Spotify declares war on iTunes with iPod support

Spotify has made a surprise announcement, and while it's still not the long-awaited US launch, it will be making a splash over the pond: the streaming music service is morphing into an iTunes competitor.

In what is a clear attempt at rattling Apple's cage, Spotify has unveiled a pair of major new features: the ability to synchronise Spotify playlists with iPods, and the option to buy MP3 files to own - both key features of the iTunes platform. Any playlist created via the Spotify player can be downloaded in a single step, making 'digital mix-tape' creation significantly simpler.

In addition, the company is making the Spotify Mobile app for Android and iPhone free for all users, in order to encourage use of its pay-per-song download service. Previously, the mobile app was only available to paying subscribers - a 'freemium' business model which some in the industry believed was key to Spotify's impressive revenue growth.

"From today, Spotify really is the only music player you’ll ever need," claimed Daniel Ek, chief executive and founder of Spotify. "Our users don’t want to have to switch between music players, but they do want to take their playlists with them wherever they go, on a wider range of devices, more simply and at a price they can afford. Now we’ve made that possible on one of the world’s most popular consumer devices."

There's no denying that the new features make Spotify a significantly more powerful tool for owners of Apple's portable media players - but the announcement also marks a key shift in strategy, with Spotify seemingly losing confidence in its original business model of on-demand streaming.

By adding a more traditional DRM-free MP3 download store, Spotify is moving away from its roots and attempting to compete head-on with services including iTunes and Amazon's MP3 Store. While it's unlikely that Spotify will abandon the free streaming service that helped make it one of the most popular music sources in the UK, today's announcement does shed some light on the company's recently increased restrictions on its free accounts.

Many had seen the introduction of the restrictions on free accounts, which include limited streaming time of just ten hours a month and a five-play maximum per song, as unnecessarily harsh - but if Spotify is transitioning its streaming service into a music discovery system for its buy-to-own MP3 store, the restrictions make significantly more sense.

For those looking for a simple MP3 download service, Spotify can leverage its streaming service into a big unique selling point: unlike iTunes and similar, prospective buyers can listen to an entire song multiple times before deciding to splash the cash on a download. What had seemed like a harsh cap for a streaming service suddenly transforms into a generous extra for a download service - a clever move on Spotify's part.

The company is also competing on price, with a tiered pricing structure where users pay a set fee for a particular number of downloads. Those wanting a single album will pay £7.99 for ten download credits - the equivalent of 80p per song - while heavier users can opt for 15, 40, or 100-track packs - dropping the price as low as 50p per song.

By adding the iPod-specific features and MP3 download service, Spotify has enlarged its potential audience massively. While the company's subscription-based mobile service helped push its initial growth, chief product officer Gustav Söderström readily admits that smartphone owners represent "a pretty small percentage" of music fans.

The company now risks entering into a battle with Cupertino-based Apple, however - and if a pricing war breaks out, Apple has the cash reserves to offer some pretty impressive loss-leaders on its downloads, providing the rights holders agree.

With the updated Spotify software available now, and existing users due to get an automatic upgrade over the next few days, Apple will be watching its userbase closely to see how many iTune defectors move over to the Spotify camp.