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Amazon Invests in iTunes Chase

Amazon CEO Jeff Bezos continues to bet that Apple's iTunes Store is not the end-all be-all of online music despite the 3 billion songs it has sold. He must know something we don't.

Turns out Amazon.com has contributed some money to the completion of Series A financing for AmieStreet.com, a digital music store with a demand-based pricing system "propelled by social networking." The amount of Amazon's investment and its terms were not disclosed.

Songs on AmieStreet.com start at a price of zero cents. As more customers download a song, its price rises, capping at $0.98.

It is a system designed to provide incentive for music discovery, AmieStreet.com chief marketing officer and cofounder Joshua Boltuch told internetnews.com. He said that members who recommend music to their friends get credit to buy more songs on the site. How much credit depends on how popular the song becomes after the user recommends it.

Boltuch said Bezos was impressed when the AmieStreet crew came out to California to complete the financing. "I can't speak on behalf of Amazon," Boltuch said, "but Jeff thought our model and approach was very interesting."

What's different about AmieStreet, Boltuch said, is that with its music discovery incentives and zero to $.98 price points, AmieStreet gives music fans the "crate-digging," bargain-hunting experience lost in transition from bricks-and-mortar music stores to online stores.

As for what AmieStreet plans to do with the new cash, Boltuch said he and the other cofounders want to make improvements to the site based on user feedback, but that there are also plans to bring popular music from the site offline for live music performances.

That's got Boltuch particularly excited, he said, because the whole reason AmieStreet was founded in the first place was that in 2006 a group of Brown University seniors decided they wanted to build a business off their shared passion for music.

Boltuch also said there are plans to develop an AmieStreet application for the Facebook platform.

Musically passionate or not, Jeff Bezos and Amazon have shown equal taste for building an online music business. Though the Apple iTunes store may have the advantage of a direct brand connection to the iPod, Bezos has matched, step for step, Apple's most recent moves.

In April, EMI announced it would make its digital music catalog available to online retailers without DRM restrictions.

Apple was the first retailer to sign up and said it would begin selling EMI's catalog DRM-free from the iTunes Store in May. But Amazon soon followed Apple's lead, when it announced plans to offer DRM-free MP3 format songs from more than 12,000 record labels, starting with EMI's digital catalog.

As the competition grows, Amazon's ultimate advantage might be its "collaborative-filtering/algorithmic recommendation system," Gartner's Mike McGuire told internetnews.com after Amazon made it's DRM-free announcement. Suddenly an investment in a site driven by its own recommendation system makes a lot of sense.

Still, the 3 billion songs that customers have purchased from the iTunes store is a big lead to pursue.