Lala and the Shift from Apps to Services

Over the weekend, news broke from both the NY Times and Wall Street Journal that Apple had purchased the online music service Lala.

What's Lala? A little background. Lala's been around for awhile, gone through iterations involving free online listening before settling in on a hybrid model. First. Lala lets you listen to any song you currently have on your PC that it matches to its database (a concept based on the idea of music fingerprints and a digital locker that goes back to the early days of and upload any song you may have that they don't know about. Once completed, you've now got access to all your music any place there's a computer with a web browser and an internet connection. There's also an additional model that lets you listen to any song for free but only once. After that the song must be "purchased" and can only be streamed from the web but not downloaded to a computer or any other offline device.

So why would Apple be interested in such a purchase? There's been some speculation that this purchase would mark Apple's entry into the subscription music business, something that's been predicted often and never come to market. I don't think that's necessarily the case. Lala's business was not about subscription music and there's still way to much evangelism and explanation required to bridge the consumer gap between the two current forms of music purchase today, namely free via radio or radio-like experiences and purchase to own.

I believe Apple is looking at more fundamental trend that will be critical in 2010. That mobile apps will be important but mobile services leveraged against an application perhaps even more so. Apple pioneered the model of the $0.99 song purchase tied to a computer and transferred over a cable to a portable device. When most users collections had well less than a 1,000 songs, the model makes perfect sense. But what about when a users collection far exceeds the reasonable capacity to put in a device? Or when the device the consumer uses has a ubiquitous, "always on" connection? It's these types of fundamental shifts that went into the thinking of a Lala purchase.

Not long ago, Lala demonstrated an app that would allow users to access their entire music collection on their iPhones, without the need to connect back to a computer, as well as streamed content. Perhaps it was this very demonstration that sparked Cupertino's interest in buying the service. The net is a differentiated music offering that's easily tied to iTunes as it currently exists and, at the same time, opens up an entire new offering that takes advantage of today's market conditions. More importantly, it's a service offering that's easily understood by the mainstream market and needs far less evangelism than a subscription service would require.

The Lala acquisition is important not only because it offers a new model for music consumption and purchase but that it has the backing of the largest music retailer, Apple Inc. At the same time, a close look shows just how important mobile services are going to be next year as both a sea-change and a major trend. Vendors that are looking to play catch up to Apple in the mobile app space, who ignore the potential of mobile service offerings are going to be in for a challenging year.