Benner on Tech: Apple Makes Spotify Sweat

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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People are Talking About…

Excitement ramped up (again) about Apple’s version of a streaming music service when 9to5Mac said that Apple would eventually roll out a product that integrates Beats technology into iOS and iTunes (it will also be available on Android operating systems).

Based heavily upon cloud streaming, Apple’s new service is centered around the user’s music library. A new search feature will be able to locate any song in the iTunes/Beats catalog, and users will be able to stream music from the catalog as well as add songs to their personal libraries.

The price tag is rumored to be low, only $7.99 a month versus the $9.99 that has become the price standard for streaming music services.

This all sounds great unless you’re Spotify, the leader in the field. When Bloomberg Businessweek profiled the company last spring, it noted that services like Spotify (and Beats) had business models that made them more expensive to run the bigger they got.

[Spotify] spends a fixed proportion of its total revenue on royalties. So if Spotify doubles its subscriber base, it doubles the amount of money it pays out… The worst-case scenario for Spotify isn’t losing to Apple. It’s discovering that its prize is insolvency. According to a report published by Generator Research last November, the current business model for streaming music is “inherently unprofitable.”

Presumably Apple’s team will negotiate a deal with the labels that doesn’t make music streaming inherently unprofitable. (But who knows. As the New Yorker points out, lots of the major labels have stakes in Spotify so they have incentives to help the startup succeed.) Even if it doesn’t negotiate better deals, Apple can afford to make music streaming a loss leader and crush the competition with its huge scale. Apple has global reach, it sold 74.5 million iPhones in the most recent quarter alone and it has 800 million credit cards on file.

Unless something goes terribly wrong with the user interface or the software (which are actually reasonable worries), there's no reason that Apple can't lead in streaming music essentially upon launch. That should give the existing streaming services pause as they figure out whether to sell to a competitor (Google?) or go it alone against Apple.

** Must read feature: More and more tech professionals are home schooling their kids, according to Wired:

“The world is changing. It’s looking for people who are creative and entrepreneurial, and that’s not going to happen in a system that tells kids what to do all day,” Samantha says. “So how do you do that? Well if the system won’t allow it, as the saying goes: If you want something done right, do it yourself.”

** ICYMI: Fusion’s Kevin Roose takes a look at the life and death of BlackBerry’s company town, Waterloo, Ontario.

Ventureland

Fab.com could soon finalize its fire sale to PCH Innovations and Business Insider takes a look at what went wrong with the retail startup.

Odysee, a photo sharing app maker, was acquired by Google and will be integrated with Google+.

Slack has successfully weaned big companies off of email and onto its corporate messaging tool. Fusion’s Kashmir Hill looks at how the company keeps that sensitive data secure.

Startup investing is coming to the masses thanks to companies like Beepi and AngelList, as retail investors scramble to get into the current private company boom, according to the Wall Street Journal.

Go inside a Chinese bitcoin mine with Motherboard.

People and Personnel Move

David Scott, the head of Hewlett-Packard’s data storage business, will retire early next month, Re/code reports.

Don Faul, the head of operations at Pinterest, is leaving the company, Re/code reports.

Alex Holden is the man who recovered data stolen in the JP Morgan hack, and his firm discovered the largest trove of stolen credentials that had ever been amassed. Popular Mechanics profiles Holden and his firm, which is busier than ever.

Companies

Alibaba…

The Chinese online retail giant invested $590 million into the smartphone maker Meizu Technology as part of a strategy to crack the hardware market, Reuters reports.

Facebook…

As the company censors user content in order to operate in countries around the world, it cracks down the most on users in India, Turkey and Pakistan, CNN/Money reports.

Google…

Google Fiber has helped change the face of broadband competition in Kansas City, but it hasn’t done much to close the digital divide, reports Fast Company’s Daniela Valazquez.

Honeywell…

The company could be making a bid for Motorola Solutoins, the communications equipment manufacturer that makes up the remnants of Motorola, reports the Wall Street Journal.

Samsung…

The company’s Internet-connected SmartTV can record what you say while you’re watching TV and send the data to a third party, the Daily Beast reports.

Cybersecurity Watch

Lawmakers are debating whether to strike back against online attacks or if retaliation is unwise because it’s too difficult to accurately target hacker groups, the Wall Street Journal reports.

Cars that use wireless technology have serious security flaws that could compromise user data, according to the New York Times.

Media Files

Pandora will soon do court battle with music licensing giant BMI over how much the Internet radio service will have to pay artists and publishers to stream songs, the New York Times reports.

Sling TV is now available to all, GigaOm reports, as Dish Networks expands its online TV streaming service.

Netflix could turn “The Legend of Zelda” into a television miniseries, reports the Wall Street Journal.

News and Notes

People worldwide are getting around geo-restricted websites like Netflix and Hulu by using VPNs and services like Unblock-us to make it look like they’re U.S. customers, reports the New York Times.

The battle over net neutrality is just heating up now that the FCC has proposed sweeping new regulations for cable companies, according to the Wall Street Journal.

Hobbyist drones could be used as weapons, according to Wired.

Big companies like Apple and Intel have lessened the power that patent holders have, the Wall Street Journal reports.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Timothy L. O'Brien at tobrien46@bloomberg.net