Apple doesnit see Napster or Yahoo! as its biggest competitor in the music download market. That distinction goes instead to the P2P (peer to peer) file sharing networks that trade music illegally. Apple is hoping it can bring the file swappers back into the fold with fair prices.

Eddie Cue, iTunes vice president, told ZDNet Australia "Our view is that our biggest competitor is illegal music and P2P services. We always thought that if we offered a better alternative then those customers would be happy to pay."

Appleis iTunes does offer a friendlier interface thatis easy to use, unlike some P2P file swapping applications that are cumbersome for new users. Combine that with the iTunes Music Store pricing structure where all songs cost the same, and a simple licensing scheme, and Apple is off to a good start. So far, the company has sold over 600 million songs world wide.

Of course, "free" is a hard price to beat, and thatis the allure of the P2P networks.

As consumers shift from purchasing music on CDs to digital downloads, the battle may get tougher. Apple is taking on the challenge by expanding the iTunes Music Store into more countries, Australia being the most recent.

Mr. Cue feels that future music buyers will see their purchases only as "digital bandwidth," instead of CDs. That means Appleis biggest challenge will be convincing P2P music swappers of the value of purchasing music online.