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Apple sold three million downloads in the first month after the April launch of its iTunes Music Store. When you consider the service is only available to US citizens running Mac OS X 10.2, who have access to broadband and who are interested in the choice of 200,000-odd tracks available from major labels only, it is an astonishing achievement.

There's no question that downloading music is popular. Kazaa, the king of peer-to-peer music-sharing programs, was last month announced as the world's most downloaded software by its maker Sharman Networks. On CNET's Download.com alone, more than 230 million copies were downloaded and Kazaa Media Desktop has been the most popular application on the Download.com charts for 55 consecutive weeks.

The trouble for the record companies is that Kazaa lets people download music for free. So the significance of Apple's 99-per-track service can't be underestimated. While some reports have suggested that the 3 million download figure quoted by Apple may have been misleading, there is no denying the probability that, when iTunes Music Store is expanded to Windows and to territories outside the US, the

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money could really roll in. US Financial publication Barrons believes the expanded service could be worth $500m a year to Apple alone.

At a time when the global record industry is in severe decline, Apple's breakthrough is attracting the attention of rivals, including Microsoft. When it launched Windows Media Player 9 at the start of this year, Microsoft looked set to sew up the music download business. Apple was regarded as being a pariah to a music industry still enraged by Apple's 'Rip. Mix. Burn.' campaign.

The subscription model for music downloads has proven unattractive to consumers in the past. Where Apple CEO Steve Jobs has scored a big success is in persuading the music industry to let people do what they want with their downloads. However, it is becoming clear the whole thing was originally regarded as a market testing operation by the big five record companies.

Apple will face ruthless competition from Microsoft-backed rivals when it tries to expand the service to Windows. Indeed, Microsoft has come to a agreement with AOL Time Warner that has mainly been regarded as an accord on instant messaging and Web browsers, but also threatens a core component of Apple's music service. AOL has agreed to license Microsoft's Windows Media 9 technology and to support it as the main format for the distribution of music and video over the Internet. This threatens to undermine AOL's earlier decision to support the AAC audio format (part of the MPEG-4 standard), the same as Apple uses for music downloads.

Ultimately, the biggest threat to iTunes Music Store could be the marginalisation of AAC as Microsoft attempts to steamroller its own Windows Media format into the position as the successor to MP3.