The truly inside story of starting the Xbox and Zune businesses at Microsoft was shared in a remarkable lecture Friday by Robbie Bach, the retired president of the company's entertainment and devices business.

Bach shared his unique perspective on why the Xbox was a success and the Zune was not during a presentation on intrapreneurship, or how to operate like a startup and launch new ventures within a large, existing business.

The lecture included advice for companies looking to foster entrepreneurial culture, and for all sorts of entrepreneurs entering competitive new markets. It was a breakfast event held by the Northwest Entrepreneur Network in South Lake Union.

Bach described the corporate retreats where the Xbox business was hatched and how Sony fumbled its lead and gave Microsoft the opportunity to get ahead in the console business.

"When the luck happens, you take advantage of it and run with it," he said.

It also helped that Bach's startup had $5 billion to $7 billion in funding available, he joked.

That wasn't enough to help the Zune, though. Bach admitted that Microsoft quickly realized it was too late to prevail in the portable media player business and in hindsight he would have built a music service rather than devices. Apple executed well and didn't give Microsoft the sort of breaks it had in the console business, he noted.

Bach's now focused on philanthropic organizations, serving on the board of audio gear company Sonos and looking to buy a mid-size family business like the food-service supplies distributor that his father operated in retirement.

Here's a raw video of the event. Apologies for the quality; it was taken with a new smartphone that was supposed to capture high-def video ...:

Apparently not everyone appreciates my sense of humor.

Including a certain major investor in Facebook who is trying to bring an NBA team back to Seattle.

That would be Chris Hansen, the San Francisco hedge-fund manager orchestrating a deal to restore his beloved Seattle Sonics.

Hansen called last week after I wrote a blog post about how Facebook's upcoming IPO may help his basketball venture.

Hansen has a big stake in the outcome of the Facebook stock offering, expected at the end of this week. He's the managing partner of a San Francisco investment company, Valiant Capital, which scored a coup in 2010. It was able to buy 36,335,590 private shares of Facebook for less than $500 million.

If Facebook does well after public trading of its stock begins, Valiant may double its money. At the high end of Facebook's projected offering -- $35 per share -- Valiant's day one gain would be nearly $800 million. Its shares would then be worth $1.27 billion.

Who knows how the stock will fare. It's supposed to break IPO records, but some big investors were reserved last week after Chief Executive Mark Zuckerberg pitched the stock while wearing a hoodie, then disclosed that ad sales aren't growing as fast as site usage.

Maybe Facebook waited too long. Or maybe investors don't fully understand the complex machine that Zuckerberg built. Love it or hate it, Facebook seems to have all sorts of levers and dials to pull and twist and boost sales at will.

As they say, the rich get richer.

Then some of them decide to buy sports teams.

If they ask for public assistance -- especially from cities pleading poverty -- they become fair game for snarky blog posts.

My post joked that the Facebook windfall could enable Hansen to build two arenas without public financing, or refit KeyArena with heated massage chairs and a helicopter shuttle service.

Hansen didn't seem to mind the ribbing. He even read the flurry of online comments it generated.

But he wanted to make it clear that he personally won't pocket that $800 million.

"I would just want people to understand that Facebook is a position of my investment-management company, not a personal investment of Chris Hansen, and therefore the profits are the profits of the fund and the investors that it represents," he said.

As for his effort to build an arena for a Seattle NBA team, Hansen said it's going "great."

"I think we went into it knowing there would be some concerns, some constituencies that would be against it, that negotiations with the city and county wouldn't be easy," he said. "But I think there's very broad-based support, given the thoughtfulness and fairness of the transaction relative to the prior proposals in Seattle and other stadium transactions and arena transactions."

I'm not sure Seattle has decided yet whether it's fully invested in this offering. Yet Hansen, a Roosevelt High School graduate, is hoping his hometown ends up on his side.

"Hopefully people just trust -- really -- I'm trying to do what's right by the city," he said.

In the meantime, this should still be a pretty good week for Hansen, as long as Facebook doesn't face plant.

Firms like Valiant typically charge investors about 2 percent a year to manage their money and take 20 percent of fund profits.

So if Facebook stock does really well and Valiant's gain is $1 billion, the firm would net $200 million.

Most of the gain would go to investors in the fund, such as endowments and foundations. Hansen likely is personally invested in the fund, as well.

Hansen doesn't get all of the firm's profit. Valiant has eight or nine partners who share the firm's profits, although Hansen gets the largest share as managing partner.

This is business as usual, but it's become a sensitive topic for Hansen.

Especially since he asked the city of Seattle and King County to back a $200 million loan to help finance a $490 million arena south of Safeco Field.

Whether Hansen can pay for it all himself doesn't matter too much since local politicians are falling over each other to back the project. They did the same thing for Paul Allen, who is one of the richest men on earth. But it's a good opportunity to look at how these businesses work.

Facebook's the stock du jour, but Valiant invests in all sorts of companies in the U.S. and abroad. Its largest public holdings in the U.S. are $128.1 million worth of Apple stock, $78.6 million worth of Google and $71.2 million worth of cable company Liberty Global, according to a May 10 disclosure report.

I think there's enough there to say Hansen is continuing the Seattle tradition of using technology riches to fund pro sports teams.

Nintendo of America is the majority owner of the Mariners. Co-owners include veterans of Microsoft and RealNetworks.

Microsoft co-founder Allen owns the Seahawks and the Portland Trail Blazers. He's also part owner of the Sounders, whose general manager, Adrian Hanauer, was an early investor in Amazon.com and aQuantive and continues to be involved in Seattle startups.

Hansen hasn't yet disclosed the group of investors in his NBA venture but it's a safe bet that some made their fortunes in tech.

Nor is Hansen talking about his personal wealth, but he's otherwise adjusting to being a public figure.

"If I wasn't involved -- hadn't made a decision to come be involved bringing the Sonics back to Seattle -- I would have continued to enjoy my anonymity, continued to enjoy and value my anonymity," he said.

Hansen knew the spotlight was part of the deal.

"I have to be comfortable with it if I'm going to be successful," he said. "It comes with the territory."

Get ready, Chris. So do cheers and jeers from the cheap seats.

Inspired by our local space explorers, I donned my high-tech prospecting gear and set out to mine precious nuggets of wisdom from a nearby star.

That would be Rich Barton, the startup wunderkind who founded Expedia as a twenty-something Microsoft manager, spun it into the world's largest travel business and became a serial entrepreneur.

Barton went on to co-found Zillow in 2005 and became a venture partner at Benchmark Capital, the Silicon Valley venture-capital firm that owned 20 percent of Instagram before it was sold earlier this month to Facebook for $1 billion.

From Barton's perch, at least, it looks like another tech boom is under way and money's flowing like the old days, back before 2008.

Barton shared this view -- and tips on how to start and build big companies -- last week with the local chapter of The Indus Entrepreneurs. Here's my edited trove from the event.

On today's climate for startups: "It's pretty frothy. It's a great funding environment, great for the entrepreneurs. There is a ton of money chasing good people with big ideas. It's as snap, crackle and poppy as I've seen in more than a decade. There are lots of exits happening, there are lots of companies going public right now, there is a reasonable amount of [merger and acquisition] activity that's going on. If the market holds up, we're about to enter a phase of serious IPO activity.

On demand for new tech stocks: "The public market, buy-side guys -- the guys who run the mutual funds, the technology-oriented mutual funds -- are starving. They've been starving for a decade for product to buy. It's kind of been fashionable, if not convenient, for companies to not go public, and all of a sudden everything's coming public. I think we're going to see a ton of activity."

On making mistakes: "I think the great skill of the entrepreneurial mindset is the ability to forget mistakes. Learn the lessons from the mistakes, but forget them and not obsess on them and not let your mistakes undermine the confidence you have around the dreams you have. I think that's a big thing."

On spreadsheets: "I tell you, the spreadsheets never work out the way the entrepreneurs and the venture capitalists think they're going to work out. We all know that. ... Rarely does the company end up being what the original idea was anyway. So you've got to have people on the boat who can figure out how to change the fly, put something new on there and be creative and figure it out."

Pitching stories, not numbers: "I'm a PowerPoint guy, not an Excel guy, put it that way. I think people that come in with lots of projections and Excel spreadsheets at very early stages doesn't necessarily bode well. ... It's very difficult to plan the unplannable, so I look more for passion around a story and idea than I do around a spreadsheet."

Mobile, mobile, mobile: "If an entrepreneur comes to me these days and gives me a demo of a website and doesn't demo something on a smartphone, I almost out of hand am not even interested in it, because that shows an unbelievable lack of understanding of how people are actually interacting with the Internet now."

Traffic before revenue: "All of my businesses -- I look for getting a mass-engaged audience first and worrying about a business model second. Expedia was that way, Zillow was certainly that way. ... Get the masses in first, then figure out how to monetize."

On changing course: "Pretty much everything I've been involved with had some kind of pivot. Zillow had a really big one. We had raised money -- my guess is, we had raised $20 million -- before we even figured out what the product was going to be. ... We actually thought the way for perfect price discovery in real estate was going to be auctions."

On raising money: "The whole venture-capital business is one that operates a lot on personal networks that have been established. For people who are trying to get plans in front of me, the best way ... is to have somebody who I know really well and think is smart tell me to take a look at something."

Capital in Seattle vs. Silicon Valley: "There's plenty of money up here. There's a lot more down in the Valley. ... I find that the Seattle startup ecosystem is a few steps behind but on the same path as the Silicon Valley ecosystem."

On Gates and Ballmer: "Bill Gates and Steve Ballmer were my venture capitalists at Expedia. I kind of thought of them that way. When I pitched the idea of Expedia to Bill and Steve, I tried to get them to fund me on the outside. Honestly, I said I want to start my own business and said look, this is a travel business, not a Microsoft software business. They kind of laughed at me and said, 'Who are you going to hire?' But what they did say is look, you may be right, let's get this going internally and if it makes sense to spin it out, we'll think about it."

On spinning off Expedia: "You know, huge credit to those guys: When it came time ... I came to them and said, 'Look, Expedia is on the brink of becoming something huge and interesting and important. If we stay at Microsoft, it will not be. If we spin it out, it might be.' And along with that I asked for $100 million to spend in marketing. Steve Ballmer was my boss at the time [early 1999]. ... He said, you're not getting $1 million from me to market. I said, 'Well, you know what, the public markets will give me $100 million, and they'll give it to me really cheaply, so let's go do that -- let's take the public market's money and turn this thing into something real.' And he said OK and we did it. It was a grand experiment for Microsoft.

"Microsoft has not done anything like that since but it obviously worked out -- it worked out quite well. Expedia was half the size of the largest player in the space when we spun out. Within 18 months, it was twice as big as the No. 2 player."

