News that Apple is in talks with record labels about a possible ‘all-you-can-eat’ model for iTunes is making the rounds on the blogs this morning following last night’s story in the FT.

Over at TechCrunch, Erick Schonfeld asks whether music companies would be willing to go along with a subscription model. We think the answer is clearly yes.

Consider this: Steve Jobs himself pointed out last year that the average iPod contains just 20 iTunes songs. Our own back-of-the envelope analysis shows that the number at this point (4bn iTunes songs sold, divided by 140m iPods and 4m or so iPhones) could be closer to 28 songs per Apple device. Either way, given Apple’s 70-30 revenue split with record labels, that means the music companies are making a paltry $14-$20 per iPod, even though many iPods can hold thousands of songs. Meanwhile, Apple banks hundreds of dollars per iPod sold.

Compare that $14-$20 with what record labels could make on an all-you-can eat deal, and it’s easy to see why music companies would be interested.  Music labels are thought to be pushing for a $100 up-front payment over the two-year life of an iPod, with the markup to be split between the music companies and Apple. The lowball $20 per iPod figure being floated by Apple suggests that Steve Jobs is determined to drive a hard bargain, if he agrees to such an arrangement at all. But even if the record labels were only able to get Apple to come up to $40 per device, they would be almost doubling what they have been getting under the current a-la-carte model.

 Update: Peter Kafka at Silicon Alley Insider has a good analysis of the economics of an iTunes subscription service here.

Facebook’s users are bound to be excited by news that the social network is planning to roll out its own chat service in the coming weeks; Facebook developers, perhaps not so much.

There are dozens of developers offering chat applications designed to run on the Facebook platform. Facebook’s decision to get into the chat business for itself means those developers will now have to grapple with an 800 lb gorilla in the room, sucking up all the air

As revealed to reporters on Tuesday, Facebook’s new chat service looks to be a no-frills affair. The service doesn’t allow group chats, and users will only be allowed to chat with other Facebook friends. Still, Facebook’s decision to make its chat service a full-fledged feature of the site means that it will be in pole position to capture users from rival applications that sit on the Facebook platform.

The situation is reminiscent of that faced by developers writing applications to run on Windows in the 1990s. Back then, if a particular application market got big enough, the chances were that Microsoft would move in to try to capture it for itself. That is why Microsoft muscled its way into the highly profitable market for word processing and other office productivity software, where it was able to gain a huge advantage by tying shipments of Office to Windows.

None of the third-party chat applications on Facebook have met with huge success yet. But there are signs that chat could become an important feature on social networks as it has on the rest of the internet, where usage is widespread. AOL, for example, has said that close integration with its AIM messaging service is one of the chief rationales behind its $800m acquisition last week of Bebo, a Facebook rival.

In addition to its new chat feature, Facebook already has applications that let its users share photos, video, and other information with their online friends. The question vexing Facebook developers is, what other popular applications does Facebook plan claim for itself?

Mark Zuckerberg scored a coup on Tuesday by recruiting one of Google’s top stars to take the number two spot at Facebook, the fast-growing social network.

Among other things, Sheryl Sandberg’s appointment as Facebook COO will bring some adult supervision to a company that, for all the buzz and excitement,  manages every so often to remind the world that it is being run mainly by twenty-something computer geeks.

Sandberg, 38, graduated near the top of her class from Harvard College and Harvard Business School before serving as chief of staff to US treasury secretary Lawrence Summers during the Clinton administration. She joined Google in 2001, where she was responsible for developing the search giant’s wildly successful ad sales programmes. She also played an important role in launching Google.org, the internet group’s philanthropic arm.

Having captured the attention of millions of internet users, Facebook’s biggest challenge over the next year will be to deliver its own equivalent of AdWords - a technology capable of turning all those eyeballs into a reliable revenue stream.

Facebook tried to do just that last year with the launch of several new ’social’ ad technologies, including Beacon, a messaging service that broadcasts purchases made by users on outside web sites to their Facebook friends.  Mr Zuckerberg hailed the new technologies as a once-in-a-hundred-years innovation in advertising, only to see them overshadowed by a user revolt over privacy.

With Ms Sandberg on board, Facebook has an opportunity to move beyond this somewhat ham-fisted attempt and find a sustainable revenue model that takes advantage of the social connections between the site’s millions of users. There is no doubt that the raw materials are there. It may just take an experienced hand like Ms Sandberg to make things fall in line.

