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Amazon's Secret Weapon In Digital Music War With Goliath iTunes

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NEW YORK (Fortune) -- It was easy to scoff two years ago when word leaked out that Amazon was launching its own digital music service. The Seattle-based online retailer wasn't just mulling an iTunes-like download store - it was supposedly drawing up plans for a branded iPod-like device.

But Amazon CEO Jeff Bezos had a much better plan for a digital music offering than his naysayers realized. Ten months after its debut, Amazon (AMZN, Fortune 500) has overtaken competitors like Wal-Mart (WMT, Fortune 500) and RealNetworks' (RNWK) Rhapsody to become the second biggest online store after iTunes, according to market research firm NPD. Now two music industry sources tell Fortune that Amazon is talking to MySpace (NWS, Fortune 500) about becoming the social networking giant's download store partner when it rolls out its highly anticipated joint venture with Universal, Warner Music and SonyBMG in September.

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