WSJ.com - Amazon Plans Music Service To Rival iTunes

Amazon will have to partner for the device and the device will have to compare well with the iPod - tough challenge.
Apple themselves haven't had as much success when they partnered for the Rokr.

Also, Apple's margins are primarily on the iPod - Amazon's bottomline will not benefit much purely from music sales. But this move could be to future-proof themselves if and when the world moves primarily to digital downloads and stop buying movies/books from Amazon.

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