The downbeat report on click-through rates that sent Google’s shares down 4.6 per cent on Tuesday is sure to rub salt in the wounds of shareholders who were already stinging from a sharp drop in the search group’s share price this year. Many will be anxious to determine whether the data from ComScore, which showed flat growth in the rate at which web surfers click on Google’s ads in January, is merely a blip or a sign of something more ominous.

Setting aside the very real possibility that ComScore’s report was a statistical anomaly, there are two scenarios that might explain a fall-off in the click-through rate for Google ads. Neither of them is encouraging.

The first scenario is that the apparent drop in click-through rate is due to Google’s recent attempts to boost ad quality by cutting down on the number of ‘accidental’ clicks made by users. Google said earlier this month that its crackdown on unintentional clicks had contributed to its disappointing results last quarter. But the magnitude of the drop reported by ComScore - from 27 per cent growth in November to 13 per cent growth in December to decline of 0.3 per cent in January - suggests that the trend could be more severe than previously thought.

A second - and probably less likely - scenario is that the decline was caused by a change in the shopping habits of online consumers. The reasoning is that consumers who are worried about a recession might be less inclined to click on Google’s ads because they have decided to delay online purchases. If this were the reason behind the flat click through rates, it would suggest that Google is more vulnerable to a recession than some have predicted.

With Google’s shares already off almost $300 per share from their November highs, investors are surely hoping there is another explanation for the ComScore numbers - one that leaves them a little more room for optimism.

MySpace has confirmed that Josh Berman, COO, will leave the social networking site to take on a ’senior role’ at Slingshot Labs, a new venture backed by News Corp, whose mission will be to incubate internet startups. Rumours of the move had been circulating since last week when Chris DeWolfe, the MySpace founder, told the New York Times about the incubator.

MySpace also said it would brief reporters next week on details of its bid to open up to outside developers. The FT revealed in June that MySpace that the popular social networking site hoped to take a page from Facebook, its smaller rival, by launching its own equivalent of the Facebook Platform. In November, MySpace announced that it had joined forces with Google on OpenSocial, an open alternative to Facebook’s platform.

Now that MySpace is preparing to launch its platform, internet-watchers will be looking for further details about the kinds of incentives it will offer to developers. Facebook set a high bar by allowing its developers to advertise freely within their apps - just not on the Facebook home page. The pressure will be on MySpace to follow suit.

One of the most striking things to emerge from Apple’s quarterly results on Tuesday was the fact that the iPod and iPhone maker is sitting on an $18bn cash hoard. Even more interesting is what Apple suggested it might do with it. Fortune picked up these comments by Peter Oppenheimer, Apple’s CFO, during the company’s earnings call:

Our preference continues to be to maintain a strong balance sheet in order to preserve our flexibility to make strategic investments [and/or] acquisitions.

Apple hasn’t made a big acquisition since 1997, when it paid $400m for NeXT, the computer company founded by Steve Jobs during his years in exile. Since his return as CEO, Mr Jobs has preferred to keep most of Apple’s innovation in house.

Could this year be different? Mr Oppenheimer’s comments would seem to suggest so. But there are other reasons to believe that Apple could soon be on the prowl for potential deals. With the market now off nearly 13 per cent from its 2007 highs, there are deals to be had for a company with cash to throw around. Apple may also be facing a product gap this year, as the law of large numbers causes iPod sales growth to slow. Mac sales remain strong, but while the iPhone is of to a decent start with 4m units shipped so far, some analysts believe it may take until at least 2009 for the handset to emerge as a revenue driver for Apple. A savvy acquisition could help make up for any revenue growth gap in the near term.

There is another, perhaps more compelling use of all that cash, however: buybacks. With Apple’s stock price now off more than a third from its 2007 high, Apple may find the most compelling use of its cash is to invest in its own shares.

The biggest film studios have access to libraries of tens of thousands of films and TV titles, but most of them never see the light of day. That is because only a handful of those titles account for the vast bulk of DVD sales. Retailers have little incentive to stock the thousands of less popular titles that make up the rest of studios’ libraries, since it would force them to carry costly and slow-moving inventory. 

HP estimates that there may be $1.5bn-$2bn of untapped opportunity lurking in this long tail of library content. But that could change under a new partnership between HP and Sony, set to be announced on Thursday. Under the partnership, HP will offer content from Sony, manufactured on demand for DVD retailers and wholesalers. The idea is to use HP’s digital technologies to change the economics of DVD distribution. 

