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UPDATE:
Apple's Worldwide Developer Conference commences Monday after waves of speculation on exactly what the tech giant may roll out when CEO Tim Cook takes the stage.
Most notably, Apple is expected to announce a music streaming service, potentially called iRadio, in order to compete with the likes of Pandora Media, Spotify and
Even with Apple's unbeatable brand equity and focus on innovation, the company faces an uphill battle when trying to compete with Pandora, the leader in the music streaming industry. Pandora has a staggering 70.8 million active users as of May - up 33% since the same time last year. Spotify has an impressive 24 million users, but significantly behind Pandora. With Apple set to jump into the pool though, Pandora shares were reeling Monday.
The key question for Apple is how it plans to monetize the new service. While details are expected to emerge during Monday's conference, there isn't much innovation when it comes to the business models of music streaming services: listen for free with advertisements or upgrade and pay a monthly subscription with no advertisements.
While Apple could base its pricing models off of Pandora and Spotify, don't expect advertising to be the main focal point, since the company lacks a robust advertising base as it stands.
"If you look at what Apple has historically done, they don't have a substantial focus or interest in advertising," says S&P Capital IQ analyst Scott Kessler.
Instead, Kessler speculates how Apple will be more concerned with strengthening the user experience in the music subscription space in a way that relies less on advertisements. "This venture would ultimately be to improve user interface, enable Apple to engage with its user base and provide opportunities to upsell consumers to paid subscription models," he adds.
If Apple were to rely on advertisements, Kessler thinks they would employ the ads in a much less intrusive way to compete with the other brands in the space.
On the flip side, we could see Apple lean more toward's Google Radio's model, which offers all-access music for a monthly fee of $9.99. Though this model runs the risk of cannibalization of sales at Apple's iTunes.
"I think an all-you-can-eat subscription service that gives you full control of what you listen to could hurt iTunes sales," says
Shares of Apple were up 1% prior to the start of its Worldwide Developers Conference on Monday afternoon. Pandora Media's stock dipped 2.8%.
