mjfern

Good points. It's hard to say what specific factors are driving the substantial influx in capital. However, I agree with the comment about investment alternatives. Where else can you invest today and expect a significant return? On this point, there might be a bit of resulting froth in the angel and venture capital markets, but I don't think this reflects an industry-wide bubble as what we witnessed in 2000.

Take Facebook as an example. Is Facebook worth $50b, per the recent Goldman Sachs investment? It's possibly worth much more, if we assume that Facebook is the winner-take-all in a network market (social networking). Are there significant uncertainties related to Facebook's revenue model and the company's ability to fend off substitution threats? Yes. But this is consistent with the risk/reward profile that comes with an equity investment in a privately held, high-growth tech company.

Thanks Danilo! I appreciate the kind words.

There has been increasing commentary lately about a "current startup bubble." Aside from Qwiki, people have pointed to the valuation of Facebook, Zynga, Groupon, and others. An important question is, do recent valuations indicate a second industry-wide Internet bubble, much like the bubble and subsequent crash in 2000? Or is something else more fundamental going on?

A look at the progression of other infrastructural technologies is useful. Consider the history of electricity. Paul David, an economic historian at Stanford, noted that it took many decades for business and society to reap tangible benefits from electricity. While important technologies were introduced throughout the 1800s (e.g., electric motors, light bulbs, generation stations), David suggests that an observer in 1900 would have found scant evidence that electricity was having an impact on business efficiency. To take advantage of electricity required not only the introduction of new technologies, but also a deepening of our understanding and in turn a transformation of business and social processes. For instance, manufacturing facilities, which were originally designed for steam power, needed to be significantly reconfigured.

Although David’s discussion was focused on the lag in productivity improvements resulting from electricity, it provides some useful insights about the state of the Internet and its commercialization. While the first computers emerged in the 1940s, and the Internet was born in the 1960s, it wasn’t until much later that computing and the Internet were widely adopted by business and consumers. For instance, it wasn’t until the early 1990s that the Internet transitioned from a government/ academic project to a commercially available system, and the Internet wasn’t broadly available to consumers until the mid-1990s.

In a mere five years from the commercial emergence of the Internet, we faced the first Internet bubble and bust in 2000. Looking back at history, it’s no surprise that the first wave of applications generally performed disappointingly, both technically and commercially. Broadband connectivity, the Internet backbone, and critical software and hardware standards were still in the early stages of development. Along with an emerging infrastructure, there was a limited understanding of the potential of the Internet among entrepreneurs, established companies, and broader society.

Now that we’ve had 10 more years to develop core infrastructure and to deepen our understanding of the Internet (and computing) from a technical and commercial standpoint, we are witnessing the emergence of a new crop of high-growth companies. Distinct from many of the Internet companies that arose in the late 1990s, a greater percentage of today’s companies receiving venture funding are both technically and commercially viable. Many deliver real customer value and have a tenable revenue model. In addition, to companies such as Facebook, Groupon, and Zynga, there are a myriad of smaller successful ventures, such as Pandora, Dropbox, and Airbnb.

To conclude, the 2000 bubble arose just a few years after the commercialization of the Internet. There was excitement about the potential of the Internet, but the supporting infrastructure and our knowledge was in its relative infancy. A decade later, we have made significant progress on both fronts. The latest new ventures incorporate technologies and business models that reflect significant infrastructure improvements and our maturing knowledge-base. Are select companies overvalued? It’s possible. Does this overvaluation reflect an industry-wide bubble? I don’t think so. In fact, I think we are at the early stages of a multi-decade transformation, catalyzed by computing and the Internet, and we will continue to see significant opportunity and new venture growth in this space. We are moving toward ubiquitous computing and connectivity, where technology pervades our business and personal lives. Personally, I look forward to participating in this exciting and dynamic future!

Hollywood is being shortsighted about online content distribution.

