Is Amazon starting a price war with Apple?

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Amazon has dropped the price of popular new tracks on its online store to $0.69, compared to its usual $0.89 pricepoint. The change, which could signal a price war, was first pointed out by the Los Angeles Times.

A quick check on Amazon's Bestsellers in MP3 Songs shows that indeed, 52 out of the top 100 songs are now just 69 cents. The rest are priced at $0.99 and $1.29.

Amazon's three prices are not unique. In April 2009, Cupertino dropped DRM from iTunes, and switched to variable pricing as well. Whereas all songs were previously $0.99, Apple began to offer three tiers: $0.69, $0.99, and $1.29.

Apple decided to price popular songs at $1.29 and poorly selling songs at $0.69, which increased profit margins but decreased total volume of songs purchased. Amazon is trying a strikingly different strategy: pricing popular songs at $0.69, where it can.

Amazon is likely making this move because for the last two years it hasn't budged in market share when it comes to selling MP3s. Amazon has around 10 percent of the market, while Apple continues to have about 70 percent of the digital download music market, according to the NPD Group, which no longer publicly releases market share data.

Late last month, Amazon unveiled a new Cloud Drive service for storing music, videos, photos, and documents on the company's servers. Amazon offers its users 5GB of storage for free, which is upgradeable to 20GB with the purchase of any Amazon MP3 album or from 20GB up to 1TB at $1 per gigabyte. Apple is interested in a similar service, possibly named iCloud, but with music labels on board.

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