Apple's iTunes faces Facebook f8 threat

By Jonny Evans

Since its introduction in 2001, Apple's [AAPL] iTunes Store has led the business, eventually becoming the world's biggest music store. For a decade, the service has seen no great threat, but if the rumors from Facebook's f8 conference have weight, the social network may give iTunes hegemony its biggest shake yet.


Twist of F8

That's right. Not satisfied with upsetting many of its users with a new news feed service which seems far less personal than before, Facebook has a plan to launch a socially-enabled music service. Incrementally, of course.

For months, the company has been in discussion with music industry partners, attempting to figure out how to make Facebook the best place for music discovery and sharing.

Facebook is a place for friends and relationships, so as part of this attempt the company is hiring a new executive to "cultivate relationships and strike deals" with the film and music industries beyond this week's partnerships, Reuters reports.

The company is operating a partnership model to begin its musical journey Spotify, and Clear Channel are all set to join Facebook at f8.

For example, the conference panel on 'The Future of Digital Music' will see Spotify's Daniel Ek, Clear Channel's Bob Pittman and Lady Gaga's manager Troy Carter discuss the impact of social features on digital music.

Let's work together

Facebook users will be able to share what they are listening to and/or watching using a new news ticker tool, once they begin using it, and information from this ticker will be kept separate from the main news feed.

Facebook's creative director, Ji Lee accidentally let slip that Facebook also plans a "Listen with your friends" streaming service, which sounds self-explanatory, right?

None of this sounding like an iTunes threat? Many already use Facebook to share clips of songs they enjoy, to make conversation about music and musicians, to let each other or their fans know about new musical events.

Some might argue that Facebook is simply tending to this need with the introduction of a range of new and focused tools for digitial media, discovery and procurement.


Hearts and minds

Think about it this way, following the Arab Spring, there's a lot of talk about the power of the social networks to build new mind-share. Facebook is the new king of these, with a crushed MySpace clearly set for the digital landfill space in the server-led skies.

In future, once Facebook has some of its 750 million users hooked on using these new tools and its third-party partners, then the stage will truly be set for it to offer even more enhanced music services.

This will be a future problem for Apple, which is preparing to unwrap its own hybrid music streaming service in iTunes Match; and which has nothing to offer in the social space other than its ridiculously low-featured Ping and the still unseen iCloud.

While Apple is slowly moving its focus from music ownership to one in which iTunes is seen as a provider for music access; Facebook's plan is to integrate third-party services into its own in order to attract eyeballs to its pages and generate more dollars for its bottom line.


The bottom line

Despite its huge user base, Facebook's revenue is less stellar. Advertising revenue is expected to climb to £2.42 billion this year, up from £1.19 billion last year, but that's a drop in the ocean to many Silicon Valley firms.

eMarketer principal analyst Debra Aho Williamson predicts Facebook will need to continue to diversify its revenue streams: "Facebook must either work to improve its clickthrough rate or show advertisers that advertising on the site is effective even without a click or other action."

A move to put a social skin around media consumption is part of Facebook's attempt to achieve an even 'stickier' user experience.

Naturally the firm will be watching its algorithms, waiting to see which of the third party music and media service partners it brings aboard become the most popular. Perhaps those relationships might even get closer.

Meanwhile, Facebook users will have a choice of music services from which to purchase their music. This will inevitably lead many users to sample new music services other than iTunes, and as convenience and reliability become better-recognized, many may end up finding life outside Apple.

Changing times

Is this a problem for Apple? It could be argued that the company's focus on Internet services and apps has been designed to cope with a change in media consumption habits. All the same, the power of iTunes to keep Apple users loyal to Apple's devices is renowned -- you want to play your iTunes music so you get an iTunes-compatible device, and stick with these devices.

In my opinion, Facebook's partnerships may have a strong chance of reducing that compulsion to use iTunes servces, thus lessening the strength of that the locked-in relationship of iDevice users and their media.

Because of its huge existing user base, Facebook is in a strong position to disrupt the iTunes relationship, offering a new alternative for sourcing, finding and sharing music and music services. It's the best alternative platform yet for the potential delivery of a large base of music consumers to non-Apple services, and it seems logical to expect it will dent iTunes' relative market share.

Music's only part of the ambition we'll see at F8.

"On Thursday, developers will be elated, users will be shellshocked and the competition will look ancient. On Thursday, Facebook will be reborn. Prepare yourselves for the evolution of social networking," writes Mashable's Ben Parr.

What's good for Facebook may not be so good for Apple. Remember last year's eleventh-hour removal of Facebook integration from Apple's music social network, Ping? Note the increased links between Apple's OS' and Twitter? Is there anyone Apple gets along with any more?

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