Consider what happened in online music distribution. The music companies were very resistant in making their content available online, until Napster and others began chipping away at their revenue. Then the music companies aligned with Apple and iTunes. At first, iTunes looked like the answer to the industry's problems, providing a regulated online distribution channel for music (DRM and all). But over time, as iTunes gained market share, Apple gained extraordinary industry power. Now Apple captures much of the value in the music industry, not in the form of music sales but with hardware sales (iPod, iPhone, etc). And even though the music companies have tried to boost the market share of competing distributers (e.g., Amazon) to reduce Apple's industry power, Apple's strength is still largely intact.

I think Hollywood can learn something here. Despite resistance, we know that video content distribution is moving online. It's just a matter of time. If Hollywood is dragged kicking and screaming into online distribution by Netflix, then so be it. But Hollywood must know that if they enter online distribution hesitantly and with just a single partner, then overtime Netflix will gain significant market power and the tables in any negotiations will be turned. It won't be Netflix paying high prices to obtain any licensed content. It will be the content producers begging to get onto Netflix to distribute (and showcase) their content to viewers.

I think the best thing that Hollywood can do at this stage is to embrace online distribution and create a competitive marketplace. This will not only enable Hollywood to retain its industry power, but also increase the availability of content for viewers. Will it increase Hollywood's revenues and profits relative to their historic highs? I doubt it. But at least it won't lead to a dramatic decline in revenues and profits, as what we've seen in music sales. Your thoughts?

Questions as in doubt, hesitation, concern: http://thesaurus.com/browse/questions

I am hopeful that Kinect is a successful product for Microsoft, but I have some questions.

The Nintendo Wii found success in the market, not solely because of its simple, easy to use controls. In addition to the innovative Wii UI, Nintendo launched a variety of family oriented games that took advantage of the Wii controllers, it had a brand and bevy of characters that it could leverage that resonated with families and kids (e.g., Mario), the Wii console was small and quiet, and the Wii was priced well below the competition.

For Kinect to succeed in the market, Microsoft must introduce a variety of complementary (and compelling) games, it needs to develop a collection of characters and stories that resonate with target customers of the Kinect, and it needs to carefully consider pricing, given that the price of the Xbox 360 plus Kinect (+ additional accessories) could overshoot the comfort level of a majority of consumers, especially in view of the economic recession.

Ultimately, the success of Kinect hinges not only on the Kinect hardware but also on Microsoft's ability to develop a coherent "Kinect strategy" that includes games, characters/stories, branding and marketing, pricing, and so forth. And a key issue is developing a "Kinect strategy" that does not alienate Xbox 360's most important customers, which at present are hardcore gamers. These are the gamers paying for Live and providing the Xbox 360 with the highest (game) attach rate among 7th generation consoles.

Great point 8ren, and perhaps this is a solution to the issue. A concern is that the mean-spirited comments are not always countered in a thoughtful manner, or in time before the post drops off the front page. That said, perhaps we can draw on your suggestion, and as a community be more vigilant in quickly responding to mean-sprited comments in a logical and dispassionate manner to counter their effect.

This post was not a reaction to a discussion that I was engaged in, so in fact there is no subtext and it's not personal. :-)

I'm highly supportive of thoughtful debate, but my impression is that some of the up-voted comments lately have crossed the line from debate to ridicule.

I would rather not single out any individuals/comments. In any event, it appears like a growing issue across the community, and is not isolated to just one or two people.

If mean-spirited comments are down-voted, then it's not much of an issue. The problem is that I've started seeing mean-spirited comments receiving up-votes, and rising to the top of discussions. How do we solve this as a community?

Apple's profitability with its iPhone business is partly a function of its vertical integration and its industry power. Consider that Apple controls the key inputs for the iPhone (e.g., the A4 system on a chip and iOS), owns important distribution channels (e.g., the Apple Stores), and exercises substantial power over complements (e.g., AT&T and apps via the App Store). In short, Apple creates substantial customer value with the iPhone, and due to its vertical integration and industry power is able to appropriate much of the value that is created (in the form of profits).

A second key reason for its profitability is Apple's low cost structure. With economies of scale and scope (consider that many components are shared across the iPod, iPhone, iPad, etc), learning curve advantages, relationships with key suppliers (Samsung) and contractors (Foxconn), and so on, Apple is able to drive down the unit costs of the iPhone and thus drive up its margins.

