Lala Land: How Apple’s Deal Gives It A Leg-Up To The Cloud

iTunes Store remains the market-leading music retailer, and iTunes the popular app, but competitors are gathering.

As more of our lives are stored online, so more music is streaming from the cloud. In on-demand, Spotify is hoping to launch in the U.S. by Q2, MySpace Music is ramping up. In radio, Pandora and are in the background.

CNET reports Apple (NSDQ: AAPL) wants to “obtain some of Lala’s payment and fulfillment systems” – but that would be pretty underwhelming. With MySpace having taken iLike and imeem off the market, a more interesting idea is that Apple will use Lala to inject some remotely hosted goodness in to iTunes.

Apple has needed to offer some more cloud functionality around iTunes to fend off the rise of streaming services. This year, it approved Spotify’s £9.99-a-month app and Rhapsody’s $12.99-a-month Rhapsody app on its own iPhone. Apple customers are not currently paying that much on its own iTunes Store.

In fact, until it overhauled .Mac with MobileMe last year, Apple seemed to have little talent for building services that work on the web rather than on the desktop.

The Lala acquisition could change that in music. But don’t expect Apple to follow the likes of Spotify and We7 down the ad-funded route — that market is already under pressure, with some of the leading services’ bosses beginning to admit they can’t make it work in isolation; Ruckus and SpiralFrog have croaked.

And don’t expect Apple to launch a radical new web-based streamer or locker distinct from the core iTunes brand that has served it so well. More likely: integrating remote music access with the MobileMe suite that now offers web-based mail, calendar, contacts, photos, gallery and backup but no songs (where music goes in iTunes, expect remotely accessed movies and TV to follow). And Lala’s own technology focuses on scanning users’ discs for existing songs to mirror online, so expect an emphasis on access to one’s own collection.

Does any of this mean game over for the upstart Spotify and challenger Rhapsody? Not necessarily.

Integrating Lala’s technology with Apple’s won’t happen overnight. Rhapsody already has decent market traction. Spotify, whose U.S. launch has been delayed due to label suspicions but which keeps reminding everyone its model is about both ad-funded and subscription, expects to charge that subscription fee on every platform other than the desktop. It’s starting with mobile, having inked its first deals with Sweden’s Telia and the UK’s Three carriers for prebundled service. This is where Spotify’s real money may be – the ad-supported offering, as long as the VC cash is in the bank, is just a shop window.

If Spotify is squeezed out by a streaming iTunes, it may get to concentrate on mobile and other platforms where iTunes is not – consoles, Linux-powered TVs; everywhere bar the desktop, iPhone and iPod.