Melodeo, Making Big Push in Online Music, Eyes Apple in the Cloud

OK, so you’re a small, profitable tech company in the digital media sector. Your closest competitor just got acquired by Apple. Now Steve Jobs is encroaching on your territory. How do you want to play it?

That’s the situation Seattle-based Melodeo faces after Apple paid a reported $85 million last month to buy online music startup Lala, based in Palo Alto, CA. It looks like Apple (NASDAQ: AAPL) is making a play to own the streaming music market, breaking with its traditional approach of selling music downloads via iTunes. The implications pose a challenge for nuTsie, Melodeo’s flagship streaming music service that lets iTunes users play their songs on their (non-iPhone) mobile phones and netbooks.

After the story emerged that there had been a bidding war for Lala, reportedly between Apple and Google (and probably others), rumors of acquisition talks involving Melodeo also have surfaced. Reached by phone, Dave Dederer, Melodeo’s vice president of business development, declined to comment specifically on any talks. “Like any small, venture-backed company, at some point we need a bigger partner to bring our efforts to their greatest possible fruition,” he says. “The Lala acquisition has accelerated conversations we’ve been having. A lot of people have been courting us over the last few weeks.”

In the meantime, Melodeo is raising the bar on its products. Last week, it released an application that analyzes the iTunes playlists on your iPhone or iPod Touch and automatically creates new playlists that it streams to you over the Web. The new app is called “Effin Genius,” a play on the “Genius” song-recommendation feature of iTunes. (It’s kind of awesome.) Effin Genius has gotten some rave reviews; CNET called it “Pandora’s smart little brother.” And Melodeo is building buzz around a new product to be announced soon—as early as this week—which is supposed to give any smartphone or Web-connected device the capabilities of an iPod, only better.

It’s all part of the company’s efforts to march to the beat of its own drum in online music. For now, the math is simple: there are about 400 million iTunes customers (Apple has roughly 75 percent market share of digital songs), but only 100 million-plus iPhone and iPod users. … Next Page »

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