iTunes hits 200 million download mark

It took the company 11 months to sell its first 50 million songs and then another four months to get to 100 million songs. Three months later, the company hit 150 million, and it took just two months to get to 200 million.

"I like the trend," Eddy Cue, Apple's vice president of applications, said in an interview.

Apple has not only kept its sales growing, but it has maintained a commanding share of the online sales market, despite stepped-up competition from stores using Microsoft's Windows Media file format. The company also faces an uphill battle to convert those still using free file-swapping services such as Kazaa.

"We're still competing with piracy," Cue said.

To keep the store growing, Apple is moving in several directions, including its deal with Motorola to create a cell phone in the first half of next year that can play iTunes music.

"The idea behind this is to bring it to a mainstream set of folks buying phones today," Cue said. "We think having them play songs on their phone could be the first step to them getting an iPod."

Cue declined to say when the phone would launch, but said, "We are actively working on the device; we are very pleased with the results so far."

In large part, though, it is the torrid pace of iPod sales that has fueled the growth of Apple's online store.

"It's obviously a big factor," Cue said. "The primary reason people buy iPods is certainly to convert their CD libraries. Once you've done that it's just one click away to go to the music store."

Apple is working to make it even easier to buy songs--both with its recent deal to allow customers to pay with PayPal and with an expansion of the sale of prepaid gift cards. Apple has long offered gift certificates that can be bought online, but until recently the only place to buy physical gift cards was Target.

In recent weeks, Apple also started selling the cards at Best Buy, Circuit City, CompUSA, RadioShack and even 7-Eleven.

"What we are finding is there are just lots of customers buying those for gifts," Cue said.

Some places, such as Costco, are bundling an iTunes card with an iPod in a package deal.

The company has rapidly expanded internationally, adding stores throughout Europe and in Canada. Cue said Apple has grown its server capacity significantly to handle the added business, but the growth has largely been invisible to customers.

"The great thing is from a customer point, the answer is no--they haven't seen any growth pains," Cue said.

The store is growing, both in its number of songs and as a platform for record labels to launch and promote new music. Some deals, like Apple's pact with U2 have been high profile. Others, have been less noticed. For example, Apple expanded its free song of the week to include a main free song as well as additional free tracks for particular genres.

"Obviously, the ability of getting customers to as many tracks as possible is a key to success," Cue said.