What's needed to take the startup plunge: "Courage. Think of 'The Wizard of Oz.' We've got the Cowardly Lion, the Scarecrow and the Tin Man. My kind of view of great entrepreneurial leaders is courage for the Cowardly Lion, you've got to have brains for the Scarecrow and probably most important is, you've got to have a heart because you cannot attract people or capital without a heart. People respond to passion; people respond to real feelings, real emotion, things that really matter."

His busy schedule: "When you have eight jobs, it turns out nobody knows when you don't show up to work."

PC sales grew just 1.9 percent during the first quarter of 2012, according to a new report from Gartner.

The research giant had predicted sales would decline 1.2 percent during the quarter. It said sales in Europe and the Middle East were better than expected, offsetting slowdowns in India and China.

"While the PC industry has high expectations for strong growth in the emerging markets, the slowdown of these countries in this quarter provides a cautionary notice to vendors that the future growth for the PC industry cannot heavily depend on the emerging markets even though PC penetration in these regions is low," Mikako Kitagawa, principal analyst at Gartner, said in the release.

Fellow research giant IDC followed with its quarterly report, pegging PC sales at 2.3 percent, up from its forecast of a 0.9 percent decline.

IDC said hard-drive shortages from last year's flooding in Thailand continue but the large PC makers had better access, managed inventories and absorbed price increases. As a result the big vendors kept PC shipments moving while smaller PC makers saw the expected declines.

PC makers should see bigger gains later this year. PC sales historically rebound after slow periods, driven by new technologies and need to replace aging systems, IDC's Loren Loverde said in the release.

"As a result, we expect PC shipments to pick up significantly by the fourth quarter and beyond as HDD supply and pricing are normalized, Windows 8 is launched, and replacements pick up," he said.

The news foreshadows upcoming earnings reports from Microsoft -- next Thursday -- and Intel on Tuesday.

There were a few bright spots in Gartner's report.

Hewlett-Packard emerged from its internal funk and grew nearly twice as fast as the overall market and held its global lead on the PC business. Its sales grew 3.5 percent, Gartner said.

Lenovo posted a 28 percent gain, driven by sales in Europe and the Middle East and sales of business systems, according to Gartner.

Dell's sales fell along with overall sales of lower-end consumer systems as consumers were lured by Web tablets and other gadgets in the same price range.

IDC estimated HP's global growth was 3.2 percent and Lenovo's were 43.7 percent during the quarter.

In the U.S., HP sales were up 6.6 percent, Dell's were down 3.6 percent and Apple's were up 3.8 percent, according to Gartner. IDC's numbers for HP and Dell were the same, but it said Apple's PC sales were up 5.1 percent.

IDC said sales in the U.S. were slow for several reasons. Businesses are "still cautious" and consumers are evaluating different prodocts and may be waiting for Windows 8 to arrive, perhaps in the fourth quarter.

That fourth quarter - the holiday season - "will likely determine if there is any growth at all in the U.S. market in 2012," Loverde said.

In other words, it's up to Microsoft and its PC partners to deliver with the Windows 8 wave.

A few charts from Gartner's report:

More TV services are now available for the Xbox. But they're not for cord-cutters.

Instead, they're designed for people who already subscribe to those services, and want to extend them through the game console to another room in the house. They also require console owners to subscribe to Microsoft's premium Xbox Live service.

Perhaps this will lead to the Xbox doing double-duty as a cable box -- as it does in some regions overseas already -- but for now the additions mostly bring the console's video options in line with wireless TVs and streaming video adapters. It also showcases the ability to use the Kinect sensor as a remote control using voice and gestures.

Either way Xbox users are taking to the entertainment services. Usage of entertainment apps on the console has doubled over the last year, overtaking the time spent playing multiplayer games on the system, Microsoft said in its release.

Subscribers to Xbox Live Gold service now spend an average of 84 hours per month on the service, and its Zune video store is now the world's second-largest online video store, the company said.

Video consumption via the Xbox is likely to grow further after today's announcement that Comcast, HBO and MLB services have joined the console's video lineup, nine months after they were announced at last June's E3 game conference. The lineup was confirmed in October and began appearing in December -- helping to goose holiday sales of the console -- but it has taken awhile to get the lineup filled out.

Comcast, in particular, appears complicated. The company isn't providing the same on-demand library on the console as it provides through cable boxes and other devices, according to documentation called out by bloggers over the weekend.

Comcast also is excluding content streamed to the Xbox from data consumption limits that it applies to broadband customers, raising a net neutrality question around preferential treatment the dominant cable company is providing to its own video service, Ars Technical noted.

To receive the Comcast video via the Xbox, you need to have the console, a digital cable subscription and a digital cable box in the home.

UPDATE: On top of all that, glitches caused problems for some people trying to set up the Comcast Xfinity app, according to blogger Ed Bott. Perhaps this helps explain why it took so long for the app to appear.

The HBO Go app brings HBO's full catalog to the console, where it's searchable by voice. That's if you already subscribe to HBO through a cable provider.

UPDATE: It turns out the app won't work on an Xbox for Comcast Xfinity subscribers, because Comcast and a few other large cable providers aren't supporting it. The statement from HBO spokeswoman Laura Young:

Comcast/Xfinity, Time Warner Cable and Bright House are currently not supporting HBO GO on Xbox 360. They do, however, support HBO GO online and through the HBO GO mobile app (iPad, iPhone, select Android smartphones).

The following television providers are supporting HBO GO on Xbox 360: AT&T, BendBroadband, Blue Ridge Communications, Cablevision, Charter, Cox, Directv, Dish, Grande Communications, HTC Digital Cable, Massillon Cable/Clear Picture, Mediacom, Midcontinent Communications, RCN, Suddenlink, Verizon and Wow.

We believe that HBO GO is a great enhancement to the HBO subscription so we remain hopeful that all of our distributors will support the service on all platforms in the near future. We encourage our subscribers at non-participating television providers to reach out to their provider and request that they add support for HBO GO on Xbox 360.

MLB.TV is providing customers of its premium-level pay TV service 2,430 games (not 2,429 or 2,431 ...) to watch in high-definition live or in a condensed recap format on the Xbox. The service provides home and away broadcast feeds for out-of-market regular season games "where available," according to the release. It can be controlled with voice and motion controls using the Kinect sensor.

If Microsoft is ever going to have its Alec Baldwin moment, it will happen because of a home-brew game called "Wordament."

Baldwin was famously thrown off a plane in December because he wouldn't stop playing an addictive word game on his iPhone.

The actor was playing "Words With Friends," Zynga's Facebook version of Scrabble played by more than 8 million people a day.

So far the closest thing on the Windows Phone platform is "Wordament," an extracurricular project of two Microsoft employees that became a surprise hit after its debut last year.

The free, ad-supported app is a twist on the word-hunt board game "Boggle." You compete with players around the world in two-minute matches and work your way up leader boards.

It's still a pipsqueak in the broader world of mobile games, with hundreds of thousands of downloads since it appeared on Windows Phone in April 2011 and on Windows 8 last month. It has tens of thousands of unique visitors a day, with up to about 650 playing together at once.

But as one of the highest-rated, exclusive games on those platforms, it's positioned to lift off. It may even draw people to Microsoft's fledgling mobile devices, at least if they're "Boggle" fans.

The game was created as a side project by John Thornton, 37, and Jason Cahill, 38, who worked on the Windows Live photo team and had offices next to each other. They built the game after Microsoft began a "moonlighting" program in 2010, encouraging employees to build Windows Phone apps in their free time.

Thornton (left) began tinkering with word games and made a New Year's resolution in January 2011 to build an app a month. One was a prototype puzzle game he showed to Cahill and asked if he wanted to help. The answer was no, initially.

Cahill (right) and his wife were "Boggle" fans who played against each other wirelessly on Nintendo DS handhelds. The more he thought about the possibilities of a computer-generated game board connected via Internet services, the more excited he became about the project.

"I went home after telling him this whole lecture on how the way you get ahead at work is by doing work and not by doing moonlighting ... and ground all weekend,"Cahill said. "I came in Monday with a basic implementation of a service and a set of puzzles and I was like, 'OK, can I help on this half' ?"

This still cracks up Thornton.

"He must have coded the whole weekend after telling me no," he said. "It was kind of funny."

Thornton said the game's popularity sank in for him a few months later, at the Kirkland Fourth of July parade. Looking over the shoulders of a row of people in front of him, he noticed they were all playing the game.

Later that month, the Xbox Live group asked them to distribute "Wordament" through the game service. The Xbox group then hired them, where they're now the principals of a new studio expanding "Wordament" and developing new titles.

I heard about "Wordament" last year from a friend and fellow "Boggle" fan at Microsoft and was planning to write about the game after the Windows 8 preview version (left) was released in February. But I waited, partly because the game froze on a Samsung Windows 8 tablet I've been using. I wondered if the newsroom installed some kind of filter, because I'd spent so much time testing "Wordament" on the tablet.

Finally I got in touch with Cahill last week, and he explained that the Windows 8 version is a prototype and they're preparing a fix for the "suspend/resume" issue I encountered. Meanwhile, the trick to unfreezing it is the "downward swipe" gesture that closes and exits Metro-style apps.

The game can be played with a mouse but it works best with touch-screens, on which you mark words by sliding your finger across the letters. Speed and responsiveness are critical, so the game's a good way to sample the performance of a phone or tablet.

"Wordament" seems to be a game that Xbox Live could use to expand on platforms such as Apple's iPhone and iPad.

I wonder if "Wordament" will end up preloaded, alongside "Solitaire," on Windows Phones or Windows 8 tablets when they appear later this year.

The original goal with "Solitaire" on Windows was to teach people to use a computer mouse, so perhaps "Wordament" will help familiarize people with the new Windows 8 touch gestures.

That would propel the game into the "Words With Friends" league.

It could also offset productivity gains promised by the new software, though, and potentially cause problems for Alec Baldwin types.

Donning his global statesman hat, Bill Gates spent time discussing America's concerns about its future with Thomas Friedman of the New York Times.

Gates talked about paradoxes - such as polls showing that Americans see a bleaker future despite the huge amount of innovation in their country that will lead to advances in medicine, energy and other fields.

"There's more innovation taking place in this country still than the whole rest of the world put together," Gates said in a video of the chat. "Now over time that will shift and they'll carry their more fair share of the burden, but in all these fields, the most interesting work is still largely in the United States."

Gates also touched on concerns about the effect of polarization on U.S. government, a topic he raised during an October speech at the University of Washington that also highlighted opportunities being created by innovation.

Microsoft is resurrecting one of its oldest franchises, "Flight Simulator," with an entirely new game called "Microsoft Flight" that's debuting on Feb. 29.

But instead of a new installment of the hyper-realistic, encyclopedic simulator that mostly appealed to flight enthusiasts, Microsoft built a smaller, more accessible game that's going to be offered online for free.

Planes can be flown simply by moving a mouse around, though enthusiasts can also use more realistic and complex controls.