While details about specific film titles and retail partners are scarce, the idea is that retailers would be able to use the HP technology to fill single orders of Sony library titles. Meanwhile, video wholesalers would be able to use the same technology to fill smaller orders of less popular films that otherwise would only be economical to press in bulk. 

Eliminating the need to carry inventory should allow retailers to expand the array of titles available in their stores, opening up the long tail of library content to consumers. With Sony now on board with its DVD-on-demand technology, HP will no doubt be looking to strike deals with other prominent studios soon.

Apple’s video rentals and the ultra-thin MacBook Air are likely to dominate the headlines out of this year’s MacWorld conference and expo. But new products were not the only juicy tidbits to come out of Steve Jobs’s keynote address. Before he launched into his product marketing pitch, the Apple boss rattled off some interesting new statistics about the iPhone that are worth a second look.

• According to Jobs, Apple has sold 4m iPhones in the 200 days since the handset launched in June - an average of 20,000 iPhones a day. Not bad.
• Jobs said that the 4m figure meant that Apple accounted for about 19 per cent of the smartphone market in the 3rd quarter - the most recent quarter for which there are statistics available. That’s about half the market share of RIM, the Blackberry maker, but nearly as big as the next three competitors combined (Palm, Motorola and Nokia).

With its consumer appeal and lack of support from business ‘push’ email systems like Outlook and Lotus Notes, it is not qute fair to compare the iPhone to business devices like the Blackberry. But it is an impressive performance nonetheless.

Given these statistics, Apple seems better positioned than ever - barring any strong economic headwinds - to meet its goal of selling 10m iPhones by the end of the year.

Bloggers are buzzing about Facebook’s decision today to dispatch a representative to join the DataPortability Workgroup, a group of coders working to develop standards that would allow web users to transport their friend lists, photos and other media between social networking sites. Google, the search engine, and Plaxo, a web site that lets users share their personal contacts, also announced they would join the group.

But most of the attention has fallen on Facebook, which in the past had favoured a closed approach in which it would not allow its data to be easily ’scraped’ for transfer between sites. Just last week, it blocked the account of Robert Scoble, the popular tech-blogger, after he used a tool made by Plaxo, the web contacts company, to mine his Facebook profile for his user information.

Facebook has not yet said whether today’s move represents a wholesale embrace of data portability, or whether it represents something less than that. But if the response around the blogosphere is any guide, many industry-watchers are excited about the prospect of the fast-growing social network jumping on the portability bandwagon.

"Today changes everything you’ve ever thought about social-networking data and lock-in before," said TechCrunch, a popular Silicon Valley Blog, "by joining the DataPortability Working Group Facebook is embracing open standards and open access, and that is a huge fundamental change from its previous stance on being locked in to closed standards."

That seems a bit premature. Just because Facebook has agreed to join the working group does not mean it is prepared to accept or implement whatever standards emerge from its work. Nevertheless, Facebook’s move is, at the very least, a step forward.

Update: Facebook emails to say:

"We are committed to giving users control of their data on Facebook and, at the same timne, safeguarding the privacy of users. Facebook joined the DataPortability Workgroup in order to actively participate in industry dialogue and to represent feedback from the Facebook community."

That would indicate that Facebook wants to observe and participate, but not necessarily embrace, the group’s work.

Facebook appears to be readying the next phase of its application platform - a payments system that would allow application developers to conduct transactions through the Facebook site, according to a announcement unearthed on Tuesday by Valleywag.

When he launched the Facebook platform strategy in May, Mark Zuckerberg, Facebook’s founder, hinted that some kind of payment system could be in the works. Such a system would expand the revenue streams available to application writers by allowing them to charge users for premium services, or even sell items through Facebook outright, rather than relying on advertising to make money. Facebook could also benefit if it worked out a way to pocket a piece of each transaction run over its payments system.

Facebook faces an interesting choice in deciding how to proceed. It can go it alone, partner with a company with more experience in online payments (Ebay’s PayPal springs to mind), or offer a mix of payment options. Working with an experienced partner could soothe the nerves of users concerned about privacy in the wake of Facebook’s poor handling of its new Beacon advertising service.

Still, Mr Zuckerberg is nothing if not ambitious. If he sees an opportunity to create and dominate a huge new online marketplace on his own, he may well take it. Facebook itself is not completely lacking in payments experience: It already features a "gift shop" where users can pay to send each other $1 electronic knick-knacks. This service could easily form the basis of a broader payments push.

Partner or not, if done well, a Facebook payments service could open up a world of new possiblities as established online vendors begin to conduct business not just through their own web sites, but through proxy sites on Facebook.