Digital Music Store Not in Google's Plans

Google (Nasdaq: GOOG) said it has no intention of entering the digital music space, squelching mounting speculation that it would use its role as a search player to become a competitor to Apple's (Nasdaq: AAPL) iTunes Music Store and other music download offerings.

With numerous initiatives feeding rumors that it would enter the retail music download arena in the near term, Google used a keynote slot at a recent music conference to say it won't open up a music download store any time soon.

Rumor Mill

"We are not going to be selling music," Google's Head of Business Development, Chris Sacca, told the National Association of Recording Merchandisers conference in Florida last week.

Leading up to the talk, speculation had heated up that Google was on the verge of disclosing a Gtunes music store. Such talk has long percolated around Google, with a Wall Street analyst feeding the rumor mill with a report suggesting such a move earlier this year.

The company's recent agreement to begin selling downloads of music videos from Sony BMG through the Google Video service and its launch of a music search engine helped give the rumors legs.

Word that Google would not make a direct music download play likely met with relief from several fronts, including rivals such as Microsoft (Nasdaq: MSFT) and Apple, whose iTunes Music Store continues to be the industry leader, but faces a growing number of competitors.

Different Roles

Google said that instead of selling music directly, it would focus on helping to create a digital environment that enables consumers to more easily find music to buy, and to make it easier to move around -- from home music systems to portable players and players in automobiles.

"Once again there is an opportunity in ease of use," Sacca said. He said no one company can handle the challenge alone and that successful digital music ventures will rely heavily on partnerships and alliances. "To really grasp this takes a certain amount of humility to look beyond your walls."

Sacca added that Google is already indirectly involved in the music business, serving as a key link between consumers and the songs they want to download, with many music listeners using Google to find song names and download venues based on keywords through its main search engine and its new music search tool.

Still, with Google positioning itself as a distributor of online video -- it announced a deal on Monday to distribute MTV video clips and offer full-episode downloads of some Viacom (NYSE: VIAb) shows -- music seemed like a logical complement.

Curbing Ambitions

Google may have decided that the online music business is already crowded with enough players, with a variety of sites attempting to dethrone the iTunes Music Store from the top spot.

It also may be shying away from digital music because of the legal issues involved and the lack of consensus in the industry about what digital rights management (DRM) format should be followed to keep songs from being pirated.

Earlier this year Google may have tried to position itself as a willing alternative to Apple, which has frustrated some in the music business because of its refusal to raise download prices on some songs, noted Caris analyst Mark Stahlman. Google, meanwhile, could use the additional revenue stream that would come from music and provide insulation against ups and downs in the online advertising industry.

"The music industry is broadly unhappy with the fixed pricing and lack of subscription options at iTunes, and would likely support alternative services with a strong brand name behind them," he said.

To others, the decision not to become a music player is a sign that Google may be recognizing that there are limits to where it can effectively become a major player on the Web.

"Google is coming to the realization that there are some things on the Web that others can do better than they can," Forrester analyst Charlene Li told the E-Commerce Times. While the search giant can afford to build or buy nearly any Web service it wants, she added, "there are some places where the cost-benefit analysis just doesn't make sense."

In music, Google may yet carve out a lucrative niche for itself as a referral service, sending its search users to various download outlets, for a fee, Li said.