Like most online radio stations, Last.fm has been forced by music copyright owners to behave more or less like a traditional radio station. A highly customizable radio station--users could enter a favorite artist and Last.fm would pick a song by that artist, then add in songs from similar artists--but a radio station nonetheless. Content was pushed, not pulled. Users who wanted to pick songs to play on demand either had to download them from a service like iTunes or pay for a subscription service like Rhapsody (which does let you stream 25 songs a month for free).
Today, Last.fm takes a big step forward, becoming the first online service to let users pick nearly any song out of its collection and play it, on demand, for free, three times. After that, users will have to pay download it from one of Last.fm's partners, such as iTunes or Amazon. A forthcoming subscription service that will give you unlimited listens, a la Rhapsody.
Last.fm, which was acquired by CBS last May, is also launching a program for artists without a traditional recording or publishing deal, which will allow them to upload their songs to the service and get paid each time a song is streamed. For small independent artists, this could become an important outlet like CD Baby--only instead of having your work hidden alongside thousands of other relatively obscure artists, it might appear on a user-customizable radio station squeezed between Animal Collective and Arcade Fire. (Although Last.fm will have to be careful to ensure that every band that claims they sound just like U2 actually sounds something like U2.)
The obvious caveats: the three play limit, the fact that these are streamed files and therefore can't (easily or legally) be transferred from a computer for listening elsewhere, and the on-demand tracks aren't presented on each artist's main page (although you can search for them directly, or click through to the album listing on the main artist page for a full list of songs from each album). Also, it's available only in the U.S., U.K., and Germany today, with other countries to be added later.
Still, hats off to Last.fm for delivering the free, on-demand songs to those of us who don't frequent file-trading networks.