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Amazon Takes Aim at Apple

The online retailer begins its assault on the iTunes empire.

SAN FRANCISCO --

Amazon.com

(AMZN) - Get Report

unwrapped a trial version of its music downloading service on Tuesday, hoping to lure users with competitive prices and music that's free of restrictions on copying.

The online retailer is clearly taking aim at

Apple's

(AAPL) - Get Report

iTunes music service. Amazon will sell songs at 89 to 99 cents each, vs. 99 cents to $1.29 at iTunes. The songs are free of digital rights management software, called DRM, so users can easily share music with each other and store tracks and playlists on multiple devices.

Amazon is betting that DRM restrictions will be the Achilles' heel that makes Apple vulnerable to competition. While Apple's Chief Executive Steve Jobs has publicly railed against recording labels' insistence on DRM, the company has not come up with a policy to make DRM-free songs widely available.

Without digital padlocks on music downloads, songs purchased on Amazon's service, called Amazon MP3, can be played back on iPods as well as rival devices, including

Microsoft's

(MSFT) - Get Report

Zune and

SanDisk's

(SNDK)

Sansa.

Amazon's greatest chance to wage a successful campaign against Apple may be its deep databases that mine consumer purchases to spot buying patterns and make more accurate recommendations. This trove of information may give it a leg up in developing a service that suggests music to users.

"When we start talking about search and recommendation tools, Amazon has an awfully vast amount of information that can make them dangerous," said Mike McGuire, a Gartner analyst.

But Amazon MP3 faces formidable challenges in its effort to rival iTunes. The DRM issue doesn't weaken Apple's ability to use software to tie together its downloading service with a broader range of music than Amazon is offering and, most important, with the sleek iPod on which tracks from iTunes are played.

"Apple retains a key advantage because it offers an attractively designed product and the software that lets users seamlessly transfer music from the Internet to the computer and from the computer to the iPod," says Susan Kevorkian, an IDC analyst.

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In April, Apple announced that it had sold more than 100 million iPods. Earlier this month, the company refreshed its device lineup, adding new video features, wireless downloading and touch-screen sensitivity for scrolling through music collections and selecting tracks with a finger.

Microsoft's Zune and SanDisk's Sansa have yet to challenge to the iPod's lead.

What's more, the company has also sold more than a million iPhones, which offer the same features as the new iPod touch.

The availability of DRM-free songs on rival services hasn't dented Apple's lead in digital music sales. In July, iTunes showcased its unrivaled status atop the online music world by announcing that it had sold more than 3 billion music tracks.

In fact, market tracker NPD Group says iTunes now ranks third among music retailers of any kind, edging past Amazon and

Target

(TGT) - Get Report

.

Only

Wal-Mart

(WMT) - Get Report

and

Best Buy

(BBY) - Get Report

sell more music.

Apple lets iTunes users store and listen to songs on up to five devices, including iPods, computers and discs for backup. But the only portable music device on which users can play back songs is the iPod. Acknowledging that this could become a factor in consumer purchases, Apple began selling DRM-free songs from the recording label

EMI

in April. These songs are available for $1.29.

EMI is one of the four major recording labels whose songs are available on iTunes. Including the other labels, iTunes offers a total of 6 million songs, vs. 2 million for Amazon MP3.

Amazon shares were recently trading up 10 cents to $92.69.

Apple shares were up $1.20, or 0.8%, to $149.48, having earlier set a 52-week intraday high.