Apple is the biggest thing in music – bigger even than The Beatles. We discover how Apple became the music industry's best friend as well as its worst nightmare.

Back in November, Apple teased us with a special announcement. "Tomorrow is just another day," the Apple site said. "That you'll never forget."

The rumour mill instantly went into overdrive. New iPods? Streaming iTunes? When it turned out the announcement was The Beatles appearing in iTunes, you could hear the sighs echo around cyberspace.

How apple became bigger than the beatles

John Lennon famously said The Beatles were "bigger than Jesus". Apple, it seems, is even bigger than The Beatles. Apple dominates music. NPD Group reports that the iPod has 76% of the US MP3 player market – Microsoft's Zune and Zune HD account for just 1% – and that iTunes accounts for 28% of all music and 70% of all music downloads sold in America.

And yet 10 years ago, the world's biggest music retailer wasn't even in the music business.

The long, winding road

Apple didn't invent digital music, and it didn't popularise it. While Macs were – and are – a common sight in recording studios, digital downloads owe their success to two PC programs: Winamp and Napster.

Winamp and Napster both used MP3, the digital music format that crushed audio files into tiny sizes without dramatically affecting their sound quality. Developed by the Fraunhofer Institute in Germany in the 80s as part of the MPEG-2 standard, MP3 turned out to be the perfect format for digital music.

It's good enough to listen to, and small enough to download over dial-up modem connections… and Napster and Winamp were its perfect partners. You'd simply download music with Napster and then play it in Winamp.

How apple became bigger than the beatles

WINAMP: Napster and Winamp revolutionised music and paved the way for iTunes

Napster made it to the Mac in 2000, with clients such as Macster (later Napster for the Mac), MacStar and Rapster. Winamp didn't follow suit, but that was okay: the Mac had Panic Software's Audion and Casady & Greene's SoundJam MP.

That year, Steve Jobs saw which way the musical wind was blowing and decided the Mac needed a proper music player. He approached Panic, but it was already in negotiations with AOL, so Jobs made Robin Casady and Michael Greene an offer they couldn't refuse. SoundJam was retired in June 2001, but by then much of its DNA was in something else: iTunes.

Day ripper

Apple launched iTunes on 9 January, 2001, and the following month it announced iMacs and Cubes with CD burners. iTunes' big selling point was that it could do what the iMac ads described as "Rip. Mix. Burn." That is, turn CDs into MP3 files and create CDs from MP3s.

How apple became bigger than the beatles

Today it's widely accepted that burning CDs for personal use from music you already own is legal, but that wasn't the case in 2001.

The Recording Industry Association of America argued that burning CDs wasn't covered by 'fair use' in copyright law, and in the UK the British Phonographic Society (BPI) pointed out correctly that UK law didn't allow for fair-use copying at all.

With adverts actively encouraging people to rip music and make CDs, Apple should have become the industry's number-one enemy, but the major labels had bigger fish to fry. The entire mainstream US music industry, in the form of the RIAA, had already tried and failed to stop Diamond making its Rio MP3 player.

They couldn't stop the MP3 player, but they could stop Napster. In July 2001, Napster closed its doors permanently (today's Napster is 100% legal and shares only a name with the original). And then Apple announced the iPod.

The iPod wasn't the first MP3 player – that honour falls to Saehan's MPMan F10, which went on sale in 1998 with a then impressive 32MB of storage. Some would argue when the iPod launched, it wasn't the best.

In an echo of Decca Records' famous "guitar music is on the way out" dismissal of The Beatles, many Apple-watchers agreed with Slashdot's CmdrTaco: "No wireless. Less space than a [Creative] Nomad. Lame."

How apple became bigger than the beatles

SOUNDJAM MP: Apple acquired the rights to the much-loved Soundjam MP music player and turned it into iTunes, one of Apple's finest moves

Help!

He had a point. The iPod didn't sound as good as some other players (your correspondent reviewed the first iPod and found that Creative's Jukebox sounded better, although in my defence I did say "if Apple decides to support PC owners, it'll make a fortune") and it didn't have as many features.

So was its success a case of style over content, Apple hype and clever ads? "Come off it," Paul Brindley says. As co-founder of music consultancy MusicAlly, Head of Communications of the Music Publishers Association and former bassist with The Sundays, Brindley has been involved in digital music since the first MP3 downloads.

"While the iPod may not have sounded as great as some other players, it worked well, it had the fantastic innovation of the scroll wheel, the storage capacity was higher than most other players and it integrated nicely with iTunes," he says. "Yes, it had good advertising behind it too, but that's too simplistic an assertion."

The first iPod had 5GB of storage, which was enough for 1,000 songs. But where were you supposed to get the music from? The record industry maintained that ripping was illegal.

Five years after the iPod shipped, the RIAA was still arguing that moving music you'd bought legally to your own iPod was a crime – and when they launched their own download services, MusicNet and PressPlay, in 2002, the DRM-protected files were in Windows Media format, which wasn't iPod compatible.

Our recollection of the early download shops was of sky-high prices, confusing copy protection rules and a horrible user experience. Are we being unfair? "Your recollection is on the money," Mark Mulligan says.

The Vice President and Research Director of Consumer Product Strategy at Forrester Research has been monitoring the digital-music business since 2000, and recalls: "The first generation of download stores were simply not fit for purpose. They came at a time when the music industry had only just started to countenance that digital might be something more than an irritation that would eventually go away."

It wasn't completely bleak – sites such as eMusic offered DRM-free downloads from independent artists, and sites such as MP3.com offered free MP3s from unsigned bands and the occasional household name. But if you wanted to buy a Top-40 album and listen to it on your iPod, you couldn't. Or at least, you couldn't do it legally. Fortunately, things would soon change.

How apple became bigger than the beatles

TEN YEARS ON: Today's iPods are still setting the standard - and they're still dominating digital music