The term "Internet radio" is reminiscent of those DVD/VHS combo players that were popular a few years back: a hybrid of two technologies, one embraced the future while the other clinged to the past. And if Slacker radio is any indication, Internet radio may someday make MP3s — once thought to be the "future" of music — obsolete.
Right now you have three choices for digital music: You can buy a media player like Apple's [AAPL] iPod and purchase songs piecemeal; you can subscribe to an unlimited music service like Rhapsody and get pretty awful portable device support; or you can listen to music for free on a service like Pandora or LastFM, which both need an Internet connection (or a wireless signal on your iPhone or Android device.)
None of these are great options. Paying per song gets expensive, but paying per month means you never really own any of your music, and device support is usually terrible (look at Verizon [VZ] phones' integration of Rhapsody for an example). Free services usually work well, but they have song-skip limits and require an Internet connection to listen. Even decent device-plus-subscription packages, like the one featured on Microsoft's [MSFT] Zune, are annoying to use and over-priced (the Zune's is $15 a month.)
That's where Slacker radio comes in. Slacker attempts to meld those three business models by providing a reasonably-priced and usable device and service. First, you buy the Slacker device, a pebble-shaped player about the size of a clamshell phone that's equipped with Wi-Fi, a sizable color screen, and a sensible button layout. Then you sign up for a Slacker account online, for free.
There, you make your own radio stations, by dragging specific artists and genres into playlist-like queues. The Slacker device automatically updates itself to reflect your Web account (if it can pick up a Wi-Fi signal). Once your Slacker player is loaded, you can take your music anywhere, whether or not you're in Wi-Fi range. You can also load up to 1GB of your own existing MP3s for a total of 4GB of storage. All for $200.
This isn't a perfect model, of course. It costs too much for a device that doesn't play video, get the Internet, store more than 4GB of music, or play games. (Recall that $200 also gets you a 16GB iPod Nano that can play video and games.) Battery life also sucks.
Still, Slacker may open the door to others pursuing the hardware-and-service model, instead of simply providing only one and tying it to another product.
Comparing the Slacker to an iPod Nano is a no brainer. Getting new music for your iPod will cost you hundreds of dollars in iTunes purchases, while with Slacker, you're either getting your new music free, or for $10 a month. It's also possible that in one more generation of its hardware, the Slacker might even rival the iPod for ease-of-use, with its BlackBerry-like jog dial and pleasant hand-feel.
But Apple could squash Slacker in a moment's time by offering a subscription service of its own, paired with the already-ubiquitous iPod devices. Slacker inherently accomplishes what MP3 players should: portability, durability, mass storage and cheap access to music. Once consumers see the potential of Wi-Fi-enabled portable Web radio devices, more companies will follow Slacker's suit, and the iTunes Store might find itself slowly bleeding buyers. Steve Jobs once said that consumers aren't interested in "renting" music, and that's why buying is the only option on iTunes. But it's not a question of "interest." The real question is: how much will it cost me?