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Marketplace Morning Report

Why Amazon is getting into music streaming

Sally Herships Oct 12, 2016
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PHILIPPE HUGUEN/AFP/Getty Images

First, in case you didn’t already know, Echo is Amazon’s digital assistant, but it goes by the name “Alexa.” Echo, or Alexa, has built in speakers. It/he/she can look up recipes, check the weather, and of course, help you order things from Amazon. And starting today Echo/Alexa can also play music from the company’s new service, Amazon Music Unlimited.

For $3.99 a month, owners of Echo will have access to tens of millions of songs – ad free. Prime members will also get a deal. But the streaming music space is already dominated by Pandora, Spotify and Apple. So why would a company, even one as large as Amazon, venture into an already crowded market?

Amazon’s new service isn’t just about music, says Roger Kay, founder and president of Endpoint Technologies Associates a tech market intelligence firm.  He thinks Echo is like a Trojan horse. Offering music is just a way to for Amazon to get inside consumer’s homes and to stay there.

“Amazon usually doesn’t try to make money selling people some kind of access,” Kay said. “What they’re really trying to do is give you the access so that you’ll use it to buy stuff from Amazon.”

Streaming, Kay says, is just an added attraction. “If they give you a really cheap streaming service they won’t make any money on streaming itself,” Kay said. “But you’ll really like Echo and you’ll tell your friends and they’ll buy Echoes and then eventually everyone will be using Echoes to order groceries and everything else.”

And then there’s Amazon’s venture into  the real- non-virtual world. The company has recently begun opening brick-and-mortar stores. And with the success of Echo, it could open more, says David Bell a professor digital marketing and e-commerce at the University of Pennsylvania’s Wharton School.  The idea is that once a company has unique products of its own, it can help to have a real world space to showcase the brand. “It’s really following the playbook of these digital-first companies,” Bell says, pointing to Warby Parker in eyewear and Bonobos in clothe. Both started online and then built stores.

He also notes that Amazon has a pretty solid track record in selling movies and TV shows. “So I think it’s just natural that they may want to do something with the other major form of content, which is music,” Bell said.

If it looks bad that Amazon is diving into a crowded music-pool, know that can be common in business. Bell says just think back to when we used to use multiple search engines, like Alta-Visa and Lycos – big names before Google. “Often times even when a market is very crowded, he says, “a new entrant can come in and offer something’s better.”

 

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