Price war! Amazon launches 69-cent MP3 store for top-selling tunes
Amazon.com, which is a distant No. 2 to Apple Inc. as a retailer of downloadable music, has upped the ante or, rather, lowered its prices to compete with iTunes. — The Seattle online company is now pricing select top-selling tunes …
Context & Ripple Effects
When Amazon's MP3 store marked its first year at the end of 2008, MediaMemo's verdict was blunt: no iTunes killer, and probably never would be. Three years on, Amazon — still the distant No. 2 in downloads behind Apple's iTunes — has stopped trying to out-feature Apple and started trying to underprice it, cutting select top-selling tracks to 69 cents against iTunes' 99-cent standard.
The move lands in a crowded week for the company: Amazon had only just fully restored services after the extended US East Region cloud outage, announced plans to open more US fulfillment centers on a hiring spree, and eliminated 1,249 South Carolina warehouse jobs amid that state's sales tax dispute. Pricing music aggressively fits the pattern of a retailer willing to trade margin for traffic across every front at once.
First-order effects
- Apple's 99-cent price point — the anchor of legal download pricing since iTunes launched — now has a visible undercut on hit songs, forcing a direct choice for shoppers comparing the two stores track by track.
Second-order effects
- Apple must either absorb the price challenge on hits or differentiate elsewhere, while smaller download retailers with less balance-sheet room than Amazon face margin compression they cannot easily answer with loss-leading.
Third-order effects
- If hit-song pricing becomes a recurring promotional weapon rather than a one-off, à-la-carte downloads drift toward commodity status, pushing retailers toward subscriptions and bundles to recover margin — the direction ad-supported experiments like SpiralFrog and Imeem were already probing back in 2007.
The trend: Digital music retail is shifting from store differentiation to balance-sheet-funded price competition, with scale players treating downloads as a traffic engine rather than a profit center.