Welcoming Google to the party: At the 2009 Vevo  launch party, Google CEO Eric Schmidt (center) visited with Doug Morris  (left), the then CEO of Universal Music, and Rolf Schmidt-Holtz, former  CEO of Sony Music. 
 (Credit: Greg Sandoval/CNET)     Google has begun testing Google Music internally, a sign that the much anticipated service is nearly ready to launch. 
 Employees at the online behemoth have begun a process commonly referred  to in Silicon Valley as dog-fooding, in which employees try out a new  service or product, music industry sources told CNET. 
 
  Two weeks ago someone writing at the XDA Developers forum claimed to have accidentally discovered Google Music after installing the Honeycomb version of the Android operating system  on a phone. Turns out, that was indeed a working version of the  service, the music industry insiders said, adding, however, that the  final version could be much different. 
 Google did not respond to an inquiry from CNET about Google Music. 
 Technologically speaking, then, Google Music--a streaming service  users would access from Web-connected devices--appears close to being  ready. However, the sources said the actual launch is being held up by  the lack of one vital component. Music. 
 Google managers told counterparts at the top four record companies last year that they hoped everything would be in place for a launch by late 2010,  sources said. More recently, Google tentatively planned to demonstrate  the service earlier this month at the South by Southwest conference. 
 Negotiations with at least some of the top publishers and with the four  largest record labels are ongoing, according to sources. The delays are  largely due to the complexity of the subject matter. Google is after  cloud music rights and not just for songs acquired from Google Music. 
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 CNET and others have reported that Google is negotiating for the right to store users' existing music libraries on the company's servers, the sources said. According to a report in Bloomberg  this month, the labels are in similar discussions with Apple about  cloud music, or music stored on third-party servers rather than on one's  personal computer or other device. 
 Licensing rights for digital lockers of this sort is largely uncharted  territory for the labels. There are no templates for these kinds of  deals lying around and the record companies want to move cautiously as  they assess Apple's and Google's plans. 
 What's certain is the labels want Google to join the digital-music fray.  The possibility that an iTunes competitor of Google's caliber will soon  hit the scene has music industry executives giddy. 
 The past year, digital music has stagnated. All the sector's excitement  and promise seemed to seep out starting two years ago when the second  wave of iTunes challengers began to disappear. 
 Imeem, Lala, SpiralFrog, Ruckus, Project Playlist, MySpace Music, Zune--they  followed AOL Music, Urge, and Yahoo Music into oblivion or irrelevancy.  They all took their whacks at the fearsome combination of Apple's  software, hardware, and music store, and all lost. It remains to be seen  what will come of Sony's new Qriocity streaming-music service. 
 Against such a force as iTunes, it can't hurt to have a challenger come  in that's of equal size. Google is one of the most powerful advertising  companies of all time and has a history of providing consumers access to  sought-after and cheap content. Unlike many past so-called iTunes  killers, Google can also combine a digital-music service with popular  hardware (Android-powered phones). 
 Let's also not forget that Google has already seen some success in  digital music. YouTube's music videos, which are ad supported and free  to viewers, have become a popular way to discover new songs. 
 It's anybody's guess as to when Google Music might finally launch.  Unveiling it could make for a nice opening act for incoming CEO Larry  Page, who takes over in April. Otherwise, I'm guessing we might see the  service in May, at the company's I/O conference.