Mainframes were disrupted by midrange computers, and then midrange computers were disrupted by microcomputers (x86 PCs). This is not to say that mainframes and midrange computers vanished from the market, but the two technologies have been relegated to comparatively small niches. For instance, IBM now has about a 90% share of the mainframe market, but mainframe sales account for just a fraction of IBM's total revenues and profits. Broadly speaking, IBM sustained and grew its revenues and profits by expanding beyond mainframes; first to PCs, and then to services.

The issue for Microsoft is that PCs follow mainframes and midrange computers, and are disrupted by some next generation technology; the next generation technology appears to be a combination of thin devices and cloud services. PCs will persist, but could become a comparatively small niche market over time. As the PC market shrinks in size, the traditional Windows and Office products will yield declining revenues and profits for Microsoft. In order to sustain its revenues and profits over time, Microsoft will need to transition to the next technology (thin devices and cloud services) or to another set of markets (e.g., services). This is difficult, but feasible, as shown by the IBM example.

Good points. A question is how long Windows and Office will remain cash cows for Microsoft?

1. One future state is that most people transition from desktop computers to smartphones, tablets, etc. We then dock these devices for doing intensive work.

2. Another possibility is that we have smartphones and tablets, but transition from desktops and laptops to thinner laptops (e.g., netbooks, new Macbook Air, etc).

The issue for Microsoft and others is then - what operating system and office software becomes the standard in this future computing environment: Windows and Office, Android/Chrome and Google Docs, Apple's iOS and iWork, or some other solution (e.g., OpenOffice)?

Despite today's news about Microsoft's record Q1 revenue, I'm concerned about the company's long-term prospects in computing.

Looking at Microsoft’s recent annual report, filed on June 30, 2010, Microsoft generated 83% of its revenues and 98% of its profits from the following three divisions: Windows & Windows Live, Microsoft Business Division, and Server and Tools. While these divisions include a collection of products and services (e.g., Azure), it appears that most of the revenues and almost all the profits of these divisions is driven by Windows (desktop and server) and Microsoft Office.

Its remaining two divisions – Online Services and Entertainment & Devices – encompass all of the company’s consumer products outside of Windows and Office, such as the Xbox 360, Bing, Windows Mobile, and Zune. In 2010, these two divisions accounted for the remaining 17% of Microsoft’s revenues, and had a collective operating loss of $1.676b. In fact, between 2008 and 2010, these two consumer-focused divisions generated an aggregate of $3.353b in operating losses.

Looking across its five divisions, we can conclude that Microsoft generates a majority of its revenues and nearly all of its profits from Windows and Office. And while Microsoft has found some success with other enterprise products (e.g., SharePoint, Microsoft SQL Server, and services), its consumer strategy, outside of Windows and Office, is struggling.

From my vantage point, the two key questions for Microsoft are:

1. In what timeframe will Microsoft face downward pressure on its Windows and Office revenues and profitability, given the transition from desktop computing to thin devices and cloud services?

2. Can Microsoft develop and execute a corporate strategy in the consumer or enterprise markets, outside its stronghold of desktop computing? And will this strategy substantially compensate for any disruption in its core market of desktop computing?

My sense is that the transition from desktops to cloud services and thin devices is accelerating due to rapid innovation and growing competition among Amazon, Apple, Facebook, Google, Netflix, Salesforce.com and others. Further, Microsoft has thus far underperformed in cloud services and thin devices, from search (Bing) to smart phones (Windows Mobile). In view of Microsoft’s dependency on Windows and Office, and its inability to gain significant share in newer growth markets, I am concerned about its long-term prospects in computing.

My biggest issue with Feedburner is that the feed count seems erratic (and often inaccurate). After I post a new article to my blog, the Feedburner count sometimes jumps dramatically, and then within about 24 hours drops by 50% or more.

Sony has trailed in digital music, online video, and casual/social gaming. I'm glad that Sony is trying something different to get ahead of the curve as portable gaming converges with smartphones. There are several reasons, however, why I think this device may struggle in the market.

For instance, who is the target market? Kids and teen gamers who buy a PSP or DS (I assume parents often pay) or young adults that currently buy an Android phone or an iPhone?

