Apple has "won the first round of the digital music war" against Microsoft, an analyst told USA Today.

Though Microsoft dominates the desktop, with 90 per cent market share, Apple's deal with HP punches a hole in the Windows hegemony. With both companies offering incompatible file formats for digital music, consumers must decide which pony to back.

The deal with HP takes Apple's iPod into 110,000 retail outlets worldwide – it's currently available in 8,000. The deal also means Apple's iTunes software will ship pre-installed on HP consumer PCs from June.

HP is the world's leading PC supplier. It captured 28 per cent of the US home PC market and 17 per cent of the global home PC market in the third quarter 2003.

Despite the blow, Microsoft won't falter in its attempt to extend its desktop dominance into new digital industries. Microsoft's Windows Media division general manager David Fester says that more stores that use the company's media formats will appear. Fester also says the HP/Apple deal will confuse customers, because purchased tunes won't be in a Windows format.

Standards row

Universal Music's eLabs president Larry Kenswil told Macworld last week: "Microsoft is down on Apple's format because it's not Microsoft's format". Microsoft wants to be the industry dominant format, he agreed.

Despite the appearance of numerous online music sellers that support Windows Media, Apple still holds 70 per cent of the market – indicating that its open standard-based AAC format is emerging as the industry format, at the expense of Microsoft's proprietary, non-standard format.

The report carries a number of critical views on the HP/Apple deal – but these come from Apple's lacklustre competitors in the space, including former Windows software partner MusicMatch, MusicNow, and others.

Others beg to differ. In a note to clients seen by Macworld, Needham & Co analyst Charles Wolf applauds Apple's decision to release iTunes and iPods for Windows: "In our opinion, Apple's decision to port iTunes to the Windows platform was the most strategically significant one the company made since Steve Jobs' return in 1997. It signalled that Apple would no longer confine its award-winning software to the Mac but instead leverage it to address a market where 95 per cent of consumers use Windows PCs." Apple's Music Store sales tripled after the iTunes for Windows launch.

Wolf added: "Consumers have been indifferent to the wide range of stores and players that use Microsoft's Windows Media format. They regard these stores and players as inherently inferior" to the Apple equivalents, he says.

The stakes are high: Forrester Research says online digital downloads will increase from $256 million this year to $2.1 billion in 2007.