iPod is the Apple of HP's eye

The Thing Is: Apple iPod

Last week Steve Job's Apple Computer scored an important coup in its battle with Microsoft to control digital music, with the adoption by Hewlett-Packard - the world's second-biggest PC-maker - of its iPod and iTunes music player and software.

HP will resell under its own name a version of the iPod (coloured blue rather than white) and install Apple's iTunes software on its laptop and desktop PCs, said Carly Fiorina, HP's chief executive. She told the Consumer Electronics Show in Las Vegas that "HP has the scope and the scale and the supply chain to mass-market to a wider audience than [the iPod] has ever seen before." She added: "We think it's a good deal for everyone - for HP, for Apple and for consumers."

But not for Microsoft. HP's move marks a break in a significant area from the software giant, which provides the Windows operating system for HP's PCs. Apple develops and uses its own software and has between 3 per cent and 5 per cent of the PC market.

"The worlds of the PC and consumer electronics industry are combining, and digital music is becoming a key service," said Gary Johnson, the chief executive of PortalPlayer, a hardware design company in Santa Clara, California, which contributed to the iPod design.

At present, Windows PCs come with Microsoft's Media Player software, which digitises music using the proprietary Windows Media Audio (WMA) format. Apple's iTunes, which was only released for Windows machines last October, uses a different digitisation system, called "AAC", developed by Dolby. Crucially, neither player can play songs stored in the other format. Analysts had forecast that Apple's format would lose out to Microsoft because of the sheer volume of Windows PCs.

But they reckoned without the runaway success of the iPod, the top-selling digital music player, and of Apple's online iTunes Music Store, which sells tracks encoded in AAC format for 99 cents (54p) each.

Since the iPod's launch two years ago Apple has sold two million of them - including 730,000 in the past three months. The online music store, launched in April for Apple users and in October for Windows users, has sold more than 25 million songs, giving it a 70 per cent share of the legal download market in the US, which dwarfs the rest of the world. "It feels good to be above that 5 per cent share, doesn't it?" Steve Jobs, Apple's chief executive, joked with an audience of fans on Tuesday as he announced the independently audited figures. The rest of the market is split among dozens of companies offering songs in WMA format.

David Fester, general manager of Microsoft's Windows digital media division, was unimpressed - and suggested that iTunes' emerging dominance would be bad for consumers, because it would limit them to the iPod. "Windows is about choice - you can mix and match all of this [encoding software and music player] stuff," he said. "We believe you should have the same choice when it comes to music services."