Where the iTunes Store Fails: Community
You don't need me to tell you that the iTunes Store has changed the face of music distribution, digital or otherwise. In April of 2008 it became the top music retailer in the USiTunes Store Top Music Retailer in the US and passed 6 billion songs downloaded earlier this yeariTunes Sells 6 Billion Songs, And Other Fun Stats From The Philnote. That's almost one song downloaded for every person on the planet.
For music startups iTunes figures into most strategic decisions. If you're streaming music for free to consumers you're going to be an iTunes affiliateBoth imeem and Last.FM are, for example. If you're selling music to consumers you're going to competing directly with iTunes — consumers have no reason to get their music from both you and iTunes if you both have it.
It's understandable if your heart skips a beat when you catch rumor that Apple will be building a similar product. How can you maneuver in this environment?
Finding Room to Breath
The iTunes Store is a lot like Wal-Mart: ubiquitousWho did Apple pass as the top music retailer? Wal-Mart, highly integrated, and bland. People shop there because it's easier, not because it's sexier, even though in other areas Apple is very good at selling precisely that hip, sexy lifestyle.
But Wal-Mart's strategy isn't the only strategy out there. Companies like Whole Foods can still thrive in their niche even though people can get cheaper food at Wal-Mart. Where is the Whole Foods of digital music? Does such a thing even make sense?
Building a Community
Corner record stores are about more than just the transaction. They attract a certain crowd and embrace a certain culture. High Fidelity is a good example of this on film.
iTunes misses out on the cultural and communal aspects of music altogether. It's very sterile. It's also a terrible means of discovering new music, a role which traditional record stores can fulfill.
As an example, say you're really into electronica. What good are the reviews on the iTunes music store to you? They're left by idiots who don't know Aphex Twin from Paul van Dyk. You go there when you know what you want and leave the second you have itThis is a problem with iTunes in general. It's the last step in your marketing campaign, not the first. See my article The $0.99 (App) Store..
And knowing iTunes, they might not even have music from your favorite bands if they're obscure enough.
Instead, imagine a hub of engaged electronica fans with a custom, electronica-centric storeOf course, you can break down genres into subgenres, and so forth. Maybe the sweet spot is having an ambient store, a trance store, a house store, a D&B store, etc.. The community itself spurs demand for its own store due to its reputation for quality electronica-related recommendations.
Improved discovery, better quality merchandise, exclusive deals with bands, and a community of like-minded people are just a few reasons why people might prefer to shop at a genre-specific music store rather than iTunes if they're forced to choose.
Plus an independent store is more freely able to experiment with payment models, distribution methods, and marketing campaigns. This might interest bands who see iTunes as a love-it-or-leave-it environment controlled from top to bottom by Apple.
Will This Work?
I don't know if this will work, but I think it's a reasonable enough hypothesis to test. This is just one possible strategy for building a music product and probably has several flaws I haven't thought through. Leave a comment and let me know your thoughts.
May a thousand music stores bloom!
Update
Adam from Heroku pointed me towards Beatport, which has been pursuing this exact strategy for the last few years.
After a little digging I found a few others, too. Insound.com for indie music and Mondomix for world music. I also know of one stealth startup pursuing this strategy for another genre. Do you know of any others? How well does this strategy perform?
In the limit you can imagine a "Ning for iTunes Stores," where the costs of implementing the store are shared but the community-building aspects are left to the company.