Amazon move may be key to media ‘lockers’

Silicon Valley Business Journal

MSpot CEO and co-founder Daren Tsui said Amazon¹s announcement validates what his company has been working on for the past couple years - giving consumers access to their media basically anywhere, on any device.

Amazon.com Inc. made a splash on March 29 by jumping into the “media locker” business, providing storage in the cloud where consumers can stash their music and videos for access through the Web.

But analysts seemed reluctant to say the online retailer has much of an edge over big Silicon Valley rivals Apple Inc. and Google Inc., which have been working on similar, yet-to-be-released offerings.

They also said Amazon might actually have helped smaller companies in the valley that offer media storage, including mSpot Inc. in Palo Alto, by validating their concept in the face of music and film industry legal questions.

The new Amazon Cloud Drive with 5 gigabytes of free storage, or enough space to stash as many as 1,000 songs is essentially an online hard drive where music, video, photos and documents can be stored on Amazon’s secure servers. The initial focus is on managing digital music collections, according to the company. Users can upload, download and access their data with a Web browser from computers, smartphones and tablets. Consumers who buy an album from Amazon also get 20 GB of storage, and more can be purchased for $1 per GB annually.

Startup validation?

The new Amazon service drew an immediate reaction from startup mSpot, which increased its free service offering from 2 GB to 5 GB to be competitive. The company delivers music, movies, radio and TV to mobile customers across 10 wireless carriers, and makes money from tiered pricing for customers that need more than 5 GB.

Rob Enderle, principal analyst with the San Jose-based Enderle Group, said companies like mSpot are not necessarily ‘wiped out’ by Amazon¹s move, adding that it also makes the space more interesting to investors.

“You need a big player if you are a little player like mSpot,” he said. “It doesn’t necessarily have to be a threat.”

MSpot CEO and co-founder Daren Tsui said Amazon’s announcement validates what his company has been working on for the past couple years giving consumers access to their media basically anywhere, on any device.

But it could mean a fight for customers with Amazon when it comes to music and potentially movies, he said. He also pointed out that Amazon has not historically been an entertainment company. His company’s service is focused on enriching the user’s listening experience and looks like a music player, whereas Amazon’s user interface looks like a file manager.

In that regard, Enderle said other companies have similar offerings to Amazon’s, including San Mateo-based SugarSync Inc., which provides secure cloud storage for documents, music, photos and videos. Palo Alto-based Box.net Inc. also allows businesses to store and retrieve documents from the cloud.

Amazon Cloud Drive is ‘a packaged offering,’ so the company is likely to contain all its own related infrastructure in-house from data centers to security, Enderle said. Giant companies eye territory

“Amazon’s shift is a direct frontal attack on Apple,” said Internet analyst Frederick Moran, with The Benchmark Co. LLC. Amazon wants to provide as many services as they can to attract more customers.

Apple has been rumored to be working on a cloud-based music streaming and storage offering since it bought Palo Alto-based Lala.com for $17 million, which was offering those services, late in 2009. But it hasn¹t happened yet.

Both Apple and Google have reportedly been delayed by negotiations with music and film companies, which have historically preferred their titles be purchased separately for different devices.

Amazon said it doesn’t think it needs to work out licensing deals because it is providing a simple storage solution. It doesn’t allow access, however, from devices that use Apple iOS, meaning the iPhone, iPad and iPod touch.

Moran said it is a logical extension of Amazon’s core business and its Internet Web hosting division, Amazon Web Services. The Amazon Cloud Drive service is representative of a market opportunity in its infancy offering everyday user access to the cloud to consumers, not just enterprises.

Mark Mulligan, vice president and research director of consumer product strategy with Forrester Research Inc., said Amazon¹s motivation is a need to establish a music relationship with its customers that will exist when CD sales end.

“They haven’t managed to compete effectively with Apple for MP3 sales, so this is another way of tying customers into them,” he said.

With notable exceptions of New York-based Beyond Oblivion Inc. and London’s Spotify Ltd., both digital music services, and the recent smaller scale launch of San Francisco-based Rdio Inc., Mulligan said there isn¹t much happening in the space.

“The smaller players are falling by the wayside and activity is consolidating around the big boys,” he said. “They’re the ones who can shoulder the pitiful margins in digital music in order to help their core, non-music product strategies.”

Mulligan said Amazon’s news is not such a game changer.

“Letting people play the music they own where and when they want it should be a standard feature of music,” he said. “Portability of the content is not adding value; it’s just providing the basics. The real innovation in digital music will be changing the product itself.”

April 1, 2011

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