It's also a new business direction for Microsoft's PC game business, which is using "Flight" to experiment with free online games monetized through microtransactions. About 80 percent of U.S. gamers now play such titles, mostly through Facebook, where players spend an average of $29 per month, according to Parks Associates research.

To start, the game will let people fly around Hawaii - the Big Island - in planes including a Boeing Stearman similar to one displayed at the Museum of Flight. For $20 players can get seven additional islands, new missions and an additional plane.

Microsoft will periodically offer new territories, planes and activities. The company may also extend the franchise to other devices beyond the PC. Executive Producer Joshua Howard hopes the game will draw more than 20 million players eventually.

Howard (left) leads a studio with about 50 employees, a third of whom are veterans of the ACES Studio behind "Flight Simulator" that Microsoft wound down in 2009.

Here are edited excerpts of an interview this week with Howard:

Q: Gaming on Windows has seemed to languish, maybe because so much energy was around Xbox. How much is this release a sign that the Windows game group is back, especially with Windows 8 coming up soon?

A: Some folks on my team will say Games on Windows isn't what it used to be. You're forgetting it is certainly the biggest platform for gaming anywhere, ever. I feel like the PC has been the most successful platform when it comes to gaming because gaming as a whole has become mainstream - 75 million people playing Facebook games of one form or another, that's all on a PC. It didn't happen on a console, it didn't happen on a closed mobile platform.

As Microsoft - to have built that system and allowed that to happen - we don't get to take credit for everything people do on a PC but that didn't happen because we ignored PC gaming. So I think PC gaming is alive and well in fantastic ways in fantastic ways. It's still where the heart of innovation is happening.

Q: I didn't mean PC gaming as much as PC game development within Microsoft. Perhaps the company felt it no longer needed to seed the market so much?

A: It's doing very well so that's right, maybe that's part of what it came down to.

Q: Is Flight intended to seed online services and bring people into Microsoft's online realm?

A: I like to think this is both about reimagining a franchise that we know has always been successful. I also think it's part of Microsoft the studio saying 'I want to develop this new muscle.' Maybe because we have so much of the organization focused on the console-side of the business which is more rigid when it comes to business models, you get to ask the PC side to be a little more experimental, a little more exploratory. I relish that opportunity and the team has really jumped on that. We couldn't be doing half the things we do here on a console - this is not a console game that just happens to sit on a PC. This is really a PC game and we're proud of that.

Q: Is your studio just building this title?

A: I imagine this is a group of people who will continue to bring flying experiences out over time. This is where we are right now.

Q: One you've developed new muscles, you want to keep using them ...?

A: There are a lot of really cool, exciting platforms on the horizon. I'd love to think that someday you'll be hearing from me about how we're going to bring Flight to those exciting opportunities.

Q: On tablets and other devices with Windows?

A: It could be broader than that even. As a division we no longer organize around your PC games and your console games. We're a team that's about the thrill and experience of flight.

Q: But it makes sense that your games could be on the new PC form factors running Windows ... like tablets, maybe TVs - the "three screens and a cloud"?

A: Yeah. I believe in crawl, walk, run. We're rebooting a franchise, and that was really hard. We wanted to this well. We took the time and energy to do that. Now this becomes a platform to keep going.

Q: Is it running on Azure and will it be used to showcase the platform's ability to run a massively multiplayer online game?

A: The services could be on Azure but they're not today. It turns out they didn't need what Azure provides as far as scale goes. It's less MMO in that sense. While do have what we think of as interesting and enjoyable multiplayer, it's still not that massive. (Up to 16 players can play together in an online session.)

Q: So the focus is on the PC experience mostly?

A: Yes. The way we talk about it is between the client, and the web site and the community that combines them, that's what Flight means. It's this combination of those three elements working together.

Q: It sounds like a hybrid PC game.

A: Exactly. In many respects we are like an MMO business would be run, we just don't happen to be an MMO. We're taking what is traditionally a game studio and transitioning it into an online business.

Q: Why did Microsoft take so long to resume development of MMO PC games?

A: I think the reality internally is we've continued to incubate and play and continue to try things. You just don't always bring those to market or out until you believe you've got something you can be successful with. I was excited to see that instead of trying innovate in these genres that are already well-understood, Microsoft went off and tried Kinect. I think Microsoft just put their energies elsewhere and it paid off.

Q: Will you sell the game on discs at retail?

A: Sometime maybe in the future but right now we're all in online. Retail is not something we're talking about right now.

Q: Will you get it preloaded with PC hardware?

A: Possibly.

Q: Will it be part of the game suite included with Windows 8?

A: Probably not. We deal with those separately - that's an operating-system business, we're a game publisher.

Q: Will you be able to control the game with gestures, if you attach a Kinect sensor?

A: We're not talking about Kinect support at this time but who knows.

Q: It seems like the tradeoff you made - building richer, smaller locales to explore in the game - is the loss of the full, open world that could be explored in "Flight Simulator"?

A: The bet we've made is that to the non-hardcore simmer, flying the whole world isn't as interesting when there's nothing really interesting to see or do. I do get that for some segment of the audience that was one of the values - I can fly anywhere, into any airport, 25,000-odd airports was crazy.

But I think as you try to broaden and you want to bring in not the next million or two but the next 20 million or 30 million people, you say I will err on the side of more interesting area that's dense than the same amount of content spread all over the globe. There's a lot to do in Hawaii, and Hawaii is gorgeous.

Q: It seems inevitable that you'll have a mobile version someday?

A: We may do other stuff in the future but today we're just talking about the PC version of flight. I think Flight has legs. This is a franchise that's going to keep living for a lot of years. We're going to do that by exploiting all the opportunities that are coming at us, whether that's mobile, new operating systems, new hardware. There's a lot of stuff out there and I think Flight is going to be part of that at some point.

Q: I thought the ACES studio was fully shuttered back in 2009?

A: The reality was inside the company there were already efforts underway to bring that core expertise back together with a new mandate of how they could move forward.

Q: Will Flight make more money than Microsoft's "Gears of War"?

A: I think in the long-run, this franchise will definitely make more money than "Gears." I think Gears is a great. Flight is one of those evergreen franchises in entertainment - this will live another 30 years.

Fortune magazine is causing a little stir today by dropping a hint that Bill Gates may return to an active role leading Microsoft.

The story's based on a third-hand, anonymous source, but it taps into the vein of investor discontent with Microsoft's leadership that's always good for a burst of Web traffic and lively online comments.

Here's the relevant bit in the Fortune story:

One prominent chief executive told Fortune he'd heard from someone close to Gates that he might be considering such a move.

Gates directly and unequivocally denied this in a June interview with England's Daily Mail. He told the paper, "My full-time work for the rest of my life is this foundation."

The paper continued:

Will he ever return to helm Microsoft?

"No. I'm part-time involved. But this is my job now," he said, referring to the foundation.

He could change his mind so you never know. But it sounds like a long shot.

UPDATE: Impossibly long shot, according to a Gates spokesman, who said via email that there is no truth to the story.

The bacon man cometh, to South Lake Union and Fremont.

Seriously, he's giving out free bacon to anyone who asks, courtesy of Microsoft.

To grease the skids for Kinect recruiting, Microsoft's operating a quirky bacon cart -- complete with a riddling bacon hawker -- in Seattle tech hubs.

Microsoft is trying to double the size of its Kinect for Windows engineering team in Redmond, from 35 to 70, and it hired ad agency Wexley School for Girls to add some sizzle. Wexley dreamed up the campaign, with the tagline "Wake up and Smell the Future."

The promo made its debut today in the shadow of Amazon.com headquarters in South Lake Union, where a stream of bacon lovers braved the downpour for free strips of Swinery pepper bacon.

Also free were toppings, including spray cheese, Sriracha, peanut butter, maple syrup and chocolate sauce.

Serious candidates may even get a bacon air freshener.

"We thought it was a fun and cool idea to be around here," said Teddy Black, a producer at Wexley.

As of 11:15, about 15 to 20 people had stopped by, including a South Lake Union trolley driver on his lunch break. A few had picked up materials but there weren't any serious bites yet.

To drum up business, there's a hawker in a white suit decorated with bacon strips. He's called The Sizzler -- a play on The Riddler in Batman.

The bacon wagon -- a very slightly pimped out version of Dante's hot dog cart -- will be serving up slices at 1124 Harrison, across from Moka's Cafe on Fairview Avenue, until 1 p.m. today.

It will be in Fremont's tech gulch, near the canal, on Tuesday. Organizers haven't yet decided whether it will be on the Adobe or Google side of the bridge.

The cart will also be back in South Lake Union next Monday, same time and place, according to Black.

Everybody loved the sleek design of Ferraris in the late 1960s, back when cars were the coolest gadgets around.

So it was monumental when Datsun introduced the 240Z in 1969 -- a Japanese sports car with Italian looks for less than half the price. It wasn't as exquisitely handcrafted, but the 240Z looked great, ran well and a lot of people could afford one.

That helped convince Americans that Datsun -- now Nissan -- and Japanese carmakers really could build sexy machines and not just boxy, cheap sedans.

There's a new generation of laptops appearing this holiday season that may have a similar effect on the Windows PC industry, which in recent years has fallen under the shadow of Apple's glamorous new hardware.

These laptops blatantly lift design cues from Apple's MacBook Air, an elegant, impossibly thin wedge of aluminum that first appeared in 2008, and they're approaching half the Air's price.

Intel calls them Ultrabooks, a brand PC makers can use if they meet Intel's criteria. Ultrabooks basically have to be thinner than a finger; run five to eight hours on a battery charge; use Intel's latest mobile processors; and have a solid-state hard drive, or SSD.

The SSD, which is like a big version of the memory card in a digital camera, is crucial because it improves performance and startup times.

I've been testing one of the first Ultrabooks, the Acer Aspire S3 (left), which takes only a few seconds to wake from sleep and less than a minute to reboot.

It's a beautiful laptop with a brushed aluminum cover, a 13.3-inch screen and a total thickness of about a half an inch. Closed, it looks like it could be a Web tablet, and it makes mini-netbooks look chunky. At 3 pounds it weighs about the same as a MacBook Air. (Below are pictures of the S3 with a Kindle Fire and a pencil)

Inside the S3 runs Windows 7 Home Premium on a second-generation Intel Core i5 processor.

There's also a dual drive system -- a 20 gigabyte SSD plus a 320 gig standard hard drive.

Blended drive setups will appear on several new Ultrabooks. It's a way for PC makers to provide the performance boost of an SSD without the crazy expense of a full-sized Flash hard drive. A spokesman for drive-maker Seagate said its new hybrid drives add only $30 to $60 to the cost of a standard laptop drive at retail.

There are other ways that PC makers are trying to keep Ultrabook costs down.

