Google shows Apple how to buy a music service

Google bought Songza this week. The company makes a music app that competes with Pandora, Rdio, Spotify, Beats Music, iTunes Radio and other music services.

The buy is either a direct response to, or an amazing coincidence with, Apple's recent acquisition of Beats Electronics.

The deals by the two companies are both different and similar.

They're different in price: Apple paid $3 billion for Beats; Google paid probably 1/1000th that much -- probably under $40 million. They're different in scope: In addition to a music service, called Beats Music, the Beats deal brought in a thriving premium headphones business, a hot brand and two high-profile executives -- music business big shots Jimmy Iovine and Dr. Dre.

Most of all, Beats and Songza are different in their ultimate visions. In the case of Beats, that company understands -- in fact owes its existence to -- the fact that you can't really make money from music anymore. It's ultimate purpose is to make money on everything related to music except for the music itself.

In the music business, they're called 360 deals. Instead of a traditional record contract, in which artists are given a percentage of sales, 360 deals are a series of endorsements, concert commitments and other items designed to make money from fan enthusiasm.

For example, the purpose of Beats' music service is to eventually enable an artist like Lady Gaga to gather huge numbers of fans around a Beats-centric community, then sell them Lady Gaga headphones, Lady Gaga concert tickets, Lady Gaga underwear -- whatever.

Songza has no such aspirations, apparently.

Apple already has the hottest corporate brand in the world, and didn't need the Beats brand (that's an arguable notion when talking about teenagers, but lets admit that Apple is doing pretty well brand-wise and financially). And those beats headphones could be easily designed and built by Apple, and they'd probably be better quality.

One major reason for the Beats acquisition is the Beats Music service, which competes directly with Songza.

How Beats Music and Songza compare

The leading brand in streaming music is Pandora, which boasts about 75 million regular users. This is far more than Songza's 5.5 million reported last year, and vastly more than Beats Music's user base, which is probably less than 300,000 people.

Unlike Pandora, which is the original thumbs up, thumbs down, if-you-like-that-you'll-love-this kind of music service.

Both Beats Music and Songza have much higher aspirations for music, both of which are far more interesting than Pandora's model.

For example, Songza specializes in matching playlists to the user's context. If you're just getting up in the morning, it will play one type of music. If you're working, it will play another. Songza has a deal with The Weather Channel to provide weather information, which affects music selection. There are playlists for working out, driving -- you name it. And it's all curated by humans.

That's where the Beats Music comparison comes in. Beats Music is also human-curated -- by celebrities, music critics, DJs and other music experts.

Why the Songza deal beats Beats

The backdrop to Apple's and Google's music service acquisitions is that both companies already have music services -- iTunes Radio and Play Music, respectively.

It's likely that Google will simply blend in Songza's secret sauce with Play Music, and continue offering Play Music, monetizing it directly through subscriptions and possible advertising.

It's impossible to know what Apple is thinking on the Beats acquisition, but it seems likely to me that they'd like to re-invent the music business again (iTunes and 99-cent songs were the most disruptive event in the history of the music industry). I suspect they bought into Iovine's 360-deals vision for Beats Music.

Here's the problem. I believe Apple understands consumer electronics, software and music. But I don't believe they understand social networking. If they did, they never would have launched Ping, the company's failed music social network. Instead, they would have acquired Twitter at some point, where the Lady Gagas of the world already each have dozens of millions of followers.

In other words, for Beats Music to ever succeed, it would have to become, then succeed as, a social network. And it's too late for that.

Buying Beats for $3 billion was a big waste of money.

However, Google's purchase of Songza makes a lot of sense. The cost is trivially low by Silicon Valley standards, and the value is high.

Google has a better way to exploit music to sell things that are not music -- advertising.

Google is also constructing a world where Google always knows what's going on with you and services up information and, yes, music based on your circumstances, location and activity. That's what Songza is all about.

Songza gives Google a nice boost to its existing music service, and in doing so it also gives a boost to Google Now, Google Search, Google Glass and probably to YouTube, Google+ and Android itself.

Songza makes Google stronger as a brand and better as a provider of Google services.

Beats Music, on the other hand, introduces a muddling second brand to Apple's mix, not to mention bad headphones and a music service that will probably never be able to do what it was launched to do.

That's why Google buying Songza is a way better acquisition than Apple buying Beats.

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