Apple has sold more than 3 million iPods, earning nearly 50 percent of the market for digital music players, and its iTunes online music store claims 70 percent of all songs bought online. But can the company remain the market favorite considering its history as the underdog in the PC market and bearing in mind pressure from Microsoft and other companies who want to close in on Apple's lead in the digital music player market?

It won't be easy for Apple to continue its domination of the digital music player market. Microsoft on Monday unveiled a new version of its digital-rights-management (DRM) software for music and movies. The software, Microsoft said, will let subscription-based or on-demand digital music and videos play on portable audio devices and personal digital assistants. And, as Microsoft closes in on the market, other companies add to the competition—some players cost just $49 and use Flash memory instead of hard disk drives like Apple's iPods.

Analysts say that in order to stay ahead, Apple must keep up with what it does best: innovation. Apple also has and find a way to compete against companies that sell cheaper music players and keep expanding the number of tracks available on its music store, analysts say. The company now has more than 700,000 tracks for sale online.