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While Sirius XM (NASDAQ:SIRI) is most widely known for its satellite radio service, a major part of its success going forward will be tied to the Internet radio side of the business, aptly called Sirius XM Internet Radio.

Many think that the Sirius XM Internet Radio feed is merely a duplication of the satellite service, but nothing could be further from the truth. The company has a couple of dozen channels on the Internet platform that are not available on the satellite side, as well as several channels available on satellite that cannot be streamed. In addition there is another couple of dozen channels associated with Satellite Radio 2.0 that are available only on select (new) satellite radio receivers as well as the Internet service.

All of this seems great, but the competition in the audio entertainment landscape is heating up quickly. It is time for Sirius XM to take a leadership position and get ahead of the curve rather than responding to it. It needs to be the company that sets the bar rather than the follower.

Today Spotify, only in the United States for a few months now, announced that it is opening up its own app platform. It is somewhat alarming that this type of dynamic in the audio entertainment landscape did not come from Sirius XM, nor Pandora (NYSE:P), but rather the new guy on the block.

While opening up its platform for apps may not seem like a big news item, it actually is quite impressive. Spotify allows the creative juices to flow from anyone, approves the apps, and allows users to experience these apps all in one place and on one platform, Spotify.

Spotify's 2.5 million subscribers will now stream curated music from Billboard, Rolling Stone and Pitchfork, as well as others. Song lyrics from Tunewiki will be an app, and concert-finding integration comes courtesy of Songkick. Spotify CEO Daniel Ek stated:

There's really only that much that Spotify can do. We really look forward to being surprised by our developers. They're going to deliver new apps on the Spotify platform and they're going to be things here than we can't even imagine today. ... The possibilities are truly endless.

If what Ek has to say is not impressive, perhaps the words of Rolling Stone founder Jann Wenner will better define the possibilities.

It's almost been too much of good thing. The service's 15 million song database is like, the history of recorded music staring at your face.

Just two months ago, Spotify and others became partners with Facebook, something that Sirius XM did not participate in. Spotify has added half a million subscribers since then, and continues to be a leader in innovation among audio entertainment companies.

So can Sirius XM respond? It has an opportunity to do just that and better with the new LYNX radio. While the LYNX is not yet released, it is a promising device that features touch screen capabilities and is based on the Android platform. Sirius XM could, in theory, open up an app development platform of its own and allow those approved apps to be utilized on the LYNX. This would make the LYNX something far greater than simply a satellite radio. This is the type of thing we need to see from Sirius XM.

While many investors and consumers are frustrated that the LYNX has not yet arrived to the market, the wait is happening for a reason. Part of it is likely due to the company trying to include capabilities that require direct deals with the record labels, other possibilities exist that could allow Sirius XM to take things to a higher level than Spotify.

One crick in the Spotify plan is that it is not yet available on mobile devices. This is an opening that is critical. If Sirius XM can update its own apps, and come up with a winning platform, it can gain some serious appeal with a whole generation of potential subscribers.

Disclosure: I am long SIRI.

Source: Sirius XM Should Ramp Up Internet Radio Platform Now