How Long Can Apple's Billion-Download Baby Hold the Lead?

The song was Coldplay's "Speed of Sound." For making this fortuitous 99-cent purchase, the lucky customer, Alex Ostrovsky, won a 20-inch Mac computer, 10 iPods and a US$10,000 gift certificate for iTunes. Apple will also establish a scholarship in his name to New York's Juilliard School of Music.

Ostrovsky and the hundreds of thousands of other iTunes customers hardly need this type of incentive to remain loyal. By far, iTunes is the market leader in digital online music -- mainly because of the iPod line of players.

Competition Coming?

iTunes may soon experience serious competition, Yankee Group analyst Nitin Gupta told MacNewsWorld.

Microsoft (Nasdaq: MSFT) will be collaborating on the design and development of MTV Networks' forthcoming digital music service, called URGE, which will be integrated into the latest version of Microsoft Windows Media Player, the companies announced in December.

It will be a powerful combination on many levels, Gupta said, noting that "the reason why no online music service has been able to compete with iTunes is because of Apple's marketing muscle."

Apple has been able to rely on sales of the iPod to support -- and market -- iTunes. At 99 cents per song, the Web site barely breaks even. Faced with the same market economics -- license costs can be steep, for instance -- other service providers have not been able to spend much on marketing .

"By adding MTV into the mix, Microsoft has given its Media Player a huge boost," Gupta said.

URGE will be promoted through multiple venues, including the the MTV, VH1 and CMT channels.

Vertical Solution

The MTV-Microsoft vehicle also will challenge Apple's symbiotic relationship between iTunes and the iPod. Simply put, Gupta said, the URGE system works very well.

The fact that the Windows players will be bundled with Vista and the URGE service will be tightly integrated into the software is very significant, he pointed out. For the first time, an integrated service and product will be able to compete with Apple.

Apple, meanwhile, continues to add content to iTunes. Since the release of its video iPod, it has added cartoon, music videos and a plethora of TV shows ranging from current hits such as "Desperate Housewives" and "Lost" to old favorites such as "The Munsters" and "Dragnet."