Apple-Microsoft Rivalry Renewed with Music Format Wars

While Apple (Nasdaq: AAPL) may have lost the operating system battle to Microsoft (Nasdaq: MSFT), it has become a major player in the digital music market, thanks to the company's successful iPod player and iTunes online music store. However, Microsoft has managed to make its Windows Media Audio (WMA) music format the standard of nearly all other online music stores and players -- with the notable exception of PC partner HP (NYSE: HPQ), which recently announced a partnership with Apple to adopt its competing music format.

There are indications that the recording industry -- one group that could effectively force interoperability -- is pushing for universally compatible players and services, but analysts told TechNewsWorld that, even with the recording industry's leverage, universal interoperability is unlikely to happen soon.

"The labels are in the position for pushing it, but I don't see them doing it in the near term," Yankee Group senior analyst Mike Goodman told TechNewsWorld. "They're much more focused on trying to sue people."

Different But Same

Goodman said that while Apple's Advanced Audio Coding (AAC) format might be able to claim technical superiority over Microsoft's WMA format, the competing digital music formats sound pretty much the same.

Apple is credited with gaining the dominant position in the online music category with its successful iPod player and iTunes Music Store -- which led the way with the 99-cent song model -- but Microsoft has managed to make its WMA format the standard of most other online music services and digital players.

"It's pretty much an even race," Goodman said. "Apple is the dominant player in the hardware space. However, Microsoft is rapidly becoming the dominant distribution method with WMA."

Cutting the Connection

Goodman added that WMA will become more dominant as more players come to depend on it, and he indicated the incompatibility issues are likely to cause increasing consumer dissatisfaction through next year. For his part, GartnerG2 (NYSE: IT) analyst Mike McGuire said the differing formats are likely to turn many law-abiding music lovers away from purchasing digital music online.

"A larger hurdle will be getting people to look at services not just as another way, but as a better way to get music than going to the store," McGuire told TechNewsWorld.

McGuire said the issue has not resulted in much conflict thus far because the market for online music is so young. But as music collections grow, users eventually will have to be concerned with which format is used for their favorite songs and artists.

Perfect or Piracy?

From a music-player perspective, the MP3 format would be the perfect standard for interoperability, according to Goodman.

However, MP3 digital-compression technology does not include the copyright controls that are native to Microsoft's and Apple's competing standards. As a result, the recording industry has resisted adopting the MP3 format.

"Plus, MP3 is associated with piracy," Goodman added. "Therefore, the record labels hate it."

Interoperability Incentive

The Recording Industry Association of America told TechNewsWorld that the group leaves format decisions to individual recording companies.

Goodman said that while the recording industry likely would benefit from interoperability among different players and services, it is unlikely the labels will do anything along these lines unless offered a compelling case -- like the one presented by Apple's Steve Jobs when he approached them about starting the iTunes store.

"I don't see somebody who has the incentive at this point to push interoperability," Goodman said.

McGuire noted that the online music market is not mature enough for the industry to push for interoperability. "At some point, they'll get smart and see to it that there is some level of interoperability," he said. "But they are less likely to put their stamp on it right now."