Is Apple's iRadio a Pandora killer?
At Apple's big event Tuesday, Sept. 10, we expect more insight into iTunes Radio, a key feature of Apple's new operating system, which we expect to launch a week later.
The free, ad-supported streaming music service is a move in a totally new direction for Apple, which has built its business on selling gadgets as well as content. Though subscribers to Apple's iTunes Match cloud music service will be able to listen ad-free, the core product is targeting the much larger audience of people who don't subscribe, to listen for free with audio and video ads.
(Read more: Apple sends out invitations to Sept. 10 event)
Apple is looking for a piece of the $15 billion dollar radio advertising market, which RBC Capital Markets' Mark Mahaney said could be worth as much as $25 billion when including video ads. Apple has had a poor track record with advertising—its mobile ad platform iAd was far from a success—but so far sources say it's gained great traction from big name-advertisers.
So what does that mean for Pandora? RBC's Mahaney said that depends on a few things: Will Apple unveil features that really distinguish its service from Pandora, the market-leader with 70 million listeners? And Will Apple make iTunes radio available outside Apple's operating system—on Android and Windows Phone?
"Apple's obviously a great product innovation company but Pandora's had almost 10 years to really fine-tune its service," Mahaney said of Pandora's defensive position. "There's a lot more improvements they could make, it's just hard to see somebody coming in and offering a dramatically better value proposition on a service that's really well known with a strong brand name and that's free to consumers."
Despite the fact that Apple's going after a piece of Pandora's ad revenue, the true upside for Apple isn't about ads or growing subscribers to Apple's match service. It's far more important for Apple to use this as a way to sell more music—with a buy button next to each free streaming song.
Jonathan Geller, founder and editor-in-chief of BGR.com explained its even bigger picture—telling CNBC's "Squawk Box" Friday that iRadio "is not something that's going to drive revenue for Apple."
Geller went on to say that Apple is looking to "lock-in" users to its ecosystem. "This is a great feature for existing users and new users to listen to awesome music free or paid."
(Read more: Apple hit with injunction in e-books antitrust case)
—By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin