The evolution of the music industry began with the introduction of the Apple (NASDAQ: AAPL) iPod in 2001. The ability to download songs directly onto a pocket-sized device capable of storing thousands of songs was revolutionary.
The next phase was the introduction of streaming music, which began with the debut of Pandora (NYSE: P), an internet music service that used algorithms to offer listeners personalized recommendations. This novel concept was a smash hit with music lovers and embraced by other services like Spotify and, eventually, Apple Music.
The dominant positions of Spotify and Apple Music are well-known to music enthusiasts, having dispatched a number of would-be contenders, but you may be surprised to learn that Amazon.com, Inc. (NASDAQ: AMZN) is the third largest music subscription service globally, and it's quickly closing in on the leaders.
Streaming music has a new contender. Image source: Getty Images.
A growing market opportunity
The global music streaming market is expected to generate $9.7 billion by 2022, presenting a growing opportunity for the service providers.
More than 67% of streaming music subscribers are currently under the age of 40, with the vast majority falling between the ages of 25 and 34, and this group is by far the most engaged, according to a report by MIDiA Research.
The data also showed that as of June 2017, Spotify is the undisputed leader with 140 million active users, boasting 58 million paying customers among them. Apple Music comes in a distant second with 28.2 million. Amazon comes in third with 16 million, according to MIDiA. More recent information suggests that numbers have increased slightly, with Spotify reporting over 60 million subscribers and Apple claiming 30 million.
Amazon's secret weapon
Subscribers to Amazon Prime have long had access to streaming music, but the selection is limited to a couple million songs. Customers wanting access to the company's larger catalog can join Amazon Music Unlimited for an additional $7.99 per month for Prime members and $9.99 per month for non-members. This gives listeners access to a collection of over 40 million titles and thousands of curated playlists and personalized stations.
Recent moves by the e-commerce giant show that it is ramping up its game and intends to become an even an even bigger force in streaming music. Amazon recently announced that it's expanding its Music Unlimited service to an additional 28 countries. This will no doubt provide a boost to the music streaming subscriptions.
Amazon's ace-in-the-hole may be its Echo family of smart speakers. The company is obviously seeing a correlation between the device and music subscribers, as it revealed that "Amazon Echo will begin to ship to these [same] new countries, enabling customers who purchase devices the ability to experience Amazon Music Unlimited," according to the company. Listeners can use Alexa's voice commands to play specific songs, favorite artists, or even genres.
Amazon has been tight-lipped about sales metrics of its Echo devices, as well as the number of Prime members, but estimates are available. Amazon has an installed base of 15 million Echo devices -- representing 76% of the home smart speaker market, according to analysis conducted by Consumer Intelligence Research Partners (CIRP). Amazon Prime is estimated to have 90 million U.S. members, according to CIRP's data.
This isn't the first time
Amazon has previously used Prime as a way to enter and become a major contender in a given market. Prime Video, while originally an added benefit to Prime members, became a stand-alone service to non-members, and the company quickly became a major player in video streaming, second only to Netflix, Inc. (NASDAQ: NFLX). The two are in a heated battle for market supremacy, with Netflix commanding a sizable lead.
Amazon appears to be employing the same strategy it used so successfully in video: Enter a segment as a benefit to Prime members, build the necessary expertise and infrastructure, and roll out a product to non-Prime members.
Spotify and Apple will not easily relinquish their places at the top, but Amazon shouldn't be counted out.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Apple, and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Pandora Media. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.