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iTunes Throws Down An iGauntlet

With the launch of iTunes for Windows last week, Apple Computer officially threw down the gauntlet against rival Windows-based music services, but analysts say it's still too early to identify a clear winner.

The Cupertino, Calif.-based computer maker's second generation of its jukebox player and online store are an attempt to convert the masses and aggressively capture market share from non-Macintosh environments, something it has failed to do for a long time.

Apple's cross-platform approach has also helped the company position itself better against main rivals MusicMatch and the resurrected Napster 2.0.

As testament to its new service, Apple said Monday that more than one million copies of its new iTunes for Windows digital jukebox software in just three and a half days since its launch last Thursday, and upwards of one million songs have been purchased and downloaded by iTunes users in the same period. To date, Apple has 14 million downloads under its iTunes Music Store belt since the April 2003 launch.

Industry analyst Rob Enderle says all three services (Napster, MusicMatch, and iTunes) should have near 500,000 tunes by year end and mirror each other in terms of what you can do with the tunes once you have them. But that is where the similarities end and no one service can be considered the overall winner -- yet.

"I think this will come down to Apple vs. MusicMatch unless Microsoft enters, which is expected, and changes the overall dynamic," Enderle told internetnews.com. "MusicMatch has done well against Microsoft historically by choosing not to compete but partner and carve out the premium space. Another company that does this well is Symantec. Apple clearly has not done this well historically and that may be problematic for them long term."

During the launch, Apple CEO Steve Jobs' elevator pitch focused on the key shortcomings of its primary competitors MusicMatch and Microsoft . Job's primary selling point is Apple's ability to support MP3 encoding, CD burning for MP3, iPod playing, and improved music sharing thought its wireless Rendezvous technology.

Another selling point is the iTunes Music Store's online gift certificates including its patent-pending online "Allowance" feature. The idea is to let parents automatically deposit funds into their kids' iTunes Music Store account every month.

"We're off to a great start, and our competition isn't even out of the starting gates yet, Jobs said."

Compared to the rest of the field, Enderle concedes Apple's advantage is their marketing; yet their disadvantage might be the iPod.

"Not that the iPod is bad, only that it is just the iPod and a lack of penetration in the WinTel market," he siad. "The other two already exist, and MusicMatch was the product WinTel folks connected their iPod with. Were it not for Apple's marketing I'd bet MusicMatch would win, but the consumer market is defined by marketing. If iTunes supported more than just the iPod I would probably say they would win, but the focus on Apple hardware alone has been their albatross since the beginning."

His other criticism is that the AAC file type is simply not being picked up broadly which could cripple iTunes long term against Microsoft's Windows Media format -- WMA -- which has broader support.

As for the other two, Enderle says Napster is the weakest, as parent company Roxio has to struggle against the large inbred following of both iTunes and MusicMatch.

"EZ-CD Creator has been sliding and there is no strong connection that I can see between this product and Napster," he said. "Napster supports more MP3 players than iTunes but not as many as MusicMatch. It appears over matched at this point. MusicMatch is the better value (service) based on spec. They support virtually all of the MP3 players and did support the iPod. They are also supported by the emerging class of distributed devices -- Gateway's connected DVD player for instance. Their personalization, at least to me, is better, and they focus on the Windows market. They are overmatched in terms of marketing spend by a significant amount and that will be a problem for them in what is clearly an emerging market. If I had to bet I'd give MusicMatch the edge because they have been successful in similar fights while, generally, Apple has not -- iPod being the clear exception to date."

As for the other major online services, Enderle said he didn't think either Rhapsody, or buymusic.com are competitive with Napster let alone Apple iTunes or MusicMatch.

And if the field isn't crowded enough already, America Online, Amazon, Dell, and Wal-Mart are all launching similar services in the coming months.

"I think we need to see what Microsoft actually does before we can call this a fight," Enderle said.