If the target market is kids or teen gamers, will they be able to afford the price of the device plus the monthly voice/data plan? For instance, while 33% of teens aspire to own an iPhone, only 14% of teens actually own the device, down 1% from the prior year (Fortune, 2010); perhaps this decline was due to the recession or the emergence of Android phones.

For teens and young adults, will this device appeal to them as a replacement for an iPhone or for a different Android phone? The iPhone and select Android smart phones (e.g., Motorola Droid) have functional value, but also serve as a fashion statement. For many, the phone you choose is an extension of your identity (e.g., like your choice of car). How many teens and young adults will identify with a Sony PS phone with built in PS controls?

Perhaps Sony can overcome the cost of ownership issue by partnering with a discount cellular carrier, such as Virgin Mobile or Metro PCS. The second issue about the appeal of iPhones and select Android phones is more of a challenge. The device as pictured in the Engadget article looks interesting. But how many teens and young adults will shy away from the built in PS controls (and the bulk that this adds to the device)?

What are thoughts on how this device will perform in the smartphone market?

Perhaps HN isn't a significant threat, but it still poses a threat; each new service likely eats away at Digg's share of the market, assuming that people have limited time to use social media.

As an anecdote, I was using Digg substantially up until the 2008 elections. I haven't used the service since then. Instead, I'm spending time on Hacker News (+ Techmeme, Twitter, Facebook).

Digg is facing issues on two fronts.

First, it’s struggling with delivering unique value to its customers. When Digg launched in December 2004, it faced limited direct competition in the market of social media aggregation. Since its launch, Digg now competes with a myriad of services, such as Reddit (launched in 2005), Techmeme (2005), Huffington Post (2005), Newsvine (2006), and Hacker News (2007), just to name a few. There are now a huge variety of media aggregation websites targeting general and niche audiences. In addition to increased direct competition, Digg is now also facing a substitution threat posed by companies such as Facebook (2004), Twitter (2006), and Google Buzz (2010). An increasing number of consumers are turning to these services for their daily fill of news.

Second, Digg is struggling with an untenable cost structure. With about 72 employees before its reduction in staff, Digg has about 9x the number of employees of Reddit, a key competitor. Consider another competitor, the Huffingpost. It attracts about twice the number of visitors per month, employing a full-time staff of just 60. Commentators have also noted that Digg had unusually high infrastructure costs, although I suspect they have remedied some of these issues since these reports. With revenue of just $15 million, and a unsustainable cost structure, Digg is currently operating at a loss.

For Digg to survive and prosper into the future, it must refocus and develop a service that delivers unique value relative to the many competing services that are currently available. Given the range of competition, it’s not clear what Digg can change to deliver unique value. Next, Digg must continue to reduce its cost structure by reducing its human resource and infrastructure costs. Needless to say, increasing value for customers while reducing costs is a difficult challenge.

I think reputation is one of the most important assets that a company controls. Let me explain why.

The two most important factors that determine the success of a product are: (1) the perceived value that the product delivers to customers; and (2) the costs to the producing company for delivering this value.

Imagine a vertical line, anchored by value at the top and cost on the bottom. The difference between value and cost indicates the advantage (or disadvantage) of your product relative to a competing product.

Now consider reputation (brand) in relation to this difference between value and cost. A positive reputation directly and indirectly increases the perceived value of a product. It increases product awareness, signals quality, and instills confidence among buyers. A reputation and brand can even invoke a deep emotional response (e.g., Disney). In addition to these direct effects, a reputation enhances a company’s ability to attract other resources that have an important bearing on customer value. For instance, a reputation affects a company’s success with recruiting talent and forming relationships with key suppliers and partners, which in turn affect product development, manufacturing, distribution, and so forth – i.e., the key elements that ultimately drive customer value.

As an example, consider Google in Search. The Google brand is the world’s most valuable, according to Millward Brown Optimor (2010). As a result of the Google brand, consumers are more likely to use Google Search over Microsoft Bing, even if these products are roughly comparable from a functional perspective. At the same time, Google’s reputation over other technology companies has enabled it to attract some of world’s top engineering and marketing talent. This talent, which underlies its product development efforts, has enabled Google to continue to enhance its products over time, and in turn the company’s reputation.

