Apple Forcing Users into iTunes Upgrade

An Apple spokesperson said that less than 5 percent of all iTunes customers are using the old iTunes 4.2 version, so asking them to upgrade to the free iTunes 4.7 is "no big deal."

ITunes 4.7 is a free download and includes innovative features such as iMix, Party Shuffle, CD Insert Printing, and support for the entire line of iPods including the new iPod Photo.

The update disables an add-on program that allowed iPod users to transfer songs from their players. Other third-party programs -- none sanctioned by Apple -- are available that do the same thing, but they add an additional step or two in the process.

It's not the first time that Apple has used an upgrade to disable a feature -- 4.0.1 ended Internet-based play list sharing in 2003.

Discouraging Piracy

According to Michael Gartenberg, Research Director at Jupiter Research, "Apple is trying to discourage casual piracy, to make it more difficult for the average user to be tempted. It would be easy for people to swap iPods for an evening and exchange entire music collections."

ITunes remains the online music leader with a 70 percent marker share and over 150 million songs purchased and downloaded. But it faces increasing competition, most recently from RealNetworks (Nasdaq: RNWK) ' Rhapsody music service.

Rhapsody, like Napster, charges users a monthly fee for unlimited streaming, plus an additional charge for every song purchase. It also allows users to play music purchased from its site on an MP3 player of their choice, including the iPod -- something Gartenberg said is more of a perceived benefit than a real one.

"A user might be handcuffed, but the handcuffs are made of paper. It's fairly simple to burn songs to a CD, then rip them back and convert them," he said, thus enabling songs to play on a particular device.

iPod Rules

Gartenberg said Apple's continued dominance of the market has more to do with the iPod than anything else.

"Apple realized that online sales needed to be linked to off-line devices. The iPod has about 90 percent of the hard drive player market now, and that's the market of the future. As a rule, consumers take the path of least resistance, so the audio device you have drives which store you use," he said.

In its race to compete with Apple for online music sales, Microsoft (Nasdaq: MSFT) today launched its MSN music download service in eight new European countries; Apple made iTunes available last week in nine new European countries. Microsoft is counting on the success of its online music store to make the Windows Media Player the dominant playback technology.

In the end, though, it may be a battle for a relatively small piece of turf. "It's a nascent market, explained Gartenberg. "CDs are not going away in the near future. With a CD, you get unprotected music, recorded at the highest quality, liner notes, cover art, and a jewel case. The real value proposition for online music is for someone who just wants a couple of songs, rather than an entire album."