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The race is on to get more consumers hooked on Amazon ahead of the holidays, and music is the latest lure.
Amazon.com Inc. is working on a stand-alone music-streaming service and will release more details in the coming weeks, according to a person with knowledge of the matter. With a price tag reported to be about $5 a month, the new service would be cheaper than competing streaming deals from the likes of Spotify and Apple Music, meaning Amazon will probably lose money on the monthly fee for the service.
But for Amazon, making money from music is beside the point. Instead, the Seattle-based e-commerce giant plans to use streaming music to gin up sales of Echo, a gadget that lets people use voice commands to get information, organize schedules and make purchases online. Earlier this month, Amazon unveiled a cheaper version of the digital assistant, the $50 Echo Dot, in a bid to make its smart-home technology more appealing to the masses in time for the year-end shopping season. The devices are also getting prominent placement in Amazon’s physical bookstores and pop-up shops, where workers are at the ready to show off virtual helper Alexa and Echo’s other capabilities.
A central selling point for Echo and rival in-home gadgets is music -- the idea that users will be able to use a simple voice command to instantly stream a song of their choice. That’s where the music streaming comes in -- something that has been part of the plan for Echo since its inception, according to people familiar with the company’s strategy. Even though the music-streaming market is already crowded and competition is tight, Amazon is willing to lose money on a cheap offering to attract more shoppers to the Echo, with the ultimate goal of embedding all of its services more deeply in users’ everyday lives.
“This is a seismic change from other streaming services where the interface takes lots of swipes on your smartphone and effort to create the right playlist,” said George Howard, professor of music business management at Berklee College of Music. "Just being able to say ‘Alexa, play jazz,’ for the vast majority of the population, that’s all they need."
An Amazon spokeswoman declined to comment on potential plans for a new music-streaming service.
The Echo was unveiled two years ago, and Amazon has since added more than 1,000 skills. You can use the personal assistant to control lights in your home, check the weather, get recipes, order a pizza or pay a credit card bill, all starting with the wake word "Alexa" before giving a command. The growing list of capabilities is overwhelming, and the voice-command format -- with no screen for browsing like a desktop or smartphone -- means presenting and selling new skills to users can be a challenge.
Music as Hook
Music is the universal engagement tool, appealing to virtually anyone buying an in-home device. Setting up an Echo to play music through an Amazon Prime account, which includes access to more than a million songs as well as playlists, is a popular skill to get people acquainted with the technology. Amazon is also betting that a stand-alone music streaming service -- no Prime account required -- will enhance Echo’s appeal to non-members, ultimately whetting their appetites for further offerings from the online retailer.
New Echo users plug in a device and connect it to Wi-Fi using an Alexa smartphone app. From there, they can select a playlist or song through voice command. The device can also be synced with rival music services from Pandora Media Inc. and Spotify Inc. for streaming. Users can upload their personal digital music collections to an Amazon music library, and access that through Alexa as well.
Recode reported last month that Amazon is working on a streaming service that will be bundled with Echo devices and cost $4 or $5 a month, citing people familiar with the plan. That would make it competitive with a new $5 a month ad-free streaming service from Pandora, which is trying to convert free users into paid subscribers, and less expensive than individual premium services from Spotify and Apple Music, which both go for $10.
Even if Amazon loses $5 per month per person to offer a low-cost streaming service that helps it sell more Echo devices, the company will make more than that by getting people deeper into its web of online shopping options and Prime membership that also includes video streaming, said Greg Portell, an analyst at consulting firm A.T. Kearney.
"Amazon’s currency is engaged users, not subscribers to a music streaming service," he said. "If music helps them get you on their platform, the benefits for Amazon far exceed $5 a month."
The Echo is the latest device Amazon is using to boost membership in its Prime subscription program, which turns occasional online shoppers into Amazon devotees. A stand-alone music service would be just a few dollars less per month than a Prime membership, which includes delivery discounts, video streaming and online photo storage. So those happy with the music service are likely to upgrade and get the full benefits of Prime membership, making them more loyal to Amazon with their overall spending. Amazon introduced a stand-alone video subscription service in April, another potential gateway to Prime membership.
Amazon has historically relied on the holiday shopping season to entice consumers to try Prime membership by offering free trial subscriptions right at the time people are doing the most online shopping. In this year’s fourth quarter -- the company’s biggest of the year -- Amazon is estimated to bring in sales of $44.7 billion, mostly from e-commerce, up 25 percent from a year earlier, according to analyst estimates compiled by Bloomberg. Last year, Amazon introduced a 7-inch tablet priced at $50 before the holiday shopping season, creating a surprise hit in a product category that otherwise saw sales decline.
This year the emphasis is on the Echo, especially the new less-expensive Dot, which is meant to let customers spread Amazon’s voice recognition technology to other rooms throughout their homes. The device can be purchased in packages of six at a discounted $250. The Dot can connect to other speakers, while the original Echo, priced at $180, has a powerful speaker capable of playing music loudly in a large room.
Amazon, whose stock has gained more than 18 percent so far this year, is also using music to further its e-commerce business and aspirations to own the smart home. Consumers are shifting their music spending from CDs and digital downloads to streaming services, which let them hear songs of their choice on demand or play an ad-supported radio style format geared to individual tastes, providing a window for Amazon to woo users to the Echo technology as they shift to new listening styles.
At Amazon’s Seattle bookstore, which opened last year, the Echo is the first device shoppers see when they enter the space. The store is experimenting with seven-minute "flash classes" that give browsers a chance to learn more about the company’s gadgets, including Echo, as well as Amazon Prime membership.
The flash class given on a recent afternoon highlighted how the Echo can be used to play songs through various music-streaming services, including Pandora and Spotify, or to order paper towels from Amazon’s online store, and how it can be connected to various smart-home products to control lights and thermostats.
"They are using music to pull you into that ecosystem, just like Wal-Mart lowered the price on CDs to sell more microwave ovens," Howard said. "First you’re listening to jazz. Next, you’re dimming the lights and ordering groceries, all on the Echo."