Very interesting article from Knowledge@Wharton about the future competition between Microsoft and Apple in the field of the online music.

• The overall digital music sales market represents in 2004 about $270 million. By 2009, this market will represent 12% of consumer music spending, i.e. $1.7 billion! (Source: JupiterResearch)
• The current market situation cannot be clearer: Apple holds 70% of the market share with iTunes. It sold 125 million songs since the launch of the Windows version in 2003. Apple offers today a catalogue of about 1 million songs.
• Though this strong strategic starting position, Apple could be confronted with at least two strategic possible issues in the future: first, Apple can repeat the same error as in the past with its OS and the Macintosh, i.e. a closed system which works exclusively with its own Hardware ; second, iTunes is only a download platform, it seems that no streaming functionality is planned…

Some extracts:

Wharton professors say that Apple, by not opening its iTunes format to other music players, could be repeating the mistake it made with its operating systems (OS) for Apple and Macintosh computers back in the 1970s and 1980s. The fact that Apple’s OS software was a closed system that worked only with its own hardware – in contrast to Microsoft, which licensed its operating system software widely and eventually emerged as the industry standard – isolated Apple.

If Microsoft and other services can convince consumers that monthly subscription services are better than downloading songs a la carte, Apple could face problems since it apparently has no plan to offer a streaming music service.

“Microsoft will ultimately be cheaper because it’s not out to sell hardware,” says Clemons. “It usually starts out badly in a new market, but then it either gets better or it terrifies the competition.” Usually it does both.

Outch!