by , 8:50 AM EDT, July 28th, 2004

Merrill Lynch analyst Steven Milunovich told clients Tuesday he believes the recently announced alliance between Apple and Motorola could turn Apple into the "Microsoft of music" and make the iPod the "defacto standard in digital music."

Mr. Milunovich said the Motorola alliance is a "net positive for the iPod"

"Although we expect Motorola music phones to have 0.5GB of memory for songs by the end of the year, this is a different market from the 4GB iPod mini or 20 and 40GB fourth-generation iPods," he said. "Getting users to try iTunes on their cell phone introduces them to portable music the Apple way."

iPods are the leading portable music player, iTunes is the leading online music seller, and it appears Apple understands it has to work with others to dominate the space. Apple could become the Microsoft of music."

Mr. Milunovich also wrote that the effect of RealNetworks' new Harmony software to allow its music to be played on the iPod is still uncertain and could result in legal action by Apple

"Real could boost demand for the iPod but reduce music store sales," Mr. Milunovich said, adding that he's waiting to see if Apple will sue RealNetworks.