Apple announced its long anticipated online radio last month. The free version, iTunes Radio, and the ad-free paid version, iTunes Match, will be available to consumers and music fans later this year. Apple’s iAd will be supporting the free service. As a company known for innovation and market disruption, seeing a model so similar to Pandora’s is a little anticlimactic. Apple’s lack of success and interest in the advertisement market also raises some questions about their model. However, while it seems like Apple is late to the game and that their model is similar to that of the struggling Pandora, a deeper look shows some key differences on which Apple is betting their success.

Granted, many of Apple’s recent iTunes endeavors like Ping have not been wildly successful. Ping was installed on hundreds of millions of devices and was easily available to consumers, but if the product is not good, this does not matter. iTunes radio will most likely take a similar approach. Through iTunes, the iPod, and the iPad, Apple has an enormous customer base to which it can push this new service. However, in order to get people to switch from their current streaming service, there must be minimal switching costs – it must be easy to understand, intuitive, and clean.

Similar to Ping, iAd has not currently gained the traction it needs to support an online radio. In the past, iAd has had a difficult time attracting and holding on to top brands for advertisements. The service previously offered little control over where the ad was placed, costed more than rival services, and had a reach limited to Apple’s mobile products. It will be interesting to see how Apple adapts this service to support the online radio.

The radio service itself may be enough to attract the high-paying advertisers they need. The iTunes Store has gathered data on millions of consumers for years. Data on what genre of music they purchase, what bands they like best, how much money they spend on music and other recreational goods, what movies they watch, what books they download, and what apps they have downloaded and use. With this information, Apple can offer advertisers extreme consumer targeting based not only on demographics, but psychographics as well.

Other than data, Apple has good relations with more record labels. Because of the importance of the iTunes Store in today’s music economy, Apple has secured more robust licensing agreements with the majors, allowing Apple to potentially reach more people in more countries with more music than Pandora or Spotify.

As implied by the services names, iTunes Radio and iMatch will be heavily integrated with the iTunes store. Listeners will be able to purchase music heard on the radio and the music discovery mechanism will most likely be based on a mixture of listening information and data from the listener’s iTunes library preferences. Again, the huge amount of data Apple has been able to collect over the years may help them produce a more intuitive recommendation and discovery method.

To see an in-depth overview of the royalty calculations for Apple’s online radio services, check out this article from Billboard.

Of course, at this point, the potential success of Apple’s online radio is all speculation. It will be interesting to see what Apple can bring to the table in terms of innovation in this difficult market. The price for iTunes Match is currently set at $24.99 per year, as compared to Pandora’s $36.99 yearly fee.

As of May 2013, Pandora has 70.8 million users and Spotify has 24 million. What do you think about Apple’s online radio? Will it disrupt the market, or are they too late coming into the game?

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