American Technology Research analyst Shaw Wu has admitted he “overestimated the uptake of Windows Media in digital music”.

“We had thought that Windows Media and its PlaysForSure DRM could emerge as a legitimate number two player,” he wrote in a research note sent to clients.

He added: “We believe AAPL's (Apple’s) key fundamental competitive advantage is its tightly integrated stack of homegrown hardware, software, and service and large installed base (42 mm iPods).”

Discussing reports that Microsoft is looking into developing its own MP3 player, Wu adds: “It would compete with its partners and customers. Moreover, we believe development of such a product would take a few quarters and it remains to be seen if it would succeed in the market.”