Buzz around what Google might cook up next makes for regular grist for the rumor mill. But new speculation now making the rounds is proving hard to ignore: that the search giant may be prepping a digital music service that could provide a viable alternative to Apple's popular iTunes.

A report from TechCrunch suggested that Google (NASDAQ: GOOG) may begin selling digital music, much like the iPod and iPhone maker. But others have claimed that Google is dealing with the music labels directly and looking to merge artist information into search results -- and will link to music sites for sales.

If reports are true, Google could be setting itself up to become a major player in the online music space, which has seen Apple's (NASDAQ: AAPL) iTunes dominate the market while subscription services are floundering.

Already, Google has given some signs of interest in the area. In March, the company launched a music service in China that provides free, ad-supported music downloads.

So far, however, Google is remaining mum on the buzz.

"We don't comment on rumor or speculation," a Google spokesman told InternetNews.com.

Still, industry observers suggest that if Google pursues music sales, it could be poised to dramatically impact the market.

"In general, Google is in a strong position to do something around music and compete," Forrester Research analyst Mark Mulligan told InternetNews.com. "they're already a major player via YouTube, where we've seen online music video in many cases become more popular than online music audio."

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The key to success in the sector is to create a business model that isn't solely based on $0.99 downloads, like iTunes, nor on a monthly subscription, Mulligan said.

"The iTunes business model only works for Apple within the context of Apple's users and their devices -- within its own ecosystem -- but it is not a mass-market model," he said. "It's had time to become the successor to the CD and that's clearly not happening, so nobody is going to be successful with $0.99 downloads other than Apple."

Rather, Google can make a play in the digital music space by creating value around the search process, said Mulligan.

"Google is in a unique position to access what consumers are searching for," he said. "Apple can't do anything about a BitTorrent download, but Google knows right from the start what people are looking for."

"If they build value right at that point, integrate and offer music product offerings around general search terms, bundle product offerings at that point, they're in a unique position to capitalize on a unique opportunity."