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Of course, that could be a marketing model, songs could become the great freebie giveaways to promote other products, and iTunes, etc. could just be in the coupon redemption business as their primary business model.

iTunes is a loss-leader that it gets people to buy more iPods, which is a high-margin product. Given that the iPod has roughly 30% of the mp3 player market, I'd say it is working.

My personal favorite spot to buy music online is www.allofmp3.com , which lets you chose the bitrate & encoding method for your music - you can get it in mp3, aac, wma, ogg vorbis, ect. And it is cheap too - only a penny a megabyte. Of course, the site is based in Russia, and is cheap due to some quirks of Russian copyright law, but from the research I have done it seems to be legal for US citizens to buy music from them.

iTunes is a loss-leader that it gets people to buy more iPods, which is a high-margin product. Given that the iPod has roughly 30% of the mp3 player market, I'd say it is working.

That might not be as smart an idea as it seems. When I got my freebie iTunes from the Pepsi promotion (my family drinks a LOT of Diet Pepsi) I immediately ran Total Recorder while playing the songs on the iTunes application. I could save them as MP3's, and transfer them all over the house on my wireless network. I never bought, and never will buy an iPod, and there are millions like me.

As soon as others figure this out, iTunes becomes a loss, not a loss leader. Online music sales have to make sense from a profit standpoint if that delivery method is to become viable. I just don't see it happening with technology always one step (or more) ahead.