Last week, we told you Spotify is set to take America by storm, and the streaming music service could soon do the same to the iPhone platform – but only if Apple approves Spotify's iPhone app, which shows real potential to threaten iTunes on Apple's own iPhone platform.

We've been testing Spotify's iPhone app since last week for this U.S. exclusive. Based on that, our prediction that it could generate big profits for Spotify – and for an ailing music industry – appears to be on the money. This slick app grants instant access to over six million on-demand tracks and your customized Spotify playlists, and it sounds great even on planes, subways, and other places where you can't get a decent cell signal thanks to an offline playback feature.

Spotify is currently only available in Europe but the company plans to roll out in America by the end of the year. To do so, it must first sign deals with copyright holders, but founder Daniel Eks said he "feels very comfortable [about that], in that the labels want to see Spotify in the U.S."

Other than the labels, the only roadblock between you and this iPhone app is Apple.

"It's going to be very interesting to see if Apple lets this through or sees us as competition – fingers crossed," explained Spotify communications manager Jim Butcher. It certainly won't help that unlike some other apps, Spotify's does not include "buy" links to the iTunes music store. However, Apple would take a percentage of Spotify's iPhone-related revenue, and might not care what people use to listen to music, so long as it runs on Apple hardware.

If Apple approves the app in the next few weeks, it will require a paid Spotify account, and will only be available where the desktop version is available. Butcher said pricing for the iPhone app and/or the Spotify premium service (higher bit rate, no ads) has yet to be worked out for the U.S. rollout.

Whether Apple approves this app for widespread use or not, I have it installed and you'd have to pry it out of my cold, dead iPhone before I'll delete it from my phone. In the same way that the Spotify on a desktop feels like iTunes with more than 6 million songs, Spotify on an iPhone feels like an iPod with the same ridiculously comprehensive library.

Like the desktop application, the iPhone version of Spotify lets you create and listen to custom playlists from the music catalog for free (ads) or for a monthly fee, listen to songs and albums on demand, and play and edit other people's playlists, so long as you have the corresponding URL.

Spotify's success as an iPhone app hinges partially on a crucial feature: the ability to cache entire playlists for listening when you're connected to AT&T's slow Edge network (on which we encountered dropouts, as we have with other music streaming apps) – or for when there's no connection at all. That means if your iPhone or iPod Touch has enough room, you can store up to 3,333 songs in Spotify playlists on the iPhone. That's 10 days of listening, all without streaming a single song over an internet connection. Even better, playlists sync easily over Wi-Fi – no USB cable required.

Everything starts here, in the Playlists screen. You can shuffle any playlist, or play it in order. Note the all-important "offline playlists" button:



When you're connected via Wi-Fi, songs play one immediately after the other. Expect a little bit of lag between songs on 3-G, and to hear dropouts if you're on the Edge network (first-generation iPhone owners should be prepared to sync playlists for offline listening). Here's the Now Playing screen, which displays album art:



Touching the album cover or "info" button brings up the following screen, where you can click over to the entire album or add the track to a playlists. These changes sync almost instantaneously to the desktop install of Spotify (and changes made on the desktop sync to the iPhone:

When it's time to find something new, you can search by track or album title:

And here's the feature that could convince Spotify users to stop syncing their iPods from iTunes: the offline playlist feature. Here, I'm syncing someone else's "Reggae from Germany" playlist onto my iPhone's memory, via Wi-Fi:



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