Silicon Valley startup has just gone live with an alternative plan to encourage music downloads. 

It is offering free, on-demand streamed music through its site in the hope that enough users will buy CDs and download tracks to make it profitable.‘s service is launching with tracks from Warner Bros’ digital catalogue. Users can listen to full songs as often as they like, and buy CDs through the site or download the songs. Though the songs are DRM-free, they can only be downloaded to an iPod. The service is also compatible with iTunes.

Lala looks good,is easy to use and already has an impressive range of music available, though it is taking a gamble with its business model.

Licensing fees alone will cost the company over $140m in the next few years, as it has to pay the record labels a cent for each song streamed through its site, so it will have to sell enough CDs and downloads to cover this expense.

According to founder Bill Nguyen:

“We believe over the next two years we might lose $40 million. We expect up to 70% of people will be freeloaders just listening to the music but around 30% will be buying music.”

Lala has raised $14m in two rounds of funding from Bain Capital and Ignition, but hopes to raise more.