a) In Microsoft's 2010 fiscal year (which has ended), its Entertainment and Devices Division (which includes the Xbox 360) generated $8.5 billion in revenues and just $679 million in operating income. Considering Microsoft's consolidated operating income in 2010 was $24 billion, this $679 million only accounts for about 3% of Microsoft's profits. And in any event the Xbox 360, the PS3, and the Wii may be irrelevant given the emergence of connected televisions, thin devices, and cloud-based gaming.
b) I am moderately pessimistic about Microsoft's prospects with its Windows Phone 7 OS. There are definitely some promising signs, such as WP7’s distinctive and innovative user interface and Microsoft’s extensive partnerships with smartphone OEMs, application developers, and carriers. But there are also some definite warning signs: WP7 isn’t market ready, and it’s already mid-October; Microsoft is making it difficult for developers to convert existing iOS and Android applications over to WP7; Microsoft’s brand is weak with consumers and the developer community, especially in the smartphone market; and WP7 comes with a price tag, while the competition is free, at least on a variable cost basis. There’s also the fundamental issue of competition, which includes several ambitious and innovative companies, especially Google and Apple, that have established platforms and abundant application markets. Here are some more thoughts on WP7: http://www.fernstrategy.com/2010/10/13/the-windows-phone-7-c....
c) Bing has made some inroads in search, but laregely at the expense of Yahoo. For the year, I don't believe Bing has gained at all on Google. There are powerful network effects and learning curves in search, and tremendous scale economies. It will be very difficult for Bing to grow its share in search, much less overtake Google, unless Bing releases a game changing protectable innovation, or Google makes some kind of fatal mistake.