The biggest competitor to traditional music sales is the digital music generation. Many users no longer want tons of CDs around their home or car; they want digital tracks where one small device like the iPod or iPhone can store the same amount of music as many CDs. The vision for digital music is that eventually consumers will buy the tracks wirelessly with phones.

According to Reuters, the device that has made the biggest impact on mobile music is the iPhone. Reuters says that only 6.7% of overall mobile phone users listen to music on their phones, 27.9% of smartphone users listen to music on their devices, and a whopping 74.1% of iPhone users listen to music on their devices.

Despite the high percentage of iPhone users that listen to music on their devices, the iPhone only holds a relatively small percentage of the smartphone market at 28% whereas the smartphone leader RIM with its BlackBerry devices holds 40% of the smartphone market. Overall, the iPhone only holds about 1% of the total mobile phone market—assuming Apple can ship its goal of 10 million iPhone’s this year.

Some analysts believe one of the factors that can turn mobile music around is the much rumored 3G iPhone. The 3G iPhone will give users the bandwidth needed to download and stream music on the go in most areas. One of the other turning points for mobile music according to analysts is the Verizon and Rhapsody service set to launch this year.

The service will allow Verizon and its 67 million subscribers across the country to exclusively access music via Rhapsody. What the mobile music industry is hoping for is that the tag team pair of the 3G iPhone and the Verizon/Rhapsody service will give the mobile music industry a double barrel blast and kick start the popularity of mobile music.

Digital track sales are skyrocketing at a pace that traditional music retailers simply can’t match. Apple’s iTunes music store was the top music retailer in America in February of 2008.