While a reputation has the potential to affect perceived value, there are often no direct costs with building a reputation because it’s typically a byproduct of delivering and communicating customer value. A reputation can even reduce costs because it may substitute for other expenditures (e.g., marketing, recruiting expenses). If you deliver significant value to customers, you not only enhance your reputation with those customers, but you also have an influence on their network and their network’s network through word-of-mouth marketing. And if you continue to deliver significant value over time, your reputation will be further amplified, having a broader impact on product adoption as well as your company’s other activities, such as the ability to attract new employees. Finally, unlike physical assets, which depreciate and must be replaced at a cost, a reputation can increase in value over time, so long as you continue to provide superior value to new and existing customers.

Returning to the Google Search example. When Google Search first launched in 1997, users of the product quickly realized the superior value it provided relative to competing products, such as AltaVista. Because of this value, many of these initial users not only continued to use Google Search, but spread the word to their family, friends, and colleagues. As the adoption of Google Search increased, and as Google built and enhanced its Search and related products over time, it cultivated the most valuable brand in the world, with an estimated value of $114 billion (Millward Brown Optimor, 2010). Most striking is that Google created this reputation without performing extensive marketing or providing direct customer service to consumers. Google’s reputation is largely a byproduct of the value that its products deliver to customers. Furthermore, Google’s reputation has served as a substitute for other expenses, such as marketing and direct consumer interaction.

In closing, the two most important factors that impact a product’s success in the market are the perceived value that it delivers to customers and the costs to the producing company for delivering this value. A positive reputation has the potential to substantially enhance the perceived value of a product. A company can leverage a superior reputation to attract more customers and/or charge a premium price for its product relative to a competing product. And because a reputation is often a byproduct of creating customer value, there are often no direct costs for developing a reputation. A reputation can even reduce other key costs, such as marketing or recruiting expenditures. Because a reputation increases value, without a commensurate increase in costs, it can substantially improve a company’s margins and profitability.

Does anyone have any data that they can share on the following -- as a company, if I licensed the latest generation ARM processor (e.g., Cortex-A15) and then factored in any additional design and manufacturing costs (e.g., via a foundry), what would be the total cost advantage of using an ARM chip versus a comparable Intel chip (e.g., Atom)? Thanks!

Indeed, this was a typo. Thank you! It's now corrected.

Good point on the whole chips versus the cores. Does anyone have any rough estimates on this? As a company, if I licensed the latest generation ARM processor (e.g., Cortex-A15) and then factored in any additional design and manufacturing costs (e.g., via a foundry), what would be the total cost advantage of using a Cortex-A15 versus a comparable Intel Atom chip?

That Apple is deploying older generation CPUs in its latest generation MacBook Air is a further sign that the x86 architecture is in the early stages of being disrupted. Drawing on work by Clayton Christensen, the classic signs of disruption are as follows:

1. The current technology is overshooting the needs of the mass market.

Due to a development trajectory that has followed in lockstep with Moore’s Law, and the emergence of cloud computing, the latest generation of x86 processors now exceed the performance needs of the majority of customers. Because many customers are content with older generation microprocessors, they are holding on to their computers for longer periods of time, or if purchasing new computers, are seeking out machines that contain lower performing and less expensive microprocessors.

2. A new technology emerges that excels on different dimensions of performance.

While the x86 architecture excels on processing power – the number of instructions handled within a given period of time – the ARM architecture excels at energy efficiency. According to Data Respons (datarespons.com, 2010), an “ARM-based system typically uses as little as 2 watts, whereas a fully optimized Intel Atom solution uses 5 or 6 watts." The ARM architecture also has an advantage in form factor, enabling OEMs to design and produce smaller devices.

3. Because this new technology excels on a different dimension of performance, it initially attracts a new market segment.

While x86 is the mainstay technology in PCs, the ARM processor has gained significant market share in the embedded systems and mobile devices markets. ARM-based processors are used in more than 95% of mobile phones (InformationWeek, 2010). The ARM architecture is now the main choice for deployments of Google’s Android and is the basis of Apple’s A4 system on a chip, which is used in the latest generation iPod Touch and Apple TV, as well as the iPhone 4 and iPad.