The S3 has "chiclet" style keys similar to the MacBook Air. There's a bit of wiggle in the keys and I was concerned about the small space bar and Enter key, but I could type reasonably fast without misfires. The keyboard felt just right to my wife and daughter, who have smaller hands.

With more plastic parts, it doesn't have the exquisite, machined feel of the Air. It also lacks the fast, new USB 3.0 ports (it has two USB 2.0 ports and an HDMI port) and full SSD drives used on some other Ultrabooks.

But these things depend on your perspective. If you're upgrading from a thick, standard laptop, the S3 or other Ultrabooks may be thrilling.

Keep in mind, though, that the S3 and other ultrathin laptops don't have DVD drives. If it will be your only computer, you may need to connect an external DVD drive at some point.

The S3 lists for $900, but I've noticed some discounters are already selling it for just under $850. That's expensive, especially when you can get really powerful laptops for $400 to $700, and Thanksgiving sales are just around the corner.

Still, the S3 looks like a deal if you've been pining for an ultrathin laptop and unwilling or unable to pay for one. Windows PC makers have made gorgeous, thin laptops for years, but they're usually aimed at executives and cost $1,500 or more.

A 13-inch MacBook Air costs $1,299 to $1,599, for models with 128 or 256 gigabytes of SSD storage.

You could say that the S3 and other Ultrabooks are just copying the Air.

That's partly true.

Also at play is the cost curve. Premium components that Apple used to build such a thin machine are coming down in price. That's enabling other PC makers to build similar systems and sell them for $1,000 or less. If component prices keep falling, most laptops eventually may look like this.

Intel expects 40 percent of consumer notebooks sold by the end of 2012 will be Ultrabooks. But research firm IDC says that's optimistic; it's predicting they'll take 16 to 19 percent of the consumer laptop market next year.

With consumers paying an average of $686 for laptops nowadays, according to IDC, Ultrabook prices need to fall before they take off, said IDC Vice President Bob O'Donnell. "The issue is this first batch is really expensive, unfortunately -- too expensive," he said. "In my view it needs to be $799 or less before it really gets attention from people."

O'Donnell said the combination of Ultrabooks and Windows 8 will be appealing, in part because the new operating system will further improve startup times.

Another research firm, HIS iSuppli, projected Ultrabook sales will grow from 1 million this year to 136.5 million in 2015.

For now, Intel's requirements for Ultrabooks -- especially the SSDs -- are a challenge for PC makers trying to lower prices, O'Donnell said. He met last week with Taiwanese manufacturers who are working on "Ultrabook class" systems with less expensive components that don't quite meet Intel branding standards.

Perhaps Intel will be more flexible with processor prices. It's about to introduce the next generation of the "Core" processors that are the basis of its Ultrabook strategy. These processors, code-named "Ivy Bridge," are supposed to have better performance, power savings and improved graphics.

Ivy Bridge PCs will go on sale in the first half of 2012. It's a safe bet that laptops and tablets built on the platform will be shown in January at the Consumer Electronics Show. Apple's also likely to upgrade its computers to the new processors.

Having "old" and "new" processors on the market could lead to a broader range of prices for Ultrabooks and they'll all be upgradeable to Windows 8.

Meanwhile, the S3 is worth a look if you're in the market for a laptop, especially if you need a fast, light, full-powered Windows PC. It's not the Ferrari of laptops, but it's still a pretty nice ride.

In response to growing competition in the subscription music business, Seattle's Rhapsody is buying Napster from Best Buy.

As part of the deal, Best Buy is getting a minority stake in Rhapsody, which was spun out of RealNetworks last year.

Rhapsody and Napster are the two largest "premium" subscription music companies in the U.S., the companies said. Combined they may stand a better chance against a wave of new and retooled music services being rolled out this year.

"This deal will further extend Rhapsody's lead over our competitors in the growing on-demand music market," Rhapsody President Jon Irwin said in the release.

The sale is expected to close on Nov. 30, after which Napster subscribers will be shifted to Rhapsody. The notorious Napster brand will be dropped.

Napster's selling price and the combined total subscribers weren't disclosed.

The deal cements Rhapsody's position as the largest provider of "all you can eat," paid subscription music services in the U.S. and gives it a toehold in Europe, where Napster has a presence.

It also comes as the company faces new competition from younger challengers such as Spotify, Rdio and MOG.

At the same time, Netflix-era consumers may be warming up to the concept of paying about $10 a month to access huge online music libraries from computers, mobile devices and connected stereos.

Irwin said in an interview that Rhapsody is interested in additional acquisitions "that make sense" and further its growth.

"We're going to go after those aggressively," he said.

Consolidation was inevitable and could lead toward larger deals by Internet giants whose online music services don't have as much traction.

As smartphone and Web tablet use soars and mobile broadband proliferates, Microsoft, Google, Amazon.com and Apple will all vie to store and stream consumers' digital music collections on their networks.

Google, Amazon and Apple each introduced "cloud" services that provide online storage and access to digital music this year, but they don't yet offer all-you-can-eat subscription services. Microsoft has the Zune music service that's linked to Windows Phone and Xbox consoles and, with the upcoming Windows 8 operating system, it's going to put a bigger emphasis on storing, syncing and streaming digital content.

The Napster deal likely gives Rhapsody more than a million customers -- with esablished billing relationships. That will make it a more appealing acquisition target or at least give the company enough heft to compete with the big players.

Asked about the acquisition potential, Irwin said: "Our focus is going to be 100 percent on growing, providing the music experience for our customers and building value in the service we deliver for them."

His comments in the press release emphasized the importance of scale.

"This is a 'go big or go home' business, so our focus is on sustainably growing the company," Irwin said.

Scale also benefits the new social features the company added, including its new partnership with Facebook, he added.

Rhapsody has about 800,000 customers and expects to break even later this year. It lost $7 million on sales of $32.5 million in the quarter ending March 31. It has 150 employees -- including about 120 in Seattle -- and has sales of about $130 million a year.

Streaming music plans are increasingly bundled with cellphones, and Rhapsody's major focus lately has been expanding partnerships with carriers such as Verizon Wireless.

Napster began as a rebellious music sharing site that was shut down by record companies, but the brand lived on after software company Roxio bought the brand name in a 2004 bandkruptcy sale.

Napster then was built into a subscription music service that had about 700,000 paying customers when it was sold to Best Buy in 2008 for $121 million. At the time Best Buy was hoping the deal would help it better compete with Apple's iTunes store for music buyers.

Apple has continue to lead digital music sales but it's been slow to develop a subscription offering. It acquired streaming music provider Lala in 2009 but discontinued the Lala service.

Napster employs about 120 people, most at its offices in Los Angeles and San Diego. There are likely to be significant layoffs, as Rhapsody plans to close the Southern California offices.

"We'll be working with the Napster team to migrate the customer base and, to the extent that there are openings for Napster employees to join the team, we'll be discussing those opportunities with them," Irwin said.

The music libraries offered by Napster and Rhapsody mostly overlap so customers aren't likely to see much change. Napster subscribers will have their favorite tracks and other saved lists shifted over to Rhapsody after the deal closes.

Rhapsody's business, meanwhile, should continue growing through partnerships and acquisitions, Irwin said.

"I like our position -- I like where we're sitting," he said.

With all the excitement over Windows 8 last week, one major new feature was almost overlooked.

That would be the arrival of an online sign-in system.

When you first start using a Windows 8 PC -- which much of the world likely will do within a few years -- you'll be prompted to sign in with a Microsoft online account, linking your PC to the company's data centers. By doing so, you'll be among hundreds of millions of people feeding data to Microsoft's online business group, which may finally give the scale to seriously compete with Google's search and advertising business.

You won't have to sign in this way, and you'll still be able to operate the PC as you do today.

But if you decline the digital handshake, Windows 8 won't do some of its cooler tricks, such as the ability to sign in to any Windows 8 computer and have it display and run your settings and applications.

You'll also miss out on new "Metro" style applications designed for its new tiled interface and file-sharing capabilities.

Microsoft really is boldly re-imagining Windows, and not just for mobile devices that will challenge the iPad.

The company also is pushing Windows -- the software that powers most of the world's personal computers -- to become a connected service and portal to applications running through its global network.

I'm not revealing a secret. Microsoft Server and Tools President, Satya Nadella, spelled it out Wednesday in a quote that topped that day's news release.

"In today's world of connected devices and continuous services, we are focused on helping developers build the next generation of client applications that are tethered to a back-end cloud," he said.

This may be a little disconcerting, if you like to think your PC is still personal and your computing is somewhat private.

But a Microsoft manager I talked with said logging in to online services makes Windows 8 more personal because that personalizes the system.

Pulling in your online connections also populates applications and communications features with your friends, family and other contacts.

Microsoft really is just catching up in this regard. It's also offering more privacy choices than you get with today's leading devices.

You can't use Apple's iPad or Google's Chrome computers without signing in to an account and linking the devices to those companies' networks.

Nor do you have much choice about signing in with smartphones. If you want them to be smart, you must create an account with one of the online giants. And they all use information about you to deliver advertising at some point.

Then, there's the Kindle and upcoming Android tablets from Amazon.com, the grand master of targeted marketing. You can't use its hardware at all without agreeing to let the company analyze usage, so it can continually tune its merchandising.

People sometimes get upset when they discover they're being profiled this way.

But almost everyone automatically clicks "agree" when their gadgets and apps ask if they mind sharing digital footprints. Sometimes that's the only choice to get what you expect from your expensive device.

Few really seem to care anymore that they're trading personal information for free services such as Web search, email and photo sharing.

It's more convenient to stay logged in all the time. Consumer websites just seem to work better that way, and you get to do tricks like click to share things through Facebook or see which friends are online and ready to chat.

Windows 8 lights up in all sorts of ways when you sign into Microsoft services.

Thankfully for Luddites and the anti-social, it also works fine if you don't.

I tried the untethered approach on a Samsung Windows 8 demo tablet, setting it up without signing in to an online account.

I also changed the privacy settings, declining to "allow apps to use my location" and "allow apps to use my name and account picture."

The desktop still had the new Metro style and most of the app tiles on the home screen worked fine, including the browser and widgets for displaying the weather, stocks and news feeds.

This test proved the system will work for anti-social networkers and others who prefer to use a computer that's not tethered to Microsoft's online network. But your homescreen won't flash images of your Facebook friends and other linked services.

Going this route also hobbles the breezy, simple tool for sharing files, a marquee feature of a system designed for the era of social networking. "Share" is one of the five primary control buttons on its new vertical control panel.

But I'm not sure everyone's ready for this much sharing.

Given the trend toward devices that are bound to commerce systems, it's refreshing Microsoft's giving you a choice. This makes a great-looking operating system even more appealing.

So let's hope by the time Windows 8 computers go on sale next year, and the wave of Metro applications appear, people still feel like it's a reasonable option to stay untethered.

