What Google's Acquisition of Songza Really Means

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www.songza.com
The digital music industry got a little more interesting last week when Google (GOOG) announced that it would acquire streaming app developer Songza. Terms of the deal weren't made public, but some reports indicate that the search engine giant is paying $39 million for Songza.

It's not a big deal on paper. Google has $59.4 billion in cash, cash equivalents and marketable securities on its balance sheet at the end of March. Put another way, $39 million is roughly what Google earns in a single day.

However, the purchase represents yet another round of consolidation in digital music. It also is a clear signal that Google is not where it wants to be in the field.

Dueling Duets

Google and Apple (AAPL) share a problem. Between them, they command the lion's share of the mobile operating system market. Google's Android and Apple's iOS are the platforms of choice for smartphones and tablets that are the gadgetry where streaming music is typically consumed. However, Google Play Music All Access and iTunes Radio have taken too long to get off the ground.

The titans of tech were late to the streaming game, so they're making up for lost time by buying their way up the ranks of market leadership.

Apple tuned heads in May with the $3 billion acquisition of Dr. Dre's Beats Electronics. It was largely a play for Beats' dominance in premium headphones and audio accessories, but it probably wasn't a coincidence that Apple's interest intensified after Beats introduced its subscription-based Beats Music streaming service earlier this year.

The surprise is that Apple and Google went for small fry like Beats Music and Songza, when they both have more than enough money laying around to buy category leaders Pandora (P) and Spotify.

There is No "I" in Stream

The streaming music business is important. Digital downloads -- iTunes' bread and butter for more than a decade -- are tired. MP3 sales declined last year, and they're off sharply again in 2014. Consumers are no longer interested in buying individual tracks when paying $10 a month to Spotify or Beats Music gives them access to millions of songs on demand. Freeloaders are fine with letting the algorithms of Pandora or Songza serve up songs that they are likely to enjoy for free as long as they put up with ads.

Just as Apple was too slow to adapt its iTunes downloading powerhouse to the ways of streaming, Google has also failed to embrace the streaming business model, even though YouTube has been a popular hub for playing music videos for years.

Songza isn't going to save Google, just as Beats Music won't be Apple's magical elixir. However, Songza provides an incremental user base -- 5.5 million active users -- and some proven streaming technology.

Songza has only been around for four years, but that's a long time relative to how long Apple and Google have been dedicated to streaming. It offers up curated playlists based on features and moods, such as "Foot-stompin' Americana" and "Taking a Sunny Stroll." Songza also has years of knowing how streaming buffs behave within these playlists. That kind of big data mining is invaluable to Google.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (C shares), and Pandora Media. The Motley Fool owns shares of Apple, Google (C shares), and Pandora Media. Try any of our newsletter services free for 30 days. ​

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