Amazon Bets on First-Mover Advantage in Race to the Cloud

Amazon has long been a close student of Apple. When the company introduced the Kindle e-book platform, it followed Apple’s Playbook strategy to the letter: Drive down the price of (someone else’s) content to drive up sales of its own hardware. With the launch of the Amazon Cloud Drive and Cloud Player last week, the company is again following the Apple script.
One key to the success of iTunes was that it was originally marketed as a tool that would manage users’ existing music collections. “Rip, mix, burn,” was the original iTunes tagline, and Apple marketed its “amazing new ‘jukebox’ software” as a way for users to “create and manage their own music library and burn their own custom audio CDs.”
It was only later, after most Mac and iPod owners were invested in the iTunes ecosystem, that Apple began selling music online through the iTunes store. Its strong foundation helped Apple quickly become the largest seller of digital music, despite not being first to market; eventually, it became the biggest music retailer overall.
Amazon is now trying to mimic that strategy in launching its Cloud platform. Although the company will allow users to move their newly purchased Amazon MP3s  directly to their Cloud Drive, it is primarily, for now, positioning the service as a media-management platform. It hopes to lure enough users into the Amazon media ecosystem up front to remain a player even after Apple and Google inevitably launch their own cloud-based platforms.
So keen is Amazon to grab the inside track in the race to the cloud, in fact, that it has launched the service without first securing licenses from the record labels, despite the risk of litigation. It’s a gamble, but one Amazon probably has to take. Even by getting to market first (at least among major players) Amazon comes to the game with a significant disadvantage: Apple and Google control iOS and Android, respectively, the two mobile platforms most consumers are likely to use to access their cloud-based media lockers.
The Apple platform is probably permanently off limits for Amazon once it starts trying to sell new content through the Cloud Drive platform because Apple’s insistence on taking a 30 percent cut of all commerce on iOS devices would make those sales unprofitable. Android is still within reach for Amazon, but probably only if Amazon can establish a significant cloud-media presence there before Google does.
Amazon’s gamble is probably not much of a long shot anyway. As a close student of Apple, it no doubt recalls that “rip, mix, burn” was highly controversial in its time, too, for encouraging consumers to copy and burn their own CDs without a license. Yet, while the record labels sputtered and threatened, they ultimately did not sue. Eventually, they granted Apple licenses to sell music through iTunes more or less on Apple’s terms.
Amazon knows it will eventually have to secure licenses from the record labels and music publishers. Storing individual copies of every track in every customer’s collection, as Amazon is currently doing, is a hugely inefficient way to run a cloud service. It makes far more sense for Amazon merely to store metadata about your collection, and then serve up streams from a central archive when a track is requested — as Apple apparently is planning to do with its own cloud service.
Amazon is doing it the old-fashioned way for now because it can at least make a plausible legal argument that consumers themselves have a right to format-shift and store their own collections without being licensed, and that all Amazon is doing is providing the tools for such management.
Once it tries to move beyond music to video, however, there is no question the content and service will need to be licensed. Unlike music, virtually all commercially distributed video is encrypted in one form or another. Any sort of user-directed format or place-shifting would need to be licensed to legally circumvent the encryption.
For now though, there’s a need for speed. So Amazon is sticking to what it is pretty sure it can get away with, albeit at the cost of some ruffled music-industry feathers, in order to get on the rail.
The race is likely to be a long one, however, and we’re only at the first quarter pole.

Question of the week

Who do you think will win the race to the cloud, and why?