Here's the desktop running untethered, after declining to sign-in and turning the "share" features off:

Here's the desktop running tethered - signed into Windows Live and sharing enabled. It has minimal personalization at this point, mostly just Twitter and Facebook feeds:

ANAHEIM, Calif. -- If you're interested in the Windows 8 tablet that Microsoft and Samsung developed and gave away at the Build conference, here's how to get one yourself.

Microsoft ordered 5,000 of the demo systems and they're gone.

But Samsung is going to begin selling the same device next month in the U.S. for $1,099. It will have the same configuration -- a 64 gigabyte solid-state hard-drive, Intel's second-generation Core i5 processor, a charging dock, stylus and Bluetooth keyboard -- but will come with Windows 7.

It has an 11.6" widescreen display, it weighs about 2 pounds and is a half-inch thick.

A Samsung representative said the system can be loaded with the preview version of Windows 8 that Microsoft began distributing for free on Tuesday night. It's unclear whether the same hardware will be shipped next year when Windows 8 is done, by which time hardware and component prices will have changed.

You won't get the demo apps built by Microsoft interns last summer, though, and you won't be able to load more Metro apps until Microsoft launches the new Windows Store.

If you take this plunge, make sure you've got a way to restore Windows 7, in case the preview software expires or gets glitchy.

UPDATE: A Microsoft spokeswoman noted that the Windows 7 version of the device doesn't have some of the extra sensors included on the Windows 8 demo systems and support for WWAN cell service like the demo units given to developers, which came with an AT&T SIM card and a year of free 3G service.

However, I just learned from Samsung that the slates it's selling next month do have a SIM card slot and support HSPA service and faster 4G WiMax service.

Here's the Samsung device with Windows 7 running -- it already makes me miss Windows 8:

A close-up of the desktop with Windows 7:

NEW: Here are some images from Samsung:

For comparison, here's the same hardware running Windows 8:

The new on-screen keyboard in Windows 8:

Here are the specs for the Samsung "Series 7 Slate" and prices:

ANAHEIM, Calif. -- The Samsung Windows 8 demo tablet that Microsoft handed out at the Build conference was just the beginning.

PC and chip makers at the event are showing an array of different prototype tablets running the new operating system, including tablets built on mobile ARM processors like those used in mobile phones and the iPad.

Texas Instruments is showing Windows 8 running on prototype systems based on the same processor that powers the BlackBerry PlayBook tablet:

Here's a tablet based on Nvidia's Tegra 3 quad-core ARM processor, which began shipping last month. It's going to be used on Android tablets going on sale later this year and Windows 8 systems next year.

The Nvidia system from the side:

Here's a system running Intel's upcoming 32 nanometer Atom system-on-chip hardware. An Intel rep said Windows 8 tablets with this hardware should be available for under $400:

Here's an Asus Intel i5 tablet that's now on sale with Windows 7. Intel loaded it with Windows 8:

Here's the Asus tablet from the side:

AMD brought tablets running its C50 hardware:

And AMD's MZ01 hardware:

Microsoft's booth has numerous desktops running Windows 8:

Windows 8 was also running on large, wall-mounted displays:

Apparently the Windows 8 Metro tile interface also scales up to signage systems:

ANAHEIM, Calif. -- With Windows 8, Microsoft has created a new operating system that computer makers can use to seriously challenge Apple's iPad.

The touch-centric interface on Windows 8 is refreshing, easy to understand and a snap to customize.

"Windows 8 is a bold re-imagining of what Windows could be," Steven Sinofsky, president of Microsoft's Windows and Windows Live division, said at a Monday event previewing the company's Build developer conference.

If computer makers produce tablets as gorgeous as demo units Microsoft provided Monday, and they sell them for a reasonable price, there won't be quite as much talk about the iPad vanquishing the PC industry.

But that's a big if.

PC makers will be tempted to clutter the elegant home screen of Windows 8 with promotional icons and it will be a challenge to offer ultrathin and powerful tablets in the $500 to $800 range of the iPad and the top Android tablets. The new software will also be used for the next generation of laptops and desktops.

Microsoft and its partners are also going to need to explain why people looking for a Web tablet should buy one that's a full-blown PC. Among the reasons provided Monday were the ability of a PC to connect directly to more than 10,000 cameras, printers and other peripherals, and the potential to store and load files directly on a Windows tablet.

Windows 8 will also run all programs that run on Windows 7, plus upcoming applications built for its touch-centric "Metro" interface.

The software has more than a pretty new face.

Demo versions had impressive speeds. They started up in 10 seconds or less, and they immediately showed thumbnail images of photos called up on the system, so you no longer have to wait for the images to render when scrolling through a batch of photos.

I wonder if you'll need the latest hardware to see some of these advances, but Windows bosses said the improvements will benefit even the most inexpensive PCs.

Sinofsky said one of the systems he'll use in the big public unveiling of Windows 8 today is a $299 Lenovo model that's also one of his personal machines.

But the systems used to show off the fast startup times used expensive solid-state memory, instead of spinning hard drives that aren't as fast. Gabe Aul, partner director of Windows program management, said the price of sold-state drives is coming down, though, and they shouldn't be a prohibitively expensive option by the time Windows 8 is released.

Microsoft didn't provide a timetable on Monday but the release is expected by next fall. It's complete enough for Microsoft to release a test version at this week's conference, so attendees can load the system on their own computers and begin developing Windows 8 applications.

To attract more developers, Microsoft's offering new tools to built Windows 8 applications that use programming languages familiar to Web developers, including HTML and JavaScript.

Windows 8 also provides ways for different applications to work together, so they automatically share data. Windows handles the connections, so a photo-sharing application will seamlessly connect to social networking applications if they use the interfaces.

Microsoft's also putting more emphasis on developing applications that connect to its cloud services, particularly its SkyDrive online storage service.

Using the new "Metro" interface in Windows 8 was straightforward on a review unit, though sometimes it took a few tries to launch the on-screen touch keyboard. The new browser hides controls "above" and "below" the screen, so you have to flick to call them back. This shows pages in the full screen, but it also adds an extra step to access tabbed pages and other controls.

I also found myself frequently using the single Windows button on the bezel to exit programs and return to the home screen, just as I do with the iPad's single button, because it's not always obvious how to go back in an application.

As with the iPad, I find it impossible to type at work speed on the Windows 8 on-screen keyboard -- or most any touchscreen keyboard. But it's a big, nice keyboard with some unexpected flair; there's a smiley face emoticon key fixed to the left of the space bar.

The demo unit -- a widescreen Samsung slate with 4 gigabytes of RAM, a 1.6 gigahertz Intel Core i5 processor, a docking station and a Bluetooth keyboard -- included a handful of applications written over the summer by Microsoft interns. That's neat and shows that it's not overly difficult to write the apps, but several of the apps could have used more logical controls. I was unable to stop one of the games, for instance, which annoyingly kept running in the background after I launched other applications.

There were also times when the on-screen keyboard obscured what was being typed into forms on the screen, including forms for the AT&T wireless service provided with the loaner unit and the composing window of the blog software I'm using here. The keyboard doesn't detect that it's obscuring these things, apparently, and the programs hadn't yet been updated for Windows 8.

It's early beta software so you can't nitpick too much, but it was especially frustrating that I could not get Outlook Web Access to load via the Metro interface.

On the positive side, the Metro interface is going to create a rush of opportunity for developers on the Windows platform, which continues to dwarf the reach of the iPad and Google's fledgling Chrome operating system.

During Monday's session, Sinofsky noted that nearly 450 million copies of Windows 7 have been sold and its usage overtook that of Windows XP last week. Microsoft also is seeing 542 million people sign into its online services every month, mostly for Windows updates.

Several Gartner analysts I had lunch with Monday said they expect Windows 8 will appeal mostly to consumers at first. Corporate buyers, many of whom are still moving to Windows 7, may opt to skip Windows 8 and move directly to Windows 9, they said.

Big companies may be wary of switching to a system with a radically different interface that works best with touchscreens, which cost more than standard PC displays. But their IT departments will probably be enthused about its rapid reboot times and controls that speed the process of resetting and refreshing a PC.

For traditionalists, Windows 8 can also be run with the current, traditional desktop. One of the most prominent tiles on the start screen is called "Desktop" and switches the PC in a flash to a Windows 7 style. People using computers for work may spend a lot of time in this mode, which to me feels less distracting because it doesn't have tiles showing Facebook updates and news headlines urging me to venture online and see what's going on.

On the fancy Windows 8 slate I'm testing, the traditional desktop also worked fine with Outlook Web Access.

Going back and forth between the old and new interfaces made me think of Windows 8 as having right and left brain. The new, Metro interface is more artistic and creative and the traditional desktop remains more practical.

There are some cool new features accessible from both hemispheres. One is a vertical row of five key commands, called "charms," that appear down the right side of the screen when you flick a finger or cursor past the border. They include search, settings, devices, start and share. This start button takes you back to the home screen and the primary collection of tiles.

Among the "settings" called up are power, volume, brightness and wireless connections. One nice touch is that the wireless settings will inform you when you're using a metered wireless plan, and warn you before starting a big download. That lets you choose to wait until you're connected via Wi-Fi or a wired connection and avoid using up your monthly data quota.

Another nice and geeky new feature is the improved Task Manager, the control panel used to monitor and manage system activity. In a single pane it displays how much processing power, memory, disk activity and network bandwidth applications and processes are using.

It also shows off how Windows 8 suspends inactive applications, to conserve energy and give active programs the most oomph.

The devices option is limited at this point. It provides the option to send files to someone with a nearby device, such as a PC or phone, or to output audio and video to a computer or large-screen display nearby.

So, could this be your next PC?

(Microsoft gave these to the 5,000 developers to the conference. It's not clear whether Samsung will offer them commercially; Microsoft helped the company develop the system as a developer test bed.

It has an 11.6" diagonal screen, weighs 909 grams and is 12.9 millimeters thick. It can also run dual monitors through its HDMI port, has a 64 gigabyte solid-state drive and connects to AT&T's 3G wireless service.)

Financial analyst Rick Sherlund - who made his name covering Microsoft for Goldman Sachs - resumed coverage of the company today.

After a detour into hedge funds, Sherlund's now at Tokyo-based Nomura, where he initiated coverage of Microsoft with a "buy" rating and a $32 price target.

Sherlund's debut report on the stock said Microsoft's stock is clearly undervalued, the company's pivoting toward mobile devices and cloud services and preparing to launch new versions of its flagship products.

The report didn't have a big effect on Microsoft's stock today - it closed up 2 percent, at $26 - but it's likely to influence the conversation Wall Street types have with Steve Ballmer and other executives at the company's financial analyst meeting on Sept. 14.

Sherlund's expecting Microsoft to grow faster than generally expected in its 2013 fiscal year as it releases Windows 8 and Office 15.

Investors are "overly pessimistic" about MSFT and there's the potential for "multiple expansions in the stock," he wrote.

