Music streaming: the end for iPods?

Let's imagine, far-fetched as it may sound, that you suddenly have a compulsion to explore the back catalogue of Suzi Quatro. Twenty years ago, the only way to satisfy this craving was to get yourself down to the record shop, search through the racks and buy whatever CDs and vinyl you could find. A decade ago, the nascent world of online digital music meant that new ways were emerging to listen to some of her material, but you'd still have to order a CD to appreciate Suzi's full majesty. The iTunes store opened five years ago, allowing us to preview and buy an audio file of "Devil Gate Drive" at the click of a button. But today, two new services – We7.com and Spotify.com – are battling to create the first "celestial jukebox": a music streaming service that will, one day, allow you to choose any tracks from the history of recorded music – including Suzi Quatro's – and listen to them, immediately, legally and for free.

This has been a futuristic dream for a number of years, but it's only in the past 12 months that it has become a real possibility. The biggest stumbling block has been resistance from a music industry desperate to preserve the value of music by selling us copies of recordings – but this is increasingly unrealistic, according to Daniel Ek, the CEO of Spotify. "While people undoubtedly want more music," he says, "the quantity of media out there means people simply don't have the affection for individual songs that they used to have, and they don't want to buy track-by-track." But online entrepreneurs such as Ek, and Steve Purdham, the CEO of We7, are detecting a marked shift in attitudes within the industry. "About a year ago we started to see a willingness to experiment with new digital models that were more in tune with what consumers actually wanted," says Purdham. "Our ability to strike deals with record labels has really gained momentum in the past three months."

So, how can a business that plays music for free actually survive? Unsurprisingly, the answer is advertising. We7, based in Britain and launched earlier this month, allows you to choose and listen to songs from within your internet browser, with its embedded player sitting alongside banner adverts from department stores, ISPs, travel companies and the like. In addition, your tracks are preceded with a short audio ad – but once you've got over the mental hurdle of David Bowie's "Life On Mars" being "brought to you by Intel Centrino 2", it doesn't feel particularly intrusive, and it's considerably less annoying than the relentless marketing messages you hear on commercial radio. Spotify, based in Sweden and currently still in beta testing, gives you a dedicated application to download, which has an iTunes-like interface, the occasional discreet banner advert, and every few songs you'll hear a voice extolling the virtues of an Xbox games console or some other product.

Both services offer monthly subscriptions that remove the ads, but it's the free option that will garner most interest; a few adverts in exchange for a colossal, on-demand music library seems like a small price to pay. While both services are confident that advertisers will be attracted by their ability to target ads very specifically, Steve Mayall,of the digital music consultants Music Ally, points out that it's far from the best time for them to be launching. "It'll be interesting to see whether advertising can actually support these services," he says, "bearing in mind that the first thing to be affected in an economic downturn is spending on advertising – particularly with unproven models." Even if We7 and Spotify pull in the advertising revenue, it's not just record companies that have to be paid – it's also the national organisations (including PPL in the UK) that grant businesses the right to play recorded music to customers, and pass royalties on to artists.

As the internet obviously transcends national borders, a number of online music companies – including We7 and Spotify – have had to substantially cut back plans for world domination and restrict their service to certain territories in order keep the bills down: Spotify's free service is only available in the UK, Spain and Sweden at the moment, while We7 has a different selection of tracks available depending on the territory you're in. But constructing a model that's legally watertight has been crucial, as both see themselves as heralding the end of illegal file sharing. "That's really our biggest aim," says Ek. "Not to make a stand against iTunes or other legal services, but to provide something that's easier to use than Bit Torrent or Limewire."

As illegal downloading is fraught with an inability to find what you want, unreliable download speeds and the possibility of viruses, it's entirely possible to see how Ek's vision could come to pass – with a few caveats. First, the catalogues of We7 and Spotify have to be colossal, expand rapidly, and build confidence in users that they'll find what they want. Second, it's down to us to get our heads around the fact that we will no longer "own" the music. Spotify in particular have made a good job of blurring the already marginal difference between ownership and streaming by making their application so similar to iTunes that the actual location of the file (on their server, rather than your computer) is irrelevant. But, as Steve Mayall points out, it might take a while for the public to get used to it. "There was a survey done earlier this year that showed the vast majority of people expressed a preference for owning a file rather than streaming it. But it will happen eventually; deleting audio files used to feel like throwing away a CD, but I don't mind doing it, now – as long as I know I'm able to play that song from a service whenever I want."

Of course, that ability will always depend on their being a broadband connection available; both services will be counting on the continuing development of 3G and 4G mobile networks, so those who listen to music on the move can embrace the concept as fervently as those sitting at home with their computer hooked up to their hi-fi. But how long will it take for these things to slot into place? And might both services end up paying the price of launching too soon? While Steve Mayall notes that it's the pioneers that "always get shot in the arse", Purdham is realistic about We7's prospects: "I'm sure adoption will be slower than we'd like. But what's more important is changing people's thinking – we're very aware that it's the long game that we're playing."

Spotify, meanwhile, has been causing breathless excitement among those who have been invited to try it out, and Ek is confident of success. "We've been overwhelmed, to be honest – we've even had a few problems scaling the service to the number of people who want to use it." Perhaps the "celestial jukebox" will catch on quicker than anyone dared imagine.

Early birds: Great ideas that were ahead of their time

Pseudo.com (1994-2001)

In the days when we connected to the internet via wheezing 56kbps modems, viewing streaming video required substantial patience, and plenty of squinting to work out what was going on in the pixellated files. Pseudo didn't care: fuelled by a fascination with social media and bucketloads of investors cash, they created hours of programming to squeeze down our overloaded telephone lines. But it wasn't until YouTube launched in 2005 that we began to enjoy watching video via our computers, paving the way for the BBC's popular iPlayer.

Magellan (1995-2001)

This early search engine, named after the pioneering explorer, hoped to become the predominant guide to the internet by allowing its users to rate and review the websites they found. Slain by the mighty Google, their idea has since been picked up by StumbleUpon.com and has since turned into a copper-bottomed social networking hit.

YadaYada (1999-2001)

They attempted to bring the internet to the first wave of handheld mobile devices, such as PalmPilots and Handsprings. However, the expensive marketing campaigns typical of the dot-com boom, along with widespread public apathy, sealed the fate of the company within only two years of its release. Almost a decade later, everyone was cooing over Apple's recently launched iPhone and the iPod touch.

Nupedia (1999-2003)

Jimmy Wales had an idea to start an online encyclopedia that was built by volunteers, and set to work on Nupedia, establishing a peer-reviewed framework that would guarantee the quality of its entries. While its 2001 offshoot, Wikipedia, caught a hold of the public imagination – because everyone could get in there and add or edit entries – Nupedia's limited but far more reliable content languished, forgotten, until it was finally subsumed into Wikipedia in 2003.

Audiogalaxy (1999-2002)

Today, file sharing (also known as peer-to-peer) traffic is said to make up some 70 per cent of data travelling over the internet, with BitTorrent being the preferred choice of users. The doomed Audiogalaxy service could be seen as BitTorrent's precursor. Their main mistake was being particularly visible, and incredibly easy to slap lawsuits on. They were sued out of existence in 2002, and subsequent file sharing projects have learned a lot from Audiogalaxy's naïve supposition that record labels probably wouldn't mind that much.