MARK COLVIN: Music lovers have been chasing the tail of an elusive technological beast over the last few decades. First they had to come to terms with the death of vinyl. There were Walkmans, and the eight-track tape player, among others, and then the triumph of the CD.

But even that now seems short-lived. CD sales have been plummeting, while the demand for digital music is through the roof. That music gets played on MP3 players, and the player that comprehensively dominates that market is the iPod.

Now comes Bill Gates' digital giant, Microsoft, with reported plans to prise the iPod out of its top slot

The pod wars, as we may have to learn to call them, could be fierce, because the market is worth hundreds of millions of dollars.

Conor Duffy reports.

(sound of Crazy)

CONOR DUFFY: That's the song Crazy by Gnarls Barkley. Its release earlier this year was a pivotal moment in the history of modern music.

It became the first song to reach the number one spot on the UK charts based on downloads alone. In other words, without selling a single CD.

And judging on the 2006 music sales figures that show a decline in CD sales and a 130 per cent increase in digital music, it won't be the last.

PHIL TRIPP: Consumers want to buy their music instantly. They want convenience, they want security, they want choice. And the thing is that CDs, there are far fewer of them being made, far fewer titles, far fewer artists available in stores.

CONOR DUFFY: That's music industry analyst Phil Tripp.

PHIL TRIPP: It is a dying format. But remember other formats will always come up. There's DVD now, which is big, but digital music is just a delivery system and it's not going to mean the death of CDs, but there will be a decline. Every format lasts for about 20 years, generally.

CONOR DUFFY: Certainly in electronic stores that once got by on portable cassette players, iPods are all the rage.

ANDREW BYRNE: Hi I was after an Apple iPod Nano. I want the two gigabyte one.

SALES ASSISTANT: Two gigabytes. How many song you after?

ANDREW BYRNE: Um, I'm not too sure probably about 1,000.

CONOR DUFFY: Andrew Byrne is purchasing an iPod for a friend. It's a market where the cool factor and a slick advertising pitch make all the difference.

ANDREW BYRNE: I've heard iPods aren't as good as other ones. They're meant to break easier.

CONOR DUFFY: So why are you still getting it?

ANDREW BYRNE: 'Cause iPods are apparently more fashionable than the others ones, but they're still not as good anyway.

CONOR DUFFY: Phil Tripp says Apple's iPod is streets ahead of its competitors in the race for dominance in the new market.

He says one is sold every four seconds, and the players now make up 70 per cent of all music downloads.

PHIL TRIPP: It's kinda like McDonalds in the beginning. Nobody really cared when they said one million hamburgers served, and then it was two, and then four and then six. You know, when it got to the number of billions and billions and everybody goes yeah, McDonalds is pretty ubiquitous.

iTunes is global, iTunes is easy, iTunes is a trusted brand. And it works. And it's the only thing that really works with iPods unless you want to dicker around with technology a bit.

CONOR DUFFY: It's big business, and from all reports Apple are soon to face a challenge from a computer company that knows all about dominance.

Microsoft are reported to be devising a player of their own.

Phil Tripp, though, says the software giant won't have it all its own way.

PHIL TRIPP: Microsoft has always marketed hard and they have a dominant software that's worked. But what Apple has done is taken hardware, software and a cool factor which Microsoft has never had, and put it into the market way ahead of anybody else. It may be a battle, but it'll be an uphill battle.

CONOR DUFFY: Andrew Byrne though says Microsoft may be able to challenge that dominance. He's predicting a marketing blitz.

ANDREW BYRNE: There's probably room for two popular MP3 players. I think there could be a challenge but, I mean it could end up being like Coke and Pepsi, where there's two major things and then everybody else is just nothing.

MARK COLVIN: Andrew Byrne ending that report from Conor Duffy.

www.abc.net.au/pm/content/2006/s1680773.htm