Sherlund raised concerns about Microsoft's future in the mature PC market, but he sees an upgrade cycle driven by Windows 8 "ultrabooks" - the term Intel's using for ultrathin mobile laptops with long battery life, near instant startup and solid-state storage.

A few excerpts:

We believe MSFT is compelling at current levels as the company repositions itself by addressing the convergence of touch-based ultrabook notebooks and tablets, introduces new cloud-based services and benefits from the coordinated launch of Windows 8 and an updated version of the Office Suite - all with investor sentiment at negative extremes (even our cab driver dislikes the stock).

Microsoft's stock value is "overly pessimistic":

But with the September analyst meeting a likely near-term benefit to investor sentiment, we think the stock offers optionality, a potential free look at the meeting. If investors are optimistic about the market opportunity of Windows 8 and the company's road map for repositioning itself for growth, then we think there is considerable room for multiple expansions in the stock.

On mobile devices challenging the PC market:

The rapid growth of mobile devices such as tablets and smartphones, which perform many of the same operations as a PC, but have the advantage of mobility, has pressured Microsoft's core Windows business. While Microsoft has a dominant share of the PC operating system market, the tablet and smartphone markets are dominated by Apple's iOS and Google's Android operating systems. As users substitute mobile devices for PCs, this eats into the high-margin revenue from Microsoft's Windows business. Additionally, the emergence of new form factors creates an elongated replacement cycle as customers decide which device best suits their needs, further depressing Windows revenues. Microsoft needs more simple, easy to download and use apps; a quicker tempo of new product releases; and a more vibrant mobile-oriented developer ecosystem and apps marketplace.

Windows 8 should be the catalyst:

Microsoft's strategic new version of Windows (Windows 8) supports touch capabilities and also supports, for the first time, the ARM processor (which is dominant on tablets and smartphones). With Windows 8, Microsoft will be able to address the tablet market and enhance the market for a new generation of touch-enabled notebooks, with swivel or detachable keyboards that will begin to blur the line between a tablet and a notebook, particularly as the new ultrabooks with Windows 8 are introduced, likely in mid-calendar 2012. There should be a healthy Windows 8 upgrade cycle in fiscal 2013 that benefits the stock. The stock did not respond well to the Windows 7 upgrade cycle because the Street was concerned about Microsoft's poor positioning for tablets and smartphones, so it is most important for the stock that investors' confidence in the company's ability to grow by addressing these markets improves. In our view, Windows 8 is the cornerstone to achieving this.

Meanwhile smartphones - not just the iPad - are hurting PC sales:

We believe the role of smartphones has been underappreciated and is likely playing a
bigger role in slowing consumer laptop sales than is reflected in the PC industry analysis,
as we discuss below. Were there no overlap in functionality with consumer notebooks,
we might conclude that this is perhaps a share-of-wallet issue (spending diversion
versus substitution), but smartphones are far less expensive and the upfront cost is
subsidized by the carriers, and there is a very substantial overlap in functionality with
notebooks for consumers, and even some business users who are more focused on
content consumption and communication than content creation.

Ultrabooks under $1,000 will drive PC upgrades in late 2012:

We believe that Windows touch capability, together with notebook hardware and software improvements delivering instant-on and always-connected capabilities plus the thin and light-weight advantages of SSD's and improved battery life, are likely to stimulate an upgrade cycle to a new generation of Windows 8 touch-based ultrabooks. These should be priced below $1,000, accelerating adoption and driving Windows sales, particularly as Windows 8 delivers tablet-like touch capabilities for these notebooks. We envision a hybrid device, with the functionality of a Windows notebook and some of the benefits of a tablet.

This leads to a big upgrade cycle:

We anticipate a big upgrade cycle as Windows 8 ships for consumer and business
notebooks, for which the touch capabilities of Windows 8 will add value to the notebook
experience. Windows 8 will coincide with improvements on the hardware side, including
being instant-on and constantly aware, and receiving e-mail and messages like a
smartphone or 3G tablet; it will also be lighter weight and thinner by leveraging off of the
decline prices of solid state drives (SSDs), and have longer battery life.

Investors aren't factoring in Office:

The Street does not appear to have focused on a potential new version of
Office, but this could be very beneficial to the stock, given that a new release of
Windows and a new release of Office timed to ship together would create a
potentially more robust upgrade cycle.

We expect to see the next major release of Office (we believe this is called
Office 15 internally) ship coincident with the launch of Windows 8.

Microsoft's back in the game:

Microsoft is getting in the game, we believe. While watching from the sidelines as the PC
industry is being eroded by Apple and Android-based smartphones and tablets, Microsoft
now, it appears, has a game plan that it is executing to with 1) the upcoming launch of
Windows 8 with touch capabilities, 2) Office 15 with touch capabilities and support for
ARM, 3) new cloud synchronization and collaboration services and 4) an effort to be
relevant to developers who want to write for the largest available market (which was
Apple's iOS first and then Android) - and what better venue to announce a new platform
for developers than the upcoming BUILD developers' conference. We are encouraged by
what we have been able to piece together and believe the actual plan will be articulated
beginning with BUILD.

Meanwhile Sherlund calls for a bigger MSFT dividend:

The share repurchase program was substantially reduced in the past two quarters and we question whether the company might shift the use of cash more to dividends given that some shareholders would like to see a more material dividend than the current 2.5%

Hewlett-Packard unveiled a line of new "all in one" desktop PCs, including touchscreen models that look like good candidates for running Microsoft's upcoming Windows 8 operating system.

They range in price from $399 to $899 for the base models, with screen sizes ranging from 20 to 23 inches diagonally and touches like HDMI output and slot-loading disc drives on some models.

HP already offers some of the nicest all-in-one Windows machines, which stuff the computing hardware behind the monitor. They're not as gorgeous as Apple's iMac but they cost around half as much, which puts the convenient "computing console" design into reach for mainstream buyers.

There's growing interest in this style of PC, according to market data HP provided in its release. During July, 34 percent of consumer desktop sales were all-in-one systems, according to NPD.

Business users also plan to buy more all-in-ones, which take up less space and don't need a bunch of wires connected. Among "commercial PC users," plans to buy an all-in-one will grow to 15.7 percent from 9.9 percent over the next 12 months, according to IDC research.

"The popularity of the all-in-one form factor continues to grow, and HP's contribution to this market is significant," Todd Bradley, executive vice president of HP's personal systems group, said in the release.

Yet HP is still thinking about jettisoning its PC business under a reorganization announced last month that walloped the company's stock.

The systems announced today include redesigned TouchSmart desktops - the more powerful models with touchscreen displays. They have a silver external frame design and base, upgraded "Beats" audio systems and screens that tilt back up to 30 degrees.. They also come with new version of HP's desktop software that emulates the Mac desktop, with application icons spread across the bottom of the screen.

The new PCs - especially the ones with the powerful, latest-generation Intel Core processors - will presumably work well with Windows 8, which has Microsoft's "Metro style" interface displaying a group of large tiles on the desktop. They are tapped or clicked to launch programs, and can be rearranged and customized, similar to the way you can change the display on phones running Microsoft's Windows Phone 7 software.

HP didn't mention Windows 7 at all in its release - perhaps because of its cool relationship with Microsoft - and declined to comment specifically on whether the new systems are being designed with Windows 8 in mind. It didn't mention anything about offering these PCs with its WebOS software, although that was the direction it was headed earlier this year.

The emailed response to my question about whether the new touch computers were designed with Windows 8 in mind:

"HP knows people expect a lot from their technology - from the overall design to the user experience. Our new all-in-ones were designed with this in mind, combining a full featured PC and a high definition display into an elegant, modern design that complements the user's environment instead of trying to define it."

HP also updated are the designs of its lower-end all-in-one desktops without touch input. The $399 models is rounded and funkier looking, like the budget all-in-one "net tops" offered by companies such as Asus, MSI and Lenovo.

Only partial details of the hardware were available, but here's what I was able to find out about the lineup and processors:

Omni 120, 20" screen, available Sept. 21, starting price of $399.

- Base configuration includes: AMD dual core processor, 2GB memory, 320GB hard drive, ATI Radeon graphics, wired keyboard and mouse

-Base configuration includes: Intel core i3 processor, 4GB memory, 750GB hard drive, Intel HD graphics, wired keyboard and mouse

-Base configuration includes: AMD dual core processor, 2GB memory, 320GB hard drive, ATI Radeon graphics, wireless keyboard and mouse

-Base configuration includes: Intel core i3 processor, 3GB memory, 500GB hard drive, Intel HD graphics, wireless keyboard and mouse

-Base configuration includes: Intel core i3 processor, 4GB memory, 750GB hard drive, Intel HD graphics, wireless keyboard and mouse

Also announced were two new TouchSmart models for business customers.

Here's the $399 Omni 120:

Here's the $699 TouchSmart 420:

The $799 Omni 220:

A side view of the $899 TouchSmart 520:

Steve Jobs did his old employer one last favor.

By resigning from Apple last week, Jobs made everyone briefly forget that Hewlett-Packard, where he had one of his first jobs, had just hobbled itself.

It may seem like ancient history, but HP's debacle isn't over yet, and the outcome will reshape the tech industry and the lives of tens of thousands of employees across the West.

The world's largest PC maker and cornerstone of Silicon Valley announced Aug. 18 that it was killing its new flagship Web tablet and may jettison its PC business.

Simultaneously, Chief Executive Leo Apotheker (left) doubled down on its higher-margin corporate-technology business, bidding more than $10 billion for a relatively low-profile British enterprise software company.

HP's stock was in the $40s in the spring, the mid-$30s in early summer and then plunged below $25 on the news (see chart). HP lost more than $10 billion in value, and the fabled company may be a takeover target, ready to be sliced and diced.

There's no doubt the PC industry is in a slump, and HP's TouchPad tablet was a dud.

But the PC industry is cyclical, and in past years its growth lifted other parts of HP's business. In the fiscal year that ended last October, HP's personal-systems group -- the unit that sells PCs -- accounted for half the company's net revenue growth.

The group's sales were up 15 percent in fiscal 2010, to $40.7 billion, and its profit grew 5 percent to $2 billion.

Yet, in 2009 and 2010, HP cut the percentage of the group's revenue spent on researching and developing new products.

That's a far cry from the legendary invention factory that gave Jobs a summer job in his teens and served as an early role model for Apple.

What's most striking is that HP has been acting just the way Wall Street encourages tech companies to behave. It's been ruthless on costs, and unsentimental in deciding to slash core businesses and chase products that, for now, have higher margins.

But instead of applauding these bold moves, investors have savaged HP. Ratings agencies raised red flags and several research firms downgraded its stock after the announcement.

Some Wall Street sirens still praised the approach, if not the execution. Credit Suisse's Kulbinder Garcha told The Wall Street Journal that HP had the "correct strategy" in buying the British company, and Gleacher & Co.'s Brian Marshall told the paper, "HP is undergoing a sound strategy transformation by focusing on high-growth, high-margin opportunities."

