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Here's Spotify's Master Plan: Tackle iTunes Head-On

A couple of weeks ago Spotify, the European music streaming startup, came in for sharp criticism when it made the decision to place tight limits on the music you could listen to for free. It made financial sense, but left us wondering where its strategy was going.

On May 4 it revealed the next piece in the puzzle, and it's a bold move: a new version that makes it—for music, at least—a direct competitor to Apple's (AAPL) iTunes.

What do you get from the new, improved app?

Management and synchronization: Until now, Spotify users (like me) conducted their desktop listening through the app, but still had to juggle the music on their iPods through iTunes. No more. The new client allows you to manage music on an iPod. The system also works for Android.

Download service: Spotify has offered you the chance to purchase tracks for quite a while, but it was a piecemeal, white-label service where users could only buy a single track at a time. Now there's a more straightforward shopping system, which allows people to purchase entire playlists of MP3s with a single click—and sync them directly to their music player. The basic prices seem to be a little higher than in iTunes, but the more tracks you buy the cheaper it gets: In the U.K., for example, a bundle of 10 tracks will cost £7.99 ($13.16) but 100 tracks will cost £50 ($82.38).

Mobile apps for all: Spotify Mobile is one feature that only premium subscribers have had access to in the past—their monthly fee lets them stream music to their handset, not just their computer. Now, with the enhanced purchasing options, all users (even those who don't pay to subscribe to Spotify's extra services) will be able to download the mobile app and use it to listen to tracks they've bought. Nonpaying users still don't get music streaming on their phones, however.

It's a strong line of attack from the Swedish startup, and not entirely expected: Most reporting has focused on the way it has been angling to move into the U.S. market, particularly since it has a substantial war chest after raising $100 million.

But let's not pretend that in doing this, Spotify is breaking completely new ground: It is most definitely not the first company to try to provide an alternative to iTunes. Among the others attempting to compete directly with iTunes is DoubleTwist, a San Francisco startup that has been going great guns.

However, it is one of the most direct plays against Apple that we've seen. Spotify comes from a different direction than most of the competing sync platforms, because it's starting out with a strong base in music and a million subscribers.

There are still plenty of weaknesses: It doesn't have an American service (some have suggested that Apple is exerting influence over record labels to stymie Spotify's move into America).It's still pretty poor at the process of music discovery—the service is great if you know what you want to listen to, but if you're looking for a radio-type service, then it's got a long way to go.And, if we're comparing it to iTunes, it still only does music (co-founder Daniel Ek recently denied reports that the company planned to launch a movie streaming service).

But it will certainly be interesting to see what Apple does in response. While Spotify is no Amazon (AMZN), it poses a bigger threat to Cupertino than most of the other players out there. Apple has a track record of changing its software regularly to try to prevent third-party iPod syncing, so it will probably keep the Swedish business on its toes.

And I suspect it may also prompt Steve Jobs to demand that his engineers rebuild iTunes and turn it into something better—it is, after all, a bloated and increasingly confusing piece of software that's essentially just a hodgepodge of different products slammed together in one. In terms of ease of use, iTunes is just about the least Apple-like piece of software it produces.

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Johnson is a writer for the GigaOm Network

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