Here’s one way to run a business: do opposite of everything an industry is doing, just for the heck of it, and hope that things sort itself out. Along the way, you pay $140 million in two years to the music labels, lose $40 million over those two years, and then, kneel and pray. That’s what Lala.com is doing: the till-now online CD swapping site backed by $14 million in two rounds from Bain Capital and Ignition, is morphing into an online music site, with some crazy tactics reminiscent of the strategies that put MP3.com out of business.

Since it is a complicated service (but free, so who cares, or so they hope), Gizmodo breaks it down best. In short the new service download a new plug-in which enables it to run within a browser, scans you music collection on the PC, allows you to download those songs directly through any other computer (in MP3 format) and side-load directly into an iPod (without going through iTunes software), an only on iPod for now. Lala assumes that if you own it, you have the right to it…that’s the defense MP3.com used, but it didn’t work…of course the industry has moved on a lot since the late 90s. The digital files are not copy-protected, but are stored only on the iPod, hence slightly more difficult for users to replicate on the computer and other portable devices.

Then, it has tied up with Warner Music Group and other indie labels and will allow users to listen for free on their PC all their songs for free. Then, Lala is betting that in return for getting all that free access to music at home, listeners will pay to buy the songs they want to take with them on iPods and other music players. The prices will range from $6.50 to $13.50 for an album…For now, Lala plans to sell music only by the album rather than song by song…not sure why. Also, prices will be “dynamic,” or based on demand for a particular title and other factors, including the existing content of a user’s personal music library. The risks, tons of them, include enabling Lala customers to circumvent the proprietary iTunes software, and Apple may come after it, as the story says.

NYTimes: For Warner, the deal with Lala.com has limited risk, because the label will make money from streaming royalties. Also, Lala.com was giving Warner Music a good deal of flexibility in determining how to price and bundle music.

What the heck? But then, why the heck not?