When I first heard the rumor spread around the Internet I was quite surprised. It simply didn't sound right. The idea that Apple would offer a free music streaming service that's supported by ads meanwhile Google offer a paid version sounds like something from a parallel universe.
I thought about it and read a few articles until it actually makes perfect sense now. By making the iRadio ad-supported, Apple will target a new market without affecting iTunes sales directly. In this article I'll discuss how an ad-supported music streaming service can do this.
Apple will offer music to a different segment of the market
This is the more important one. By offering music streaming for free, Apple will make money out of customers who do not want to pay for music. Lots of apps are now offering music streaming at a price of roughly $10/month anyway. That's not targeted at users who don't pay for music.
|Apple's iRadio [Source]|
You might think that it's pointless for Apple to offer music to people who end up pirating them anyway. Why would the user bother listening to ads when they can get the same song for free without any trouble. The reason is that there are honest people out there who want to listen to music without paying. People with this demographic are apparently large enough for Apple to make a service just for them.
When iTunes was first introduced, Steve Jobs claimed that they are planning to fight music piracy by providing an easy way to buy music for honest people who only pirate because pirating music is a lot easier than actually buying it. iTunes was a success, and honest people who want to pay for music now have an easy way to buy their music. What about the honest people who don't want to pay? That's where iRadio comes in.
It will not directly affect iTunes sales as it is targeted at a different market. If Apple were to offer iRadio for money, customers who buy their music from iTunes may becomes iRadio customers instead. However, since it's ad-supported they are reaching out to more customers rather than simply moving existing customers from one service to another.
|If iRadio is free and ad-supported|
|If iRadio is a premium service|
The Venn diagrams above aren't very great at all in terms of their looks, and the numbers (representing customers) used are for illustration purposes only. However, they make a point, Apple will offer more their music to more customers by making iRadio a free service. By doing this, Apple will earn more money by releasing an ad-supported iRadio.
Having said that, there's always a possibility that Apple release a premium iRadio service during the WWDC instead of the ad-supported one. This article only states a reason why being free is good. Additionally, Apple may as well release iRadio priced at different plans, ranging from free to whatever price they like. In my opinion, releasing iRadio at different pricing plans is the most likely one for Apple.
Do you think Apple's iRadio service will be ad-supported?