BusinessWeek: Virgin May Give Apple A Good Run

by , 2:15 PM EST, March 10th, 2004

When running a race, one strategy is to get out front early and maintain your lead. If you are strong enough to stay ahead of the pack, you don't have to worry about finding elbow room, or saving that little bit of reserve energy for the final sprint near the end; you just cruise and let the others fight over second place.

Such is the way it is with iPod and iTunes Music Store; Apple established an early lead and, while not resting on its laurels, is cruising through the course with the stride of a champ. That's not to say that others are going to be satisfied with second place, however. In his BusinessWeek Online column, Byte of the Apple author Alex Salkever is reporting that British Billionaire, Richard Branson, founder of Virgin Airlines and a whole line of Virgin-branded personal entertainment devices, and of course, Virgin Records, is entering the music download service race. Mr. Salkever believes that Apple may yet have a challenge for the lead as the Virgin marketing juggernaut comes to bear on digital music.

Here's a excerpt from the article, Virgin May Show Apple a Thing or Two:

The entry of Virgin's online subsidiary, Virgin Digital, might change all that. Branson, chairman of the British conglomerate, is a master marketer. He has brought hip and fun to stodgy fields such as airlines (preflight massage, anyone?) and mobile-phone service (who else offers personalized daily predictions from cartoon character Sponge Bob Squarepants?). True, he flopped with the introduction of a soft drink, Virgin Cola. But overall, Branson and his irreverent marketers have had a golden touch, particularly when it comes to reaching younger demographics.

[...]

Those same cell-phone teens buy a significant chunk of the CDs sold today. So they could likely be turned into online music buyers without too much trouble. Virgin's 23 music stores across the U.S. already serve millions more customers than all the online music stores combined. Add on Virgin's hundreds of stores in Europe, and you have a global music powerhouse. "You look at all the users of digital downloads, the numbers are still very small compared to traditional brick-and-mortar retail," says Zack Zalon, president of Virgin Digital.

[...]

That would give Virgin a "clicks and bricks" play that neither Apple nor any other online-music seller currently can match. Wal-Mart is a huge CD seller in the U.S., but has been notoriously gun-shy on clicks-and-bricks. Hewlett-Packard (HPQ ), which will distribute iTMS on its PCs and sell an HP-branded iPod, has the largest retail presence of any computer maker (see BW Online, 1/14/04, "Apple + HP = iPod Forever"). But HP has no history as a music vendor online or off, and it would need to start marketing almost from scratch.

The article also notes that Virgin Digital will be delivering its music downloads in the WMA format, something TMO confirmed with the company. Virgin Digital has no plans to offer Mac-compatible downloads.

There's much more in the full column at BusinessWeek Online, and we recommend it as a very interesting read.

The Mac Observer Spin:

There is truth in Mr. Salkever's words; Virgin could give Apple a bit of a run, but we believe that, in the long run (pardon the run pun) Apple will maintain the lead.

Are we looking at the new challenge with rose colored glass? Perhaps, but we believe that Apple's combination of style, form, function, convenience, and the ever-present coolness factor will let Apple continue to outpace all comers, even Virgin.

We should also note that Virgin's choice of WMA is likely to prove a hindrance to the company. So far, WMA-based music services have not proved popular with consumers, and of course the company is locked out of the #1 portable music player, the iPod.

The reality is likely to be that Virgin Digital will be able to reach out to new music download customers. This is particularly true with those customers who buy music through the company's phones. Those users are less likely to be users who manage their music libraries through their computer. In other words, they are more likely to be people who are not already buying music from the iTMS or other online services.

In that regard, Virgin's entry into this market is more likely to expand the market, rather than eat into Apple's share, at least for the near future.

Still, Mr. Salkever is very correct that Virgin may offer Apple better competition than anyone else has so far.

Virgin May Show Apple a Thing or Two