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Google Makes Music: Takes on Spotify in the Streaming Business

Danielle Kurtzleben

It's the equivalent of a modern-day land rush as digital companies scramble to stake their claims on the streaming music business.

Google is getting mass attention for its Wednesday announcement of its online All Access streaming service. Apple is rumored to be creating its own internet radio service. And existing companies already are duking it out to defend their places.

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The good news for existing streaming services is that there is plenty of land out there to be claimed. Still, the likes of Google and Apple could have the advantage in claiming new customers.

Google announced at its I/O developer conference that its service would allow users to combine their existing music libraries with Google's millions of available tracks to create their own playlists. That puts the new streaming product in direct competition with on-demand products like Spotify and Grooveshark. But the product also features radio stations, which could pit it against other internet radio services like Pandora. Many on-demand services also provide radio options.

With Google's entry into the market, the race is on to reach a huge customer base. The number of music streaming customers is already in the hundreds of millions. Spotify has 24 million active users. Grooveshark claims 30 million. Pandora dwarfs those companies with its 200 million users. Still, there are hundreds of millions more potential users out there, judging from the number of digitally connected people worldwide.

Currently, there are over 1 billion smartphone users worldwide, including 136 million in the U.S. alone. Not all of those people may want to join a streaming service, but it's a benchmark for the number of people who are digitally engaged and could be enticed into downloading an app or buying a subscription.

"It's wide-open," says Sam Tarantino, CEO of Grooveshark. He points to another indicator of online engagement: "Facebook has a billion users, so there's a lot of users out there we still have to acquire."

That means plenty of unclaimed consumers who have not yet even been introduced to the world of streaming music.

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"My suspicion is it isn't a zero-sum game at this point," says Will Power, senior analyst at market research firm Baird. "There are probably a lot of customers out there who are not subscribing to a streaming service."

With that in mind, companies are scrambling to reach out to new customers. That can mean going global.

"We have to grow in the markets that we're in, but then we have a lot of countries that we're not in yet," says Graham James, spokesman for Spotify, which last month expanded its reach into eight new countries, including Mexico, Iceland, and Hong Kong. Altogether, the company is in 28 markets worldwide, according to James. He describes it as a slow but steady process.

"We negotiate with labels, with publishers, any of the rights holders to get the rights to music, and then we can go launch in those countries," James says. "It's kind of a slower process than just rolling out globally."

Because each product is unique, there is a sense that many of these music platforms can peacefully coexist -- as James puts it, "I think they can all live in harmony together." Pandora and other radio services offer a more hands-off experience for people who want to let a computer choose their music, while Spotify encourages playlist curation. Many customers may want to do both.

Even if that's true, it's not stopping companies from working to differentiate themselves from the pack. Spotify launched a television ad campaign last month and partnered with rock band Phoenix for a one-day massive YouTube campaign. Grooveshark recently launched a "broadcast" feature, allowing users to act as DJs by creating their own playlists and interjecting their own commentary between songs.

The battle for revenue is also in constant flux. All Access will cost consumers $10 per month. In February, Pandora limited users' free mobile usage to 40 hours per month; customers hoping for more tunes will have to subscribe. Only subscribing Spotify customers can access on-demand streaming on mobile phones. Meanwhile, Grooveshark says it remains committed to promoting its free, ad-supported service, though it offers a subscription option as well.

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"[W]e believe that free, non-subscription based, ad supported business models such as YouTube will ultimately be the core revenue model and consumer choice," says Tarantino in an email to U.S. News, reacting to the Google roll-out.

Still, Google may have a leg up on the competition with its already ubiquitous products, like its Android smartphone operating system, which would make promoting All Access much easier.

"Owning the platform is certainly an advantage, regardless of what church you go to, whether it's the

Apple one or the Android one," says Russ Crupnick, vice president and senior industry analyst at market research firm NPD. He points to Apple's ability to push iTunes and other apps on iOS products like iPads and iPhones.

Still, if Google is to push past its rivals in the streaming space, price may be its biggest hurdle, says Crupnick.

"People are absolutely willing to pay for music, but they want to pay for it more a la carte," by purchasing CDs or mp3s, says Crupnick. "We just haven't seen yet a consumer need to subscribe to music."

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