Amazon Pulls a Fast One on Apple

Apple (NASDAQ:AAPL) is already unhappy with and in litigation over Amazon’s (NASDAQ:AMZN) Appstore, and now Amazon appears to be pulling one over on Apple with its music store as well.

The claim Apple has made against Amazon is a mere battle of semantics, as Apple claims “App store” is not a generic term for a store for applications, and therefore can and does belong to Apple, while Amazon argues the opposite. As the owner of the “App Store” trademark, Apple is looking for a court to validate its claim to the term, but a U.S. magistrate judge has ordered the two companies to meet on March 21st to settle the case between themselves.

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So, without their last fight settled, Amazon is throwing punches again, but this time, Apple has little recourse.

Amazon’s Cloud Player, which sits in direct competition to iTunes, already poses a real threat to Apple’s music service with its competitive pricing. Now, Amazon is offering a Cloud Player app for iOS devices through Apple’s own App Store, which should get a 30 percent cut of the app purchases and music purchases, per the terms of Apple’s normal agreement with app developers. Amazon has a library of over 22 million songs and 2 million albums, and could be looking at significant sales, which means Apple could be looking at a significant revenue source — that is, if there were a cut to be taken…

The Amazon Cloud Player app is free, and some simple math shows that a 30 percent cut of that is $0 for Apple. The next trick comes in how users buy music for Amazon’s app: none of it is purchased in the actual app, so Apple can’t claim its 30 percent share of in-app purchases either. Instead, users can access Amazon’s MP3 store through their iOS device’s Safari browser — or through whatever other browser app they choose — and make the music purchases online, where Apple has no right to a share. The music is then streamed from the cloud on the iOS device without Apple ever seeing a cent of the purchases.

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To sum up: with Amazon’s music service, users can buy millions of songs, potentially at a discount to iTunes prices, and stream them anywhere, including on their iOS devices, without ever paying Apple a cent. For iOS users choosing this route, iTunes effectively becomes obsolete.

As Amazon and Apple continue to battle over the name of their app stores, Amazon has shown Apple that the tech giant can’t always get what it wants. We’ll see if Apple finds a way to bring Amazon to court on this one, but from our perspective, it looks like Amazon has learned how to play the game, and this time might challenge Apple without a lengthy legal battle.

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