In a move that will place Yahoo in head to head competition with Apple's iTunes music service, Yahoo is poised to launch a new digital store and music player. Yahoo and digital-music wholesaler MusicNet have been working together on the project. Sources familiar with the project said the service was set to debut this week, but has been pushed back.

The new MusicNet-powered music service will be integrated into Yahoo's existing infrastructure, possibly including features such as links to its popular instant-messaging program, sources said. MusicNet's technology allows companies to offer subscription services or per-song downloads, and is used by Virgin Digital, America Online and others.

Yahoo has a solid customer base using its streaming-music and video service. The company may be able to take that following and upset a market that Apple has dominated since its entry into e-music. Launchcast, Yahoo's radio service, was the highest-rated Web casting service online in January, according to ratings firm Arbitron and ComScore Media Metrix, attracting more than 2.2 million people that month.

Others giants like Sony and Microsoft have set up similar services but have been unable to put a big dent in iPod's market share. Last week, Apple said it had sold more than 300 million songs through its iTunes store since its launch.

"You have to look at how to create a linkage between a device and the online service," GartnerG2 analyst Mike McGuire said. "But given Yahoo's traffic and their very active communities, the potential (for success) is there."

Yahoo has begun to streamline its music and multimedia properties over the past few months, changing the name of its Launch site to Yahoo Music and consolidating its entertainment businesses to Santa Monica, CA, near Hollywood.