We may hear more of this in a few weeks when Microsoft holds its annual meeting with financial analysts. They've perennially asked the company to slash costs. In recent years, as Microsoft stock lagged despite the company's steady growth, some began calling on Chief Executive Steve Ballmer to break the company apart.

This would enable investors to choose only the most profitable groups, instead of having to bet broadly on the whole company.

It's a cynical and greedy approach.

Global tech companies that take the long view use proceeds of their hits to develop new products that may take years to crystallize and become profitable. Eventually this broadens their reach into new markets, grows profit and stabilizes companies that employ tens of thousands of people and provide tools the world depends upon.

Multiple businesses balance each other through cycles. Strong Xbox sales made up for slowing Windows sales during Microsoft's last fiscal year.

Instead of laying people off when its core product slowed, Ballmer announced across-the-board compensation increases that take effect in September, because "success comes from the people who work here," he said in an April memo.

Microsoft hasn't charmed Wall Street in years, and Ballmer doesn't seem to bother.

That's one way to deal with Wall Street. Another is Apple's approach, which is to play the Street like a Garageband guitar.

For instance, the day before Jobs resigned, someone told The Wall Street Journal that the iPhone 5 will debut in October on Sprint as well as AT&T and Verizon Wireless. Who would sell Apple stock right before an iPhone launch, Jobs or no Jobs?

Then we have HP's approach. Apotheker is still trying to make his mark, in the footsteps of past HP bosses who cut thousands of jobs and spent heavily on acquisitions to boost growth and woo investors. I'll bet he takes the fall for clumsily attempting to give the queen of the PC industry a quick and dirty makeover.

When it comes to tech companies of a certain age, Wall Street is like a rude old man who presses his wife to get a radical face-lift and boob job because he can't see her beauty and lusts for a young filly.

HP is the latest reminder that you'll never be happy in a relationship like that: It went under the knife and still ended up forlorn, dumped on the curb.

Microsoft is showing off new Windows hardware at a Tech-Ed developer conference in New Zealand, including a quad-core slate device and laptops with flexible metal screens.

Blogger Alan Burchill posted photos of the hardware at his blog, which I learned about via Mary Jo Foley.

The hardware will probably be fully unveiled in September at the Build Windows event showcasing Windows 8, which is coming out in 2012.

But the quad-core tablet device will come out sooner, by the end of the year, running Windows 7, according to a Microsoft-produced video (below) from Tech-Ed that Mary Jo called out. She also speculated that the quad-core devices could be hardware that developers are given at the Build conference to test Windows 8 and start developing applications for the new operating system.

Qualcomm, Intel, Nvidia and AMD all announced quad-core mobile hardware earlier this year. Nvidia was to begin producing its quad mobile processors in August and Qualcomm was going to begin shipping quad-core Snapdragon systems by the end of the year, according to Silicon.com.

Pricing of the Windows tablets wasn't disclosed but the video provides clues to selling points that Microsoft will emphasize to compete with the iPad and other tablet devices.

One of the devices shown has a replaceable battery that is described as being more sustainable than the fixed iPad battery, and all the Window devices have enterprise management tools. Another has 1080p video and all-day battery life, and the laptops highlighted have solid-state hard drives for ultrafast startup.

Reuters added to the growing pile of rumors about upcoming Apple hardware with a report today on a cheaper version of the iPhone 4 that could launch "within weeks."

The report said Asian suppliers have begun manufacturing a model with reduced memory - 8 gigabytes instead of the current entry-level 16 gigs.

It's unclear how much the cheaper iPhone would cost and where it will be distributed, though it may be headed for emerging markets.

The report, citing "two people with knowledge of the matter," said Apple will also launch an upgraded version of the iPhone 4 around the end of September. It's been dubbed the iPhone 5, though it's basically the same chassis as the iPhone 4 but with a larger display, better antenna and 8 megapixel camera, the report said. That would bring its specs closer to carriers' flagship Android and Windows Phone 7 devices.

Other sources have been reporting that Apple's testing an LTE version of the iPhone but it apparently won't go on sale until sometime in 2012. That's to be expected since the two largest wireless companies are now operating LTE networks and Apple's a major phone manufacturer. What would be surprising is if Apple weren't yet testing LTE technology.

There's also a very thinly sourced report out of Japan about Apple releasing new Macs by the end of the year. There's speculation that it's a refresh of the MacBook line.

It also seems likely that Apple will eventually offer touchscreen PCs that can take better advantage of touch apps developed for the iPhone and iPad.

My guess is that Apple will time the phone launches to take the wind out of Microsoft's Windows Phone 7.5 "Mango" launch and the debut of the first Nokia Windows phones, which may surface by October.

Similarly, it could time the unveiling of new Macs to steal thunder from Windows 8 and the new generation of Windows PCs running Microsoft's new operating system. The full unveiling of Windows 8 is expected at a developer conference beginning Sept. 13.

Both Windows 8 and "Mango" phones will be highlighted at the Microsoft conference, which is a major event for the company's new mobile platforms. So you can expect the flow of disclosures about exciting new things from Apple and Android will increase in the coming weeks.

Finally, an official Kinect air guitar game is here.

Microsoft today announced "Air Band," a downloadable game/tech demo for the Xbox 360 Kinect that tracks your hands as you play pretend instruments such as guitars, drums and keyboards. It looks like it will capture gestures, like swinging the axe, but not fingering.

The game is for one or two players, but it's less of a full-blown game than a gadget showcasing Kinect capabilities. It's being released through Microsoft's Kinect Fun Labs tech showcase and costs 240 Microsoft points, or about $3.

If you want to save the $3 and have the hardware and programming skills, here's a homebrew version written in C++ using openFrameworks and openCV for image processing that surfaced in December.

"Air Band" was teased during the opening session of Gamefest, a game developer conference that Microsoft is holding at the convention center in Seattle today and Tuesday, before the PAX game conference takes over the center on Friday.

A screenshot of "Air Band":

It took a bit longer than expected, but the university in Ghana started a decade ago by a visionary Microsoft engineer finally has its own campus.

Ashesi University is moving from rented space in the city of Accra to a 100-acre suburban campus formally opening Saturday.

A contingent of supporters from the U.S. -- many with Microsoft ties -- will join ambassadors, Ghanaian officials and village chiefs for the opening.

Several said the campus is much more than a collection of new buildings for the school. It represents the vision and commitment of Patrick Awuah, who left the security of a job writing software in Redmond to pursue a crazy dream building a university in his homeland.

Awuah, 46, wasn't one of the Microsoft stock-option jillionaires. He was just an engineer in his 30s with an audacious idea he left to pursue in 1997.

Awuah's goal was to offer Ivy League-caliber education in Africa, to create ethical, broad-minded leaders who would go on to elevate the continent.

That started happening even before ground was broken on the campus, where the first students began moving into dorms last week.

Ashesi began offering classes in 2002, and enrollment has grown from 30 to about 500. Most graduates have stayed in Africa and all have jobs in fields such as finance, technology and education.

In 2008, the school began breaking even financially and started raising money for the campus -- just as the economy crashed. But Ashesi's early success helped raise $6.9 million for the project.

Here's the August, 2009, groundbreaking ceremony; Awuah's in the blue shirt:

Here's a picture taken last week at the campus, looking toward the library:

Among Awuah's early backers was Paul Maritz, a Zimbabwe-born former top Microsoft executive now chief executive of VMware in Palo Alto, Calif.

"Ultimately, the future of Africa lies in the hands of Africans, and in particular a new generation of leaders who can give the continent the leadership it deserves," Maritz said via email. "Ashesi represents an extraordinary effort by a true African hero [Patrick] to prepare this next generation of leadership and imbue it with the values that they will need."

Awuah said he's thrilled and relieved that the campus is finally open, but his project continues.

"It feels wonderful to be in our own space and it's a major milestone for us, but no, we're not done," he said.

After the opening ceremonies, Awuah is meeting with trustees to chart the school's next decade of growth.

Plans aren't final yet, but Ashesi is likely to begin offering new majors in engineering and science -- in addition to the current, four-year degrees in computer science, business administration and management information systems.

Ashesi already has been working on curriculum with Awuah's alma mater, Swarthmore College in Pennsylvania. He arrived there from Ghana with a scholarship and was hired by Microsoft after he graduated.

Among people he initially worked with was Mike Murray, who co-founded the international philanthropy Unitus after retiring from Microsoft in 1999. Murray and his wife gave Awuah one of his first grants.

"Ashesi's unique in that it takes an extremely bold vision and courage to say, 'I'm going to start a new university in a developing country from the ground up,' " Murray said. "The common response to that would be, 'You're nuts' or, 'You're crazy.' "

It turned out to be a great investment. One college graduate in Ghana potentially helps up to 100,000 others directly and indirectly, Murray said.

"Not only are you going to help individuals, it's going to help the entire country," he said. "The proof is in the pudding -- the goal and the dream was that these students would get great educations and then stay in country, and that is proving to be what's happening."

The campus will keep growing. It can now accommodate 550, with room for most in its dorms, but there's space for 2,000 students eventually.

Among those at Saturday's ceremony will be Ruth and Todd Warren of Seattle, who helped raise money for the campus and will have the library named after them. Todd Warren retired from Microsoft in 2009 as vice president of Windows Mobile and is on Ashesi's board, and Ruth Warren led the campus capital campaign.

"We're so excited to have the campus and buildings but the school is more than that. We have this unique educational model," she said. "We couldn't have done this and built the campus without proving that the model works. The success of our graduates provides this."

One priority may be adding more space for large gatherings.

The school has a central courtyard that serves as a natural amphitheater. That's where Saturday's ceremony was going to be held.

But a regional chief invited so many other chiefs and dignitaries that more than 1,000 attendees are expected. Events had to be moved to a larger, open space that serves as a parking lot.

When Ashesi asked the chief about the protocol for such events, "He basically told us we didn't understand how significant this was -- this is the first university in the whole region and they really care about education, and they invited all the chiefs from this whole traditional area," said Matt Taggart, associate director of development.

Maritz also sees broader significance in the school's milestone.

"The most leveraged thing those of us on the outside of Africa can do is to support these kinds of efforts to bring about deep, bottom-up change. Everything else is just a Band-Aid," he said.

"The fact that Ashesi has survived its infancy and is now entering into the next phase of its growth is an enormous testament to what can be done with comparatively modest resources to create what Africa most needs, which is lasting and effective institutions -- the new campus is the visible symbol of that."

Awuah said he's especially pleased that alumni, students and faculty contributed to the school's permanent home.

"I can feel it when the staff sees the donor wall. The pride they have is phenomenal," he said. "It feels great."

Ceton's going outside the box.

