This Dell service, however, is going to HAVE to be a tightly-closed DRM-drentched system that CALLs itself 'open' and 'full of choices' when really it's anything but. It will have to be, based on the way they're describing it.
Why?
I really do not expect Dell to approach this from a heavily-DRM'd standpoint, especially with all the negative wrap Windows-based DRM systems have been taking the past twelve months as they shut down left and right and leave users with content they can't move, but have to abandon in place and re-purchase.
iTunes started with DRM about the yazoo because music labels were absolutely positive that only one person in the entire world would buy a song from iTunes and then share it with every other person on the planet. They were, of course, wrong, but that was their mindset and it's still somewhat entrenched in them now.
Apple wants songs on iTunes to not have DRM and to be as cheap as possible so people will buy lots of them and need 16GB iPhones, 32GB iPod Touches and 160GB iPod Classics to hold them all. The music studios are starting to let go of their "all consumers are pirates" mentality, but they still want more money for their content then Apple wants to charge because the more expensive the content is, the less you'll have and the less need there is to get the latest, larger capacity iPod to hold it.
I would expect Dell would be more then willing to charge more ($1.49 a song?) and offer only DRM-free content. The labels want more money per sale and if Dell is willing to give it to them, they're going to be more receptive in servicing Dell's store with content.
This would in turn put pressure on Apple to move their entire iTunes music catalog to DRM-free as opposed to the more limited "iTunes Plus" catalog they have now. Also, Dell offering their DRM-free content in MP3 vs. WMA or some other standard that is not as widely adopted would be an even larger sales point.
And while they don't need to be as elegant as the iPod, if they're cheaper, that will help. Zune failed because it launched at identical price points to their iPod equivalents. If the Zune 80GB was $199 (or even $149) vs. $249 for the iPod 80GB, it likely would have fared much better in the marketplace. No, it would likely not have taken a huge dent out of iPods sales (see below), but it would not have been the abject failure it has been so far.
Dell won't be demanding 100%+ margins on their media players like Apple does. They could undercut the iPod significantly on price, plus bundle it with their media player and DRM-free catalog - fully backed by the labels - to offer their own "end to end" solution.
Will it kill iPod/iTunes? I very much doubt it. Many buy the iPod as a fashion statement as much as for it's abilities and that won't change just because Dell has a cheaper offering.
But it could be the first real and lasting competitor to Apple's dominance of legal digital music delivery.
