Leader: Is Tesco off its trolley to compete with iTunes?

Or should Apple be looking over its shoulder?

When it comes to online music, Apple still appears to have the lead but is seeing ever more competition - particularly in Europe.

Today Tesco announced plans to launch an online music store - and, like so many new entrants to the sector, is hoping it will be a serious contender to the dominance of Apple's iTunes Music Store.

Already one of the largest music sellers in the UK, Tesco sees the move online as a natural next step for its business.

One key feature: all songs will be available in the Windows Media Audio (WMA) format only - which, unsurprisingly, does not work with Apple's iPod.

Going into online music is shaping up to be a popular pastime. Just last week Microsoft launched its MSN music download service in 17 countries, including 13 in Western Europe.

Other online music competitors include everyone from Virgin and Sony to Coke and Oxfam.

Tesco is making the bet that, though Apple's iPod currently makes up at least half of the digital music players sold, the Cupertino company won't always have the lead.

Apple is hardly sitting still. Two weeks ago it launched iTunes Music Stories in nine new European countries, bringing its total presence to 13 countries.

But since the launch of the original US iTunes store in 2003, it's not as though it's been innovating a great deal, either.

Price has yet to become a serious competitor factor but could - iTunes and Tesco are both charging 79p per song and even MSN has replicated Jobs' European pricing by charging 99 eurocents. Although all the members of the song seller club are sticking to their 79p guns, anyone starting a price war could find themselves gaining extra customers. When rival song seller Real slashed its prices, for instance, it found its downloads started going like the proverbial hot cakes.

However, it's even more likely musical selection could become the differentiator - who can offer more songs, exclusive or live tracks, or get new songs to consumers the quickest.

The 'cool' factor has worked and is still working in Apple's favour - for brand-aware teenagers, Apple defines technology cool. Buying music from Tesco and wearing non-white earphones simply is not. That said, silver surfers don't much care about cool - a familiar retailer will mean more to them than keeping up with the crowd.

So far Apple's strength is in the superior form factor of its iPod players and their easy integration with the iTunes store.

But hardware designs are as easy to ape as business models - which Tesco may well be doing with its plan to make money off sales of hardware players as opposed to the tunes, just like Apple's done with iTunes.

Our advice to Apple: don't get complacent. The iPod's models are showing the Apple designers can come up with fun stuff but iTunes has yet to compare in terms of taking the market somewhere no one else has.

So, Cupertino, you may still have lots of fans and an edge on competitors but with Microsoft having a massive install base to play with (and being no stranger to strangling rivals out of cutthroat markets it comes late to) and Tesco owning a powerful retail brand, it's not inconceivable that before long you'll be looking at playing catch up yourself.