An article at CNET aka News.com wonders when iTunes will replace Wal-Mart as the number one music retailer.
As of the time of writing of this blog, iTunes is the number two music retailer.
This means that more people are buying music online and downloading the purchases over the Internet, thereby bypassing physical media entirely.
The CNET article concludes with the following observation which I found very telling:
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Teens lack credit cards and this often prevents them from buying at almost everywhere but iTunes, Crupnick said. Apple avoids credit cards by pushing the gift cards, which teens can pay for at retail locations and then use them to purchase songs online by keying in a code. No credit cards needed.
“That’s the question that the music industry has to answer soon,” Crupnick said. “How do we get young people to start paying for music again? They’ve got to make it easier for teens to buy online. Apple CEO Steve Jobs has done a wonderful job of this. Teens have a way to do commerce with iTunes.”
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The article does not mention however, that iTunes gift cards are also ideal gifts for teens.
This is the self-selection factor. Teens know what they want and their tastes change very quickly. So iTunes gift cards allow teens to buy the music that they care about. There is less disappointment and unkind comments like “Thanks Mom but Green Day is so yesterday!”.
iTunes gift cards also ensure more responsible spending. Teens can’t (yet) buy some other rubbish (e.g. Xbox 360 video games) with an iTunes gift card.
This creates an avalanche effect. As people get more of their music from iTunes, they will tend to stick to using iPods (music from iTunes cannot be played on other players). This means that they will continue buying music from iTunes.