Virgin launches online music service

Virgin Digital, the online arm of the Virgin Group, will launch an online music service Monday aimed at replicating on the Net the success of its offline chain of retail music stores.

The company is jumping into the market with a full-featured music jukebox written from scratch, in which it is offering a music download store and music subscription service powered by wholesaler MusicNet. [CNet News]

One interesting thing about the music store "space" is that there are few "increasing returns" advantages to the front runner. It does not matter how many people are buying from iTunes -- the store is essentially the same whether 1 person uses it of 100,000,000 people use it.

Compare that to, for instance, an eBay. If only 1 person is using an auction site, there is virtually no marketplace and little reason for anyone else to use it. But if millions are using a particular site, there is a marketplace and great reason for other people to use it -- further increasing the size of that marketplace and its advantage competitive advantage over other auction sites.

This means that the iTunes Music Store is much more vulnerable to late competition than eBay is. The music store space is more akin to the search engine space. There were well-established front-runners long before Google came on to the seen, but there were no increasing-returns advantages helping the front-runners solidify their position. So Google could enter the market late and come to dominate it. Of course the same can happen to Google.

The only real increasing-returns advantage the iTunes Music Store has is iMix, which is better as there are more playlists shared on it. But still that seems pretty weak to me, since the iTunes Music Store doesn't provide a powerful way of connecting users to the playlists they will like the most. It doesn't matter how many playlists there are if they don't match your tastes all that well.