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MARCH 10, 2004
By Alex Salkever Virgin May Show Apple a Thing or Two [Page 2 of 2] WINNING COMBO. That would give Virgin a "clicks and bricks" play that neither Apple nor any other online-music seller currently can match. Wal-Mart is a huge CD seller in the U.S., but has been notoriously gun-shy on clicks-and-bricks. Hewlett-Packard (HPQ ), which will distribute iTMS on its PCs and sell an HP-branded iPod, has the largest retail presence of any computer maker (see BW Online, 1/14/04, "Apple + HP = iPod Forever"). But HP has no history as a music vendor online or off, and it would need to start marketing almost from scratch. Clicks-and-bricks have been a potent combo for delivering additional customer services, and for pairing online and offline offers to drive traffic, both physical and virtual. Then there is the captive-audience factor -- Virgin holds the undivided attention of tens of millions of passengers each year as they soar on Branson's airlines, which serve Europe, Australia, New Zealand, Asia, and the U.S. Zalon has said Virgin Digital will use Microsoft's (MSFT ) WMA music standard and has no plans to build Apple-compatible software. In other words, Apple users are out of luck. PICKING UP THE PACE. Zalon envisions a service where customers can hear their music on any number of players and can always take their music with them, either through mobile Internet access or through digital copies of the tunes. "The promise of music anytime, anywhere is about being able to retrieve your music wherever you are, whenever you want to, on any device. That's different from what Apple is offering, which is a closed system that only runs on an iPod," says Zalon. Unlike most other digital-music plays, Virgin has opted to build its own music-player software rather than buy from a third party. That decision could mean trouble -- building easy-to-use software is a pretty tough job. Still, I would give Virgin the benefit of the doubt. The outfit's track record shows a particular skill at grasping what customers expect and like, and turning that understanding into superior branding, marketing, and customer service. The Virgin Digital assault remains at least a few months off -- it's scheduled to launch in the U.S. in late summer, 2004, and kick off shortly thereafter in Britain. But it looks like Apple's free ride in digital music is almost over. "This is going to be huge," says Zalon. If Virgin's past performance is any indication, he's not just blowing smoke. Jobs & Co. should take note and start looking for new distribution partners to prepare for battle with one of the few companies that can rival them on the hipness scale. It's time for Apple to start dancing a little faster if it wants to hang on to its crown as the king of digital music.
 Salkever is Technology editor for BusinessWeek Online. Follow his Byte of the Apple column, only on BW Online
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