to create radio stations centered around a particular band or song; but, unlike Pandora, it heavily emphasises music purchases — whatever track you’re listening to, buying it on iTunes is simply a click away.
Somehow, Pandora’s shares have continued to rally in the face of iTunes Radio — since Apple’s announcement back in June, Pandora shares are up more than 60%. Still, Pandora shareholders should fear the growth of iTunes Radio. Apple clearly views its Internet radio as important to its overall business model — Bloomberg reported Tuesday that Apple intends to bring it to new markets, including the U.K. and Canada, early next year. That could put a lot of pressure on Pandora, as it continues to rely on owners of iOS devices for much of its mobile listening.
Google Music threatens iTunes
Like iTunes Radio threatens Pandora, Google Music threatens Apple’s iTunes. In time, Google Music could weigh on potential iTunes sales, while, at the same time, making it more palatable for Apple loyalists to switch to Android. Two of Google Music’s features, in particular, stand out as threats.
The first is Google’s free music storage. Anyone with a Google Music account can upload 20,000 song files to Google’s cloud for free, then listen to them wherever they have an Internet connection. This makes it extraordinarily easy for even the most die-hard iTunes customers to get their music away from Apple’s ecosystem — just upload it to Google Music, and it’s easily accessible on any Android device.
The second is Google Music’s subscription service, All Access. For $10 a month, Google Music users get access to a catalog of some 20 million songs. Admittedly, this is far from a revolutionary feature — Spotify has been doing it for years — but the growth of music subscription services stands as an obvious threat to the iTunes business model: Why buy music at all when you’re paying a monthly subscription for it?
Google Music could serve as a Trojan horse for Android
Obviously, not every Apple user who downloads Google Music will abandon Apple, but it definitely makes the process of switching to Android easier. Google Music effectively nullifies any lock-in effects that songs purchased on iTunes would’ve otherwise had.
Clearly, Apple believes that selling music is still an important part of its business model — its decision to compete with Pandora is evidence of that. It remains to be seen if Google Music will become as popular as Google’s other apps; but, if it does, it will put pressure on Apple’s ecosystem.
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A version of this article, written by Sam Mattera, originally appeared on fool.com.