July 10, 2006

As the durability of music is thus not homogeneous and depends on the consumers' preferences, market segmentation is likely to occur. We showed that renting is more likely to attract young consumers due to their taste for novelties. However, in this market segment, renting firms compete with both radio and pirate channels, and the relative lack of financial resources of the consumers in this segment means that they are more likely to choose the two latter rather than renting firms. On the other hand, we showed that, as selling firms are more likely to be chosen by more mature consumers, the direct impact of piracy is lower. More particularly, we demonstrated that the main competitor of selling firms is, in fact, the traditional Audio-CD market. Our analysis shows that, on the contrary to renting firms that face an intense competition from their main competitors -- the pirate channels, online firms selling music have some strong advantages over the Audio-CD market and are expected to gain a significant market share from the firms supplying Audio-CD.

In a nutshell, Microsoft will focus on one of Apple's clear vulnerabilities: the relative inability of iTunes and iPod users to discover new music. Sure, you can share iMixes, but most iTunes users for the most part log on to buy songs they already know they want to buy.

The new Microsoft service, and the marketing to back it up, will likely focus on community-oriented capabilities--specifically, the ability for users to wirelessly "see" each others playlists and get a certain number of "free" streams of songs they want to check out. In other words, the WiFi capabilities won't be focused only on letting people satisfy the immediate, urgent immediate need to log on to some wireless digital music service--something that hasn't taken off, despite efforts of carriers such as Verizon and Sprint. Rather, the wireless capability will seek to exploit the most powerful "recommendation engines" around: your friends.