Broadband’s Ultimate Killer Application

Business 2.0: Online music is the one thing that will compel consumers to pay for bigger pipes to the home. [Link for PDF version]

Apple (AAPL), Microsoft (MSFT), RealNetworks (RNWK), and Sony (SNE) are fighting like cats and dogs over a dollar-a-download business that will soon turn into a financial migraine of the worst kind. As that happens, consumers will find high-speed Internet service indispensable.

Back when the original Napster was all the rage, we saw a sharp increase in the number of broadband users. That’s because most of them wanted to swap files with each other. Many Napster users discovered that while a 56-kilobits-per-second dial-up connection was good enough for e-mail, it lacked the oomph needed for trading big music files.

Expect an encore as the barrage of advertisements from online music services such as MSN Music and iTunes creates a desire for ever faster connections. Nearly 63 million Americans, or roughly 51 percent of U.S. Internet users, already access the Web over high-speed connections. Downloadable music is expected to be a $1.7 billion business in 2008. What will happen when newbies sign up for these services? They’ll discover, as the Napsterheads did, that they need higher speeds to quickly get the latest 50 Cent single.

Downloadable music, however, will be just one catalyst of the broadband explosion. Take online radio, for instance. Online streaming radio stations have been around for years, but now the sound has improved to almost CD quality. Customers don’t even need computers; they can buy devices that stream Internet radio directly over high-speed connections. But they have to have broadband.

Every day there are new online applications that allow people to form communities or fan clubs to share playlists. Other free services, such as Mercora, enable consumers to easily set up their own nano-radio stations and share them with family and friends. These services are going to mirror the growth rates we saw with instant messaging. Think IM changed kids’ lives? Music will do the same for both them and the older folks, making the Internet an even more integral part of our digital lifestyles.

We’ll see if the demand is intense enough to induce companies to build out the broadband infrastructure, at long last, to match the big 50-megabits-per-second pipes that the Japanese and Koreans have. Then movies, which are broadband’s next killer app, can flow as freely as iTunes.