Amazon Takes Aim at Apple

What's more, Apple hasn't stood still in the battle for DRM-free music. It now offers about 2 million songs without DRM software -- some for as little as 99 cents -- and allows users to remove DRM software from protected tracks by paying an extra 30 cents.

But Amazon's decision to move forward with a music service clearly signals that it will not readily concede the online music business to Apple, leaving many to wonder how it will mount a credible challenge.

The retailer's recent foray into device making with its Kindle electronic reading device suggests it may take the next step and develop its own music player. That would mimic the integrated nature of the iPod device and iTunes service, which analysts and investors have consistently said is Apple's primary competitive advantage.

But with iPod satisfaction rates running at over a staggering 90%, and competitors like Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) failing to dent its market share, an Amazon-made device would likely struggle to dislodge Apple.

According to the Yankee Group's Goodman, Amazon investors should tone down any expectations of seeing the company topple Apple, and instead hope for it to become the best alternative to iTunes.

Even if Amazon MP3 were a loss leader, it may attract visits that result in sales of other products, including iPods. It remains to be seen, however, how successful the service will be on its own as well as in increasing the per-visit value of buyers.

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