There was a collective yawn throughout the tech industry when Apple announced its newest software product:  Music. I yawned right along with everyone else. There weren't any serious surprises in their announcement. For months, technology pundits have been picking apart Apple's potential offering of streaming music. So why should we be surprised when they announced most of what was predicted?

The good news for Apple is that industry professionals aren’t the primary target market for Apple’s consumer products. Your average consumer is looking for products and services that make their lives easier. Technology pundits on the other hand, are always looking for two things: cool new technology and constant innovation.

As an industry we need to be careful not to confuse lack of surprise for potential failure on Apple’s part. I refuse to predict success or failure for an unreleased product based solely on a marketing presentation. I caution everyone out there against predicting Apple’s streaming music doom, based largely on the multi-year head start of the competition. As you’ll see, neither history nor the numbers spell anything close to disaster for Apple.

Apple’s History

Historically speaking, Apple does well when it’s not the first to market. The iPod wasn’t the first MP3 player on the market. It wasn’t even the most feature-filled player. But within a matter of years, it was the new Walkman. Earlier that same year, Apple announced iTunes, and it was an even bigger snore. At the time, everyone was in love with Nullsoft’s Winamp. Now iTunes is the center of the digital music universe while Winamp wallowed away in misery at AOL until December 2014 (we’ll see how it does after Radionomy, it’s newest owner, relaunches it). When the iPhone came out, many of us were too busy singing Blackberry’s praises to notice that the iPhone was the next major step in their ecosystem growth. Then came the Macbook Air and the iPad. Industry analysts claimed the Air was lacking in features and power for the cost; the iPad was derided as “just a big iPhone.” Today they are both dominant players in their respective markets.

Apple is amazing at building unparalleled user experiences. As such, we have a tendency to analyze every new product they build from the singular lense of that product. I would argue that Apple has proven that it is even better at building an ecosystem. While it remains to be seen whether  Music turns out to be a good product, I don’t question that  Music is an absolute requirement for the current Apple ecosystem.

The Numbers

Spotify has done a great job building a music platform. When you get down to the details though, they’ve basically spent the last nine years convincing consumers to give up their payment information. It took them nearly a decade to grow to 20 million paying subscribers among a total user base of 75 million. That’s 20 million credit cards that Spotify now has on file. During Apple’s April 2014 earnings call, Tim Cook stated that Apple had nearly 800 million iTunes accounts. While not all of those accounts have credit cards connected to them, that is still a significant number. To put that in perspective, Horace Dediu, founder and industry analyst at Asymco, noted that Amazon has a little more than 25% of Apple’s account base when he tweeted the following chart:

Half the difficulty in convincing consumers to sign up for a new service is getting them to pull out their credit card. Apple potentially has payment information for some 800+ million accounts, so all one really needs to do to sign up is swipe their thumb. Even if the service is a complete failure, it would only take 2.5 percent of their total existing account base signing up in order to match Spotify’s 20 million paying subscribers.

Streaming: An In-depth Look at the Potential for Apple

Of course, it’s not as simple as that. Let’s do some back-of-the-envelope math to see what we can roughly expect from  Music. According to NPD Group, approximately 22% of the total population in the United States purchased music in 2013. Between 2013 and 2014, digital music sales dropped by 13%. From this we can glean that approximately 20% of the total U.S. population bought digital music in 2014. Apple sells more than just digital music in iTunes (apps, tv shows, movies, etc), so let’s apply that 20% to the total number of iTunes accounts (800 million). Doing that we learn that the estimated ceiling for user acquisition in Apple’s music ecosystem is 160 million subscribers (i.e., 20% of approximately 800 million accounts). Granted, Apple operates worldwide, not just in the United States, but this is rough math anyway. It’s also important to keep in mind that those are 160 million accounts with payment information given that they had to have purchased the music.

Now let’s dig deeper into the streaming side of the business. Mark Mulligan of Midia Research recently co-authored a report with Alun Simpson called The Streaming Effect: Assessing the Impact of Streaming Music Behaviour that’s focused on understanding the movement from digital track sales to streaming. According to their research, only 45% of consumers who purchase digital music have converted to streaming. In addition, only 15% of those have opted in to the paying funnel. By streaming, they’re speaking specifically of music that’s streamed instead of downloaded. That would include services such as Pandora, Spotify, iHeartMedia, Rdio and (within Apple’s existing music universe) iTunes Radio.

