Microsoft in the Zune

But to truly race ahead, Microsoft needs to catch up in terms of features including support for games, podcasts and even possibly offering movies, suggests Rubin.

Microsoft says some of that is already in the works, according to Reindorp. "We are developing Zune as an 'entertainment' brand, which means it will include music, video and games," Reindorp says. "But will there be Xbox-like games on the device? We don't know yet. We are still thinking through our games strategy."

Reindorp hints Microsoft may have some big announcements ready in time for the holiday season. "We will add features to the device, and by the upcoming holidays we will have news around TV, video and podcasting support."

The response to the Zune Marketplace shows consumer interest in the product is strong, says Reindorp. The number of overall downloads increased 60% from January to February, he says, and overall subscriber base rose 65%.

Impressive as it may seem, it will take a lot more to get Apple worried. Despite a slight softening in sales last month, Apple is still expected to sell about 10.9 million iPods in the March quarter.

Apple's latest marketing campaign for the iPod asks customers, "Why stop at just one?"

Maybe the folks in Redmond, Wash., will eventually have an answer for that.