Apple vs. the Free Web: Lala Shutdown Heralds the Onset of Total War

Apple (APPL) is increasingly becoming an online bully, throwing its muscle around and demanding to be paid. Last week Apple announced it was shutting down Lala, a Web-based music service it had purchased just four months earlier. The move highlights the current strategy at Apple: accept any amount of bad press and negative consumer sentiment in exchange for more control over the digital supply chain.

Rumors of Lala's death began to surface as soon as Apple purchased it. The 5 year old company, which started as a way for users to trade CDs, has since become one of the savviest platforms for music in the cloud. Lala users could stream entire albums for free, then pay to download traditional MP3s just as folks do at the iTunes store.

More importantly, people could also pay just ten cents per track for unlimited plays of songs that existed only on the web, roughly one tenth the price of iTunes. The model was appealing and Lala's traffic grew from 1 million uniques a month to as many as 2-3 million just before Apple snapped it up.

Analysts assumed all along that Apple would shutter the site and use Lala's technology to launch its own cloud based service through iTunes. But the way Apple executed the changeover left a lot to be desired. Lala users who paid for music in the cloud will see their entire collections evaporate when the site shuts down on May 31. Lala says that these songs can be redeemed as credits over at the iTunes store, but that still means users will have to rebuild their entire collections, at ten times the price, and without the option of existing in the cloud.

As NYT columnist David Carr points out, Apple is increasingly displaying a style of Silicon Valley aggression that doesn't suit its role as a media company. If Apple cared at all about public perception, it would have waited to shut Lala down until it had an alternative for users. It might also have offered a bit of musical amnesty, in the form of discounts on tracks users already owned. Instead, it's left Lala's users with only one option: do things our way, at our prices.

As reader comments to the announcement clearly show, Lala users were outraged. The question is, from both an economic and public relations perspective, can Apple can afford to continue this kind of behavior? The company is sitting on a mountain of cash and increasingly close ties with the world of premium content providers. For now it seems that they are willing to tarnish their image in exchange for a better market position. Perhaps the comedian Jon Stewart said it best when he denounced the company's behavior last week, before meekly asking for a sneak peek at their next generation iPhone.