Applying those percentages just to the 160 million of Apple’s users we assume have purchased digital music, we can expect a minimum of 72 million combined listeners of iTunes Radio & Beats 1 (the worldwide 24-hour radio station), 10.8 million of whom would convert to paying subscribers of  Music. Indeed, according to comScore Mobile Metrix 2015, as of April 2015, iTunes Radio had 50 million monthly mobile users and has seen 89% growth since October 2013 (one month after their launch). Additionally, iTunes Radio monthly listener base on mobile is 5 times larger than iHeartRadio’s mobile offering among adults over the age of 18.

Predicting how Beats 1 is going to perform however, is much more difficult. There are very few individual players attempting something similar to Beats 1; the most notable being Slacker Radio. Slacker hired DJs to personalize radio stations as well as to run talk radio segments. Basically, they’re a mix of Pandora and terrestrial radio. Unfortunately, Slacker is only available in the United States and Canada. Beats 1 is Apple’s attempt to start an Internet-only radio station available worldwide with programming running for 24 hours a day. Apple recruited DJs from around the world with a good swath of them coming from the BBC. Only Apple could have achieved the licensing deals required to pull this off.

Slacker Radio launched in 2007 and by 2013 had as much as 1 million paying subscribers on a total consumer base of 35 million registered users. There is a fundamental difference between Beats 1 and Slacker Radio: Beats 1 will not be a subscription service. Being completely free to listeners will allow for rapid user growth as long as the content is premium quality. In order to estimate the growth here, we should look directly to Apple’s history with iTunes Radio.

Within the first month after launch, Apple announced that iTunes Radio (a free service) amassed 26.4 million unique listeners. Given the worldwide launch of Beats 1, a conservative estimate on user growth would be to hit that same number within the first 3 months of launch and iTunes Radio’s current listener base within two years.

Comparing these estimates against Apple’s competitors reveals just how much of a juggernaut Apple might be. Pandora had 81.5 million active listeners in 2014, while Spotify just hit 20 million paying subscribers in May. iHeartMedia has 850 terrestrial radio stations in the United States, and it reaches 245 million listeners each month. Just marketing solely to their existing customer base, Apple could potentially acquire numbers equal to 88% of Pandora’s active listeners, 29% of iHeartMedia’s monthly listeners, 75% of Slacker Radio’s total registered user base, and 54% of Spotify’s paying user base.

Specifically, when it comes to iHeartMedia’s terrestrial market share, Apple had 470 million iOS users in 2014. That’s 470 million users with Beats 1 radio in their pocket whether they use it or not. The 26.4 million user estimate is merely 5.6% of the total installed iOS user base. All of these projections are given without Apple leaving their existing ecosystem for users. Unfortunately for every company in the space, Apple has already announced the launch of an Android version in the fall.

The Definition of Success

Even if  Music fails to convert anyone outside of Apple’s existing customers, just those existing customers alone give Apple potential user numbers that most of their competitors have only recently reached. For example, Spotify had only 10 million paying subscribers a year ago. It’s an achievable goal for Apple given the expected growth in the streaming market. According to Nielsen SoundScan, the number of songs streamed in the United States jumped 54% between 2013 and 2014. In addition, none of these back-of-the-envelope calculations take into account the 640 million Apple users who have not bought digital tracks. If Apple puts a mere fraction of the $193 billion they have sitting in the bank towards a worldwide marketing campaign, then all of this is achievable within the first two years. We have seen Apple do more with less in the past (e.g., the original iMac). The bottom line is, there are at least four companies that need to be especially concerned with Apple’s entrance into the market with Beats 1 and  Music: Spotify, Pandora, Slacker Radio and iHeartMedia (Clear Channel).

If Apple manages to convert those 10.8 million users towards being paying subscribers of  Music, the estimated total monthly revenue would be north of $107 million. The $3 billion Apple paid for Beats is starting to look a little low now.