Here’s a great post by Mark Mulligan at Music Industry Blog on the importance of iTunes in the music industry. Read on:

I’ll let the chart do most of the talking.

The key takeaway  is that two of the oldest models in the digital marketplace (radio and retail) dominate in terms of users.  Persistence certainly pays off for Pandora and Apple.

The iTunes Store is of course more important than Pandora for music industry revenue as its core function is to sell music.  More than eight years after launch the iTunes Store remains by far the biggest success story in digital music sales, which given Apple’s relative lack of interest in innovating iTunes compared to their hardware, says as much about the competition as it does Apple.

There used to be a line of argument that Apple was a unique case because in its base of iPod owners it had converted the majority of the engaged, tech-savvy music aficionados that there were to be had.  That Apple had already grabbed the addressable market for competitor services.   Prior to the launch of the iPhone that base represented 88 million iPods sold.  Since then though Apple has sold 0.4 billion more devices.  The old argument just doesn’t hold water.  Apple is doing something right – or rather many things right – that can turn (relatively) mass market consumers into savvy and engaged consumers.  Something that the competition is patently not managing to do when it comes to digital music.  And as much as it may be that Apple’s largely closed ecosystem is core to converting this behavior into paid content behaviour, it is clear that the rest of the competitive marketplace needs to start learning how to better compete with Apple if the balance of power is ever to be altered.

Some methodological notes:

•     YouTube is not included because although it is by far the largest online music destination it is not a pure music service.

•     There is a mixture of paid and total users numbers in here.  This chart is intended to give a sense of relative scale of service adoption across a diverse range of user experiences and business models.

•     The list is illustrative, not exhaustive.  So there are major players such as Amazon, MelOn and smaller players like Sony Music Unlimited, rDio, MOG, 7 Digital, MusicLoad, We7 etc who are not on here.

•     The estimate for Apple’s total regular music buyers is based upon an assumption of 40% of the unique owner installed base of iPods, iPhones and iPads.  That is to say that installed base numbers have been created for each device using replacement and new sales assumptions, and that then a unique installed base number was created using assumptions about multiple device ownership etc.  The assumptions were cross referenced and checked in multiple ways including calculating the average number of downloads per buyer, cross referencing against total market level statistics for buyer penetration and digital download sales.  The number is an informed directional estimate not a definitive measure.