4. Once the new technology gains a foothold in a new market segment, further technology improvements enable it to move up-market, displacing the incumbent technology.

With its foothold in the embedded systems and mobile markets, ARM technology continues to improve. The latest generation ARM chip (the Cortex-A15) retains the energy efficiency of its predecessors, but has a clock speed of up to 2.5 GHz, making it competitive with Intel’s chips from the standpoint of processing power. As evidence of ARM’s move up-market, the startup Smooth-Stone recently raised $48m in venture funding to produce energy efficient, high performance chips based on ARM to be used in servers and data centers. I suspect we will begin seeing the ARM architecture in next generation latops, netbooks, and smartphones (e.g., A4 in a MacBook Air).

5. The new, disruptive technology looks financially unattractive to established companies, in part because they have a higher cost structure.

In 2009, Intel’s costs of sales and operating expenses were a combined $29.6 billion. In contrast, ARM Holdings, the company that develops and supports the ARM architecture, had total expenses (cost of sales and operating) of $259 million. Unlike Intel, ARM does not produce and manufacture chips; instead it licenses its technology to OEMs and other parties and the chips are often manufactured using a contract foundry (e.g., TSMC). Given ARM’s low cost structure, and the competition in the foundry market, “ARM offers a considerably cheaper total solution than the x86 architecture can at present…” (datarespons.com, 2010). Intel is loathe to follow ARM’s licensing model because it would reduce Intel’s revenues and profitability substantially.

In short, the ARM architecture appears to be in the early stages of disrupting x86, not just in the mobile and embedded systems market, but in the personal computer and server markets, the strongholds of Intel and AMD. This is evidenced in part by investors’ expectations for ARM’s, Intel’s and AMD’s future financial performance in the microprocessor markets: today ARM Holdings has a price to earnings ratio of 77.93, while Intel and AMD have price to earnings ratios of 10.63 and 4.26, respectively.

For Intel and AMD to avoid being disrupted, they must offer customers a microprocessor with comparable (or better) processing power and energy efficiency relative to the latest generation ARM chips, and offer this product to customers at the same (or lower) price relative to the ARM license plus the costs of manufacturing using a contract foundry. The Intel Atom is a strong move in this direction, but the Atom is facing resistance in the mobile market and emerging thin device markets (e.g., tablets) due to concerns about its energy efficiency, price point, and form factor.

The x86 architecture is supported by a massive ecosystem of suppliers (e.g., Applied Materials), customers (e.g., Dell), and complements (Microsoft Windows). If Intel and AMD are not able to fend of ARM, and the ARM architecture does displace x86, it would cause turbulence for a large number of companies.

I just posted this as an article to HN: "The End of x86?" I'd appreciate an upvote. Thank you!

In addition to your points above, Microsoft needs to:

1. Make it easier for developers to port apps from iOS and Android to WP7.

2. Allow OEMs to customize WP7 and the hardware to some extent so they can effectively compete with differentiated and innovative products; else WP7 smartphones will become commoditized, just like Wintel PCs.

3. Consider a different revenue model. Charging $15 a copy to OEMs is a tall order, particularly when the competition is free (Android). Some have argued that the total costs of deploying and maintaining Android are higher than deploying WP7, but how can this be, given that almost all the costs with deploying Android are fixed in nature, while WP7 costs are primarily variable (on a per copy basis).

4. Improve its brand image in the smartphone market and across the board. Microsoft has a weak brand in the hacker community, given the preference for open source. Hackers are driving much of the innovation in the application markets.

This move is consistent with Apple's corporate strategy; a transition away from desktop computing and physical media, to a range of thin devices accessing online media via the cloud. The elimination of the optical drive facilitates smaller devices, and further establishes the importance of connectivity and online media, where Apple is well positioned with its growing collection of cloud services: iTunes, the App Store, the new OS X App Store, and so on.

On a side note, this is further bad news for Sony and Blu-ray. The shift from physical to online video is happening much more quickly than most expected. Sony invested billions of dollars into Blu-ray to win the battle against HD DVD, anticipating at least a decade of future royalties. I am certain the expected returns on this investment will never be realized.

