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Google Beats Amazon to the Punch

Evan Niu, CFA, The Motley Fool

Smart speaker top dog Amazon.com (NASDAQ: AMZN) is reportedly looking into adding a third music service to its portfolio, an ad-supported tier that would be available for free on its wildly popular line of Echo smart speakers. That would leverage its dominant position in the smart speaker market to grow its music user base, potentially threatening Spotify (NYSE: SPOT) in the process. The free tier has been key to the Swedish music streamer's growth in recent years, particularly in emerging markets.

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google just beat Amazon to the punch.

Google Home lineup of smart speakers

Image source: Google.

YouTube Music is now free on Google Home

Google has just added YouTube Music support to Google Home speakers, as well as third-party smart speakers that integrate Google Assistant. The free, ad-supported service won't include on-demand access; instead, users will be able to ask Google Assistant to play stations or genres. The company hopes to upsell people to its YouTube Music Premium tier, which costs $10 per month and does include on-demand access to specific albums or songs, among other benefits like unlimited skips and offline listening.

The pre-emptive move by Google makes it all but certain that Amazon will follow suit with a similar offering of its own. Google is a distant second to Amazon in terms of U.S. smart speaker installed base, according to recent estimates from Consumer Intelligence Research Partners (CIRP). The U.S. smart speaker installed base has reached 66 million, CIRP estimates, with Amazon representing a dominant 70% of those devices and Google trailing at a distant second with 24%.

An uphill battle to acquire paid subscribers

While Amazon and Google are market leaders in smart speakers, neither is particularly prominent in music streaming. While Amazon vaguely says that it has " tens of millions " of music customers, most of those are simply Amazon Prime members who also have access to a limited catalog from Prime Music.

Apple (NASDAQ: AAPL) and Spotify are the bigwigs in music streaming, particularly when it comes to paid subscribers instead of free users. Paid music-streaming subscriptions hit 255 million in 2018 , according to industry trade group International Federation of the Phonographic Industry. Apple Music and Spotify Premium accounted for nearly 60% of that total.

Cross-platform support has been absolutely instrumental to Spotify's success, ensuring that its service is ubiquitous across product categories. Apple is even becoming more open to cross-platform support for Apple Music , recently bringing its service to Echos. Apple Music could potentially come to Google Home soon, too. The availability of Apple Music and Spotify could undermine Amazon's and Google's attempts to grow their own music-streaming businesses, especially given their content discovery capabilities -- a core competitive area for music-streaming services -- aren't as sophisticated as Spotify's.

The e-commerce and search giants might be able to add free users, but getting more paid subscribers will be an uphill battle.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon, Apple, and Spotify Technology. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy .