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Apple needs to make a decision. Actually, they've probably already decided... and we'll have to see which way they decided to go. But, it comes down to how the online Music scene is becoming divided...

The Formats

MP3 - The audio format that popularized audio on the desktop. The original Napster allowed millions to trade these files and build up huge libraries of music. MP3, however, does not support Digital Rights Managment (DRM), and is therefore not an attractive option to Record Labels. The format is still popular enough that all portable audio players support it.

AAC - Part of the MPEG4 spec, this is an "open" specification (which means anyone can license it... for a fee). Digital Rights Management was incorporated into this format, and Apple uses this "Protected AAC" (aka "Fair Play") format for their iTunes Music Store. Apple is the only vendor that seems to be pushing this format at this time. The iPod is the only portable player that supports this format.

WMA - Windows Media Audio. Currently controlled by Microsoft (though, they are working to turn their video format into an "open" format). BuyMusic.com, Listen.com (for now), and MusicMatch.com all support this format, exclusively.

The Decision

In simple terms, Apple needs to decide whether or not they want to become the #1 Music Store, or the #1 Portable Audio Player.

#1 Music Store Scenario

Keep the iPod as is -- with no WMA support. Apple's iTunes store continues to offer Protected AAC as their music format.

Apple will release the iTunes Music Store for Windows, and leverage its Brand Recognition and popularity of the iPod to win over customers. Customers won't actually want or be able to buy from other 3rd party music providers (BuyMusic, MusicMatch etc...) because they won't be able to play those songs on their iPod.

If Apple's iPod is a strong enough incentive, people may choose to stay with it, and as a result, become tied to the Apple Music Store, driving more music sales.

#1 Portable Audio Player Scenario

Presently, Windows iPod users are presumably using MP3s they've previously acquired or encoding their own and using them on their iPod. If Apple were to incorporate the WMA format into the iPod player, then existing iPod owners would feel free to explore the other Music download options. They would not be tied down to one player or music store.

While this might cut into the Apple online music store's revenue... it would, theoretically, open the iPod's potential market even further -- supporting those users who already have a large WMA library or plan on purchasing through the other music download vendors.

This could become a larger issue as more people start investing in WMA audio from other (non-Apple) services.

Thoughts

Now, there are certainly more options available... Apple could change the rules in other ways, but this decision (AAC vs WMA) is what's going through many people's minds now that other Music vendors are starting to reveal their (WMA-based) online music stores. It's clearly becoming an us (AAC) vs. them (WMA) market.

Apple has stated that the ultimate reasoning for a Windows iTunes Music Store is to convince people to buy iPods and ultimately, Macs. As a result, you might think that Apple would be interested in making the iPod as appealing as possible for potential customers... but time will tell...

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