Today, Apple announced four key products at its “Back to the Mac” event:

- An application store for OS X

- Facetime for the Mac, which links with Facetime on other Apple devices

- An instant-on MacBook Air, 11” and 13” models, starting at $999

- The next major version of the Mac OS X, “Lion” (and iLife 11)

Individually and as a collection, these new product announcements are interesting. Apple is extending the value it delivers to its Mac customers by launching a combination of new hardware (MacBook Air) combined with an innovative operating system (OS X Lion), building out a collection of new complements (OS X application store), and further linking Macs with Apple’s other thin computing devices (via Facetime).

If we step back, and consider today’s announcements from a broader perspective, we can gain some insight about Apple’s overall corporate strategy with respect to its position in the future of computing.

Apple’s recent product innovations have largely focused around thin devices, first the iPod, then the iPhone and Touch, the Apple TV, and recently the iPad. The new MacBook Air coupled with the new Mac OS X Lion represents a natural progression from the iPad. While Apple’s other thin devices are better suited for consuming content and media, the new MacBook Air is Apple’s first thin device that is particularly well suited for creating content and media (note that Apple is referring to the new MacBook Air as “The Next Generation of MacBooks”). Meanwhile, the new OS X application store extends Apple’s success with iTunes and the App Store to the Mac environment, thus further establishing Apple’s presence in cloud services and online media. Facetime, along with other services such as MobileMe, provides the linkages that begin connecting all these thin devices and services together.

Looking broadly, Apple is now pushing the frontier on two key fronts. On the one hand there’s thin device computing with the iPod, iPhone, iPad, Apple TV, and now its new MacBook Air products; each targeting a distinctive market segment, roughly arranged by those customers seeking to consume (iPod) or create media (new MacBook Air). On the other hand, Apple is developing a range of cloud services and online media with iTunes, the current App Store, and now the new OS X application store. iTunes already operates across platforms and, despite its name, now includes much more than music, given it also provides a gateway to movies, TV shows, Podcasts, Audiobooks, and so on. As Apple continues to push forward on these two fronts it will soon have developed a full and coherent line of thin device hardware, a unified and powerful operating system (iOS/OS X, and slight variants), and a tightly integrated set of cloud services and online media.

In closing, today’s product introductions, along with Apple’s rapid progression over the last decade in thin devices and cloud services, brings into stark relief the gap between Apple and the historical high flyers in personal computing, such as Dell and HP. It appears Google is the only company that fairs a chance to stay competitive in this breakneck race.

(I just posted this to my blog and submitted the post to HN. If you enjoyed the read, I'd appreciate an upvote (article title is "A broader view on Apple's 'Back to the Mac' Event").

Sorry, that wasn't my attention. I tried to research Azure online, looking for hard numbers on its performance in the cloud computing market (e.g., # of companies using Azure, adoption rates, etc.), but I was unable to find any concrete data. In fact, I struggled to even find a thorough review of Azure. Can you please point me to some data and/or reviews so I can incorporate this information properly into any future posts? Thanks!

To your points above:

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.

Good points, but let me offer a few counterpoints:

- All three consoles started from nothing just a few short years ago, and in fact the XBox 360 had a year head start on the PS3 and the Wii (launching at the end of 2005 versus end of 2006 for the PS3 and Wii.)

- According to VG Chartz, the Wii has sold 8.97 million consoles from Jan-Oct 2010, while the Xbox 360 has sold 6.8 million and the PS3 has sold 7.1 million. Yes, XBox 360 sales faired much better over the summer, but we will have to wait and see if this indicates a sustainable trend or a blip.

- Yes, Xbox 360 is doing well from the standpoint of attach rates, with an 8.9 versus around a 7ish for the Wii. It appears the PS3 has been gaining significant ground lately with its attach rate.

- In the fiscal year 2010, Microsoft's 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 represents only about 3% of Microsoft's profits.

- Ultimately, the Xbox 360, the PS3, and the Wii may be irrelevant given the emergence of connected televisions, thin devices, and cloud-based gaming.