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Lala: From The Bottom Of The Barrel To The Crest Of The Wave

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The only news of Lala in the past year was WMG’s writing down half of its $20 million investment in the site, grimly citing “lower expectations of digital music sales”. But this week introduced three new prospective projects for the streaming site; an iPhone app and deals with Facebook and Google. Lala could soon be rocketing from the depths of ‘out of favor start-up’ to, as Gizmodo put it, getting “one of the biggest endorsements imaginable: Prime placement on Google’s search pages”.

The first announcement was on last Wednesday, a deal with Facebook was announced for “music gifting” through the site, and there is heavily rumored news for this week that the new Google music search feature will utilize Lala (along with iLike) for track streaming.

For those of you who aren’t familiar, Lala’s overall strategy is to allow streaming of its 8.5 million tracks for free – once, which they already have license to do on third-party sites like Pitchfork, Billboard, Facebook and now apparently Google as well. After that, users can purchase the right to listen to a streaming version of the song forever for only 10 cents. If the user wants to have a copy of the track, the 10 cents count towards a DRM-free MP3, which usually costs 89 cents.

Gifting tracks for “web songs” is a clever idea, and so is using credits to purchase them because Facebook “gifting” users are already familiar with the system. This has also always been an option for Lala users as well, a “pre-paid wallet” system so credits are available to users, instead of a-la-carte 10-cent charges for each transaction showing up on a user’s bill.

Google’s rumored new music search engine will include 30-second samples from Lala (and iLike) on its search page, and according to ArsTechnica users “will be directed back to Lala (or iLike) to listen to the whole song and possibly make a purchase”. These are both quite lucrative for Lala, especially for exposure. Forbes writer Bruce Uptin summed it up nicely as, “These two deals potentially give Lala, with only 1 million registered users, access to 300 million Facebook members and all those jillions of Google searches per day.

The third news story is surrounding the possibility of a Lala iPhone app before the end of the year. On top of the typical features of streaming and purchasing music, it’s also been reported that the app will cache the last few hundred songs the user listened to for offline listening, which helps to quiet the Spotify-lovers.

However, the possible best perk (and advantage) of the iPhone app is it will allow users to stream their own libraries of music, since Lala users can do this on the site using its Music Mover feature. Having access to home libraries will certainly attract those who agonize over prioritizing their own collection to fit on their phone’s memory.

Music Ally made a good point that “currently the minimum in-app payment that’s possible on iPhone is $0.99” but perhaps that can be bypassed by Lala’s own system of the “pre-paid wallet” for song credits. Even if the iPhone rejects the app to preserve its own a-la-carte service, Wired also reported plans for Android, Palm Pre and Blackberry. Now, there has been ‘news’ of the iPhone app since this time last year (and there isn’t news if they have already submitted it, or any other apps) but hopefully they’ve prepared for the wider smartphone market and already gotten started on the other devices as well.

Let’s look briefly at some of the other music service apps. Spotify’s iPhone app has shown promise. Even though figures haven’t been revealed, founder Daniel Ek has said premium subscriptions have grown “by a big number” since the app’s introduction. Rhapsody released an app similar to Spotify as access is only allowed if you’re already paying for the $14.99 “Rhapsody to Go” service. The company reported 500,000 app downloads, but it is unknown how many of them were downloaded by paying customers. Also All Things Digital mentioned Rhapsody only has 700,000-800,000 subscribers, and it would seem hardly reasonable that a large majority of them all had smartphones.

On the other end of the spectrum is Pandora with 35 million registered users and its iPhone radio app was one of the most downloaded apps last year. Sales are “about a million songs a month…and of those, a solid 20% are coming directly from Pandora’s iPhone app”.

In a CNET article, Lala’s co-founder Bill Nguyen reported, “among the users who have provided a credit card, on average they buy 180 songs for every 1,000 they listen to on the site” and the site had close to 100,000 credit cards on file back in April. This shows much promise for even better profits if an app is made that users like, which seems likely with 10 cent streaming songs, track caching and access to your home library.

A recent Forbes article backed the model, going as far to shun all other subscription services and ad-supported models as well. Author Bruce Uptin poses the question, “What if everyone comes to realize what the music industry and Steve Jobs have always known, that the only way to fight piracy and make money in digital music is to charge by the song and it’s hard to disagree with recent slumps from Napster and Nokia, and so far a lack of concrete assurance in Spotify.

There seems to still be space for competitive music apps that have unique business models, as an article in Technologizer put it, “I don’t think there’s such a thing as a music service that’ll make everybody happy all the time–at least not until someone comes up with one that lets you stream or download all the music you want and keep it forever for free.”

Here’s to hoping Lala can pull through and offer a business model that is actually capable of bringing the industry profits, and not pro-rata shares.

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