Lala chief could steer iTunes away from downloads
He is very close to Eddy Cue, the revered Apple exec who runs iTunes. What may be most important about Nguyen is that he has long had plans to take down the MP3 format. (In Apple's case, the company uses the unprotected AAC format) He has often said that MP3, the digital audio format embraced by so many music fans, is on its way out. He believes downloads have outlived their usefullnessand that in the future, consumers will store their music in the cloud instead of on their hard drives. "Will you ever (in the future) use an electronic device if it's not connected or doesn't have a browser?" Nguyen asked me a year ago. "You've got to face it, there's nothing you don't do in a browser."Palo Alto, Calif.-based Lala started as an online marketplace where users arranged to swap CDs with each other. Lala then began streaming music to Web-enabled devices. The company would scan a users' computer hard drive and then enable the person to access the same songs--provided Lala had the rights--via the Web. According to a report in The New York Times, Lala had concluded that it wouldn't reach profitability anytime soon and approached Apple in the hopes of making a deal. The end of iTunes downloads? The natural conclusion to make here is that by acquiring Lala, Apple may be laying the groundwork for a move away from the traditional song download. If this is correct, it would be stunning in that Apple has built a retail empire by selling downloads. If Apple is preparing such a plan, that would suit the music industry just fine. Plenty of people at the top four labels have long been uncomfortable with unprotected music files. The major recording companies favor formats that protect music from being copied and shared. Label executives have also said that selling individual songs isn't a good business as the profit margins are small and it's a not a modelthat can't grow. Nguyen's ideas appealed to many at the music labels, particularly those at Warner Music Group, which invested $20 million into the company. In May, Warner announced that it had to write down about $11 million of the Lala investment.Some of the music execs I've talked to say they see a world where music buyers will leap at the chance to buy a song for life. In a world where music is stored on the servers of big companies, a consumer never has to worry about losing a song library to a broken hard drive or lost music player. Of course, consumers would likely pay a premium for this life-time ownership and cloud-based service, but many in the industry feel that the public is ready for that kind of offer. By all appearances, Nguyen could be the architect of this vision at iTunes. Regardless of Lala's shortcomings, the company created something good enough to lure Google and Apple, two of technology's most successful companies. That alone isn't a bad resume. And when you look at the $85 million purchase price, Nguyen engineered by far the best exit in the the battered digital music sector in at least a year.There's something else to keep in mind about Nguyen; he recovers from spills quickly, usually in time to catch the next big wave. Hang 10, Bill.