The family-run Kirkland hardware company today announced an external, plug-in version of its TV tuner for Windows PCs.

Called the InifiniTV 4 USB, the $299 gadget has four tuners that can simultaneously stream four live high-definition channels at once.

It's designed to work with Windows 7 PCs that include Media Center. It also accepts CableCard devices provided by cable companies.

The setup lets you replace cable company set-top boxes with a PC, which can stream the live and recorded TV around the home using "extender" devices such as an Xbox 360 console.

Pre-orders for the device begin Aug. 19 from a few online retailers. Broader available is expected in September, and shipping is planned to begin Sept. 19.

It looks like a cool device but buyers may think about waiting until shipping begins. Ceton's tuners are much appreciaed by Media Center enthusiasts but the company's initial production last year took than expected.

The company also announced today that the price of its internal quad tuners is now $299, down from $399 when they debuted in May 2010.

Medina software pioneer Charles Simonyi is backing a $100 million challenge grant to the Institute for Advanced Study at Princeton, the largest gift since the research center was founded in 1930.

The $100 million is expected to be matched by other grants over the next four years, giving a huge boost to the institute, which has supported the work of scientists such as Albert Einstein, Kurt Godel, J. Robert Oppenheimer and others.

The challenge grant was made by the Charles and Lisa Simonyi Fund for Arts and Sciences -- which has also given to the Seattle Symphony, Seattle Public Library and the Museum of Flight -- and the Simons Foundation.

"The institute's role in promoting and cultivating original scholarship in the sciences and humanities is unparalleled," Simonyi said in a release. "It is of utmost importance to sustain the work of this institution of international renown and reach where scholars have the freedom to pursue their research in an environment dedicated to the advancement of ideas that change our understanding of the world."

Simonyi, who helped create Microsoft's application software business, earlier supported the insititute's school of mathematics, endowed a theoretical physics professorship and started an endowment fund. In 2000, the math school's building was named Simonyi Hall.

Hewlett-Packard, the world's largest PC maker, just announced that it's looking to spin off its PC business and killing off the Web tablet it launched a month ago.

This comes a year after HP spent $1.2 billion buying Palm and its webOS business, so HP could have its own operating system and build its own developer ecosystem, instead of using Windows'.

Chief Executive Leo Apotheker -- who joined HP in November after a career at business software giant SAP -- is playing to Wall Street and converting HP into a higher-margin, enterprise company.

It looks like he's copying IBM, which sold its PC business to Lenovo in 2004 so it could focus on business servers, software and services.

From the executive suite, HP's move may look decisive and maybe it will pay off in the long term.

But from a distance it looks like more wild directional changes at a storied company that has lurched back and forth in search of a strategy under a series of challenged chief executives.

The only thing consistent about HP lately is its apparent hatred of Microsoft.

Carly Fiorina abandoned HP's storied culture and laid off thousands to appease Wall Street. Along the way she cozied up to Apple. She was replaced by Mark Hurd, who was shown the door after fudging expense accounts to cover dates with an actress. Hurd was pals with Microsoft's nemesis Larry Ellison, and now works with him at Oracle.

Before he left, Hurd bought Palm and its operating system, enabling HP to begin weaning itself from Windows. Hurd also named Netscape co-founder Marc Andreessen to HP's board in 2009.

Now, by turning HP into an enterprise software company like IBM and Oracle, Apotheker's making HP even more of a competitor with Microsoft.

As part of this new emphasis, HP is spending $10 billion to buy Autonomy Corp., a British company that makes software companies and governments use to search and analyze their data.

The planned PC spinoff and Autonomy purchase were announced along with HP's earnings during the third quarter. It netted $1.9 billion on sales of $31.2 billion - a 9 percent increase in net profit over the same period the year before, and a 1 percent increase in sales. Its release noted that consumer sales were down 15 percent and its business sales were up 5 percent.

HP's personal systems group netted $567 million on sales of $9.6 billion, compared to a profit of $469 million on sales of $9.9 billion a year ago.

Apotheker arrived during a low point in the cyclical PC business -- after the rush of netbooks and initial burst of Windows 7 upgrades, at the peak of the computer industry's iPad envy.

The next PC upgrade cycle is just around the corner, with Windows 8 and new mobile hardware.

But HP decided a year ago that it could do better going its own way, with webOS and devices like its TouchPad, which has been a flop.

Instead of sticking with its new computing platform strategy, though, HP's dumping it the month after its flagship product launched.

And instead of trying to get back in sync with its PC industry partners, HP is throwing in the towel with its personal system business.

HP will presumably sell its PC business to one of the Asian manufacturers. There will still be plenty of options for consumers and businesses who will continue buying hundreds of millions of PCs a year.

That will leave Dell as the last major U.S.-based manufacturer of Windows personal computers.

Meanwhile, thousands of HP employees - including many in the Northwest -- are in limbo, and the PC industry is losing another one of its pioneers.

One more thing: Wall Street types often call on tech companies to split apart and divest slower business groups. HP's doing just that, but investors responded today by ditching its stock: It fell 6 percent in regular trading and another 10 percent after hours to $26.61.

The $50 PlayStation 3 price cut on Tuesday was just the start of Sony's fall blitz.

Today, the company announced a partnership with DirecTV to stream NFL games to the console.

Both Microsoft and Sony have added sports programming to their consoles to broaden their appeal as entertainment hubs.

The Xbox 360 streams ESPN3 sports content for free, to people who already have some sort of cable subscription, and Sony earlier gave the PS3 apps for subscribing to MLB and NHL packages.

Now, PlayStation owners can stream out-of-market games via DirecTV's Sunday Ticket service for $339 per season, or $50 if they're already DirecTV Sunday Ticket subscribers. Up to 14 games will be streamed via broadband on Sundays.

It doesn't sound as if the Sunday Ticket service is coming to the Xbox this year, at least.

"This isn't an exclusive deal but right now there aren't any plans to bring it to any other game console makers this season," said DirecTV spokesman Robert Mercer.

He added that the plan was to "work with a single partner this year so we have a point of focus to make sure PS3 customers have a great experience."

DirecTV has been pushing to extend the NFL package beyond its set-top boxes and now distributes it to connected devices such as smartphones and Web tablets.

The company also worked with the NFL to display subscriber's fantasy football teams and scores on-screen while watching games, if they're using the NFL.com fantasy service.

Meanwhile Microsoft's NFL presence this year may end up being its logos plastered all over the Seahawks stadium. A spokesman declined to comment.

Screenshots of the DirecTV service on the PS3, showing its icons, and the normal display:

Microsoft is rolling out the digital red carpet for the full Windows 8 unveiling next month the company's developer conference.

Windows boss Steven Sinofsky today posted the first item in the "Building Windows 8" blog, where his team will "begin an open dialog" with beta testers who will start using the software in the coming months.

Sinofsky said the new operating system "reimagines Windows for a new generation of computing devices, and will be the very best operating system for hundreds of millions of PCs, new and old, used by well over a billion people globally."

He didn't reveal much about the company's new flagship product but promised to share more details about its features "in the next few weeks."

The timing disclosed in the blog is the biggest news - the feature disclosures indicate the new operating system is nearly done, and the beta testing comment tracks with expectations that a test version will be released at or shortly after the Build Windows conference starting Sept. 13 in Anaheim.

The blog is an updated version of the one Sinofsky produced ahead of the Windows 7 release (it began on Aug. 17, 2008). This time there's also a companion Twitter feed - @BuildWindows8.

The new blog is apparently also intended to address frustration with the slow dribble of information about the software that will be the cornerstone of the PC industry for much of the next decade.

Sinofsky explained the approach to disclosure:

"We've heard people express frustration over how little we've communicated so far about Windows 8. We've certainly learned lessons over the years about the perils of talking about features before we have a solid understanding of our ability to execute. Our intent with this pre-release blog is to make sure that we have a reasonable degree of confidence in what we talk about, before we talk about it. Our top priority is the responsibility we feel to our customers and partners, to make sure we're not stressing priorities, churning resource allocations, or causing strategic confusion among the tens of thousands of you who care deeply and have much invested in the evolution of Windows. Rather than generating traffic or building excitement, this blog is here to provide a two-way dialog about the complexities and tradeoffs of product development."

Here's a look at some of the ways pundits are dissecting Google's bodacious $12.5 billion bid for Motorola Mobility.

Regulators will be all over this deal, wrote Arik Hesseldahl at All Things D:

"Whatever happens, it's going to take Google some time to get this deal done, and if it does get approved, you can expect some significant regulatory concessions."

Motorola Mobility gives Google a deterrent for its nuclear patent war with Microsoft, Apple and others, wrote Tim Bradshaw at the Financial Times:

Patent battles are a little like nuclear war: for there to be peace, each side must have armaments equally assuring mutual destruction.

Motorola has more than 17,000 active patents, dating back to the earliest mobile-phone technology, and another 7,500 going through the mill.

Google may have just acquired an instant nuclear deterrent - and that's something that the companies who have come to rely on Android may welcome in spite of the new tension the deal creates.

Google's wasting $12 billion on weak patents, Andrew Orlowski at The Register wrote (headline: "Has Google wasted $12bn on a dud patent poker chip?):

"These radio and design patents of legacy manufacturers such as Motorola or Nokia really aren't worth quite as much as their owners think they are.

Google has paid $12.5bn for a negotiating chip that appears to be almost impossible to redeem. In this light, the acquisition looks like panic, rather than a calm and carefully deliberated strategy."

The deal's not about patents as much as Google's evolving business model - and other phone companies should be scared, wrote Florian Mueller at Foss Patents:

It would be a mistake to look at this as just (or primarily) a patent deal. We're looking at a deal that would fundamentally change Google's Android-related business model ... The likes of Samsung, HTC and LG obviously don't have any other choice than to say at this point that they welcome the deal. They will continue to say that for some time. They obviously weren't going to bash the deal in public. But there's no way that they can compete with a Google-owned Motorola Mobility on a level playing field.

Google TV will be a huge beneficiary, since the deal gives Google the leading set-top box maker, Ryan Lawler and Ryan Kim wrote at GigaOm's NewTeeVee blog:

Until now, most set-top boxes have run proprietary operating systems. As a result, offering up Google TV as the underlying OS could simplify and accelerate the rollout of new applications on cable systems, which could improve the overall user experience on the set-top box. And by pitching Google TV as the underlying OS for Motorola set-top boxes sold to TV operators, it could very quickly create a large install base for developers to build applications for. The one question is how open that set-top box will remain if Google shifts from a consumer- to a carrier-based model for Google TV.

Even Google's Larry Page weighed in on his company blog:

The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders.

I look forward to welcoming Motorolans to our family of Googlers.

But the deal could be a debacle for Page, thrusting him into "a crappy, low-margin commodity business," wrote Henry Blodget at Business Insider:

Google deserves credit for a big, bold move. But let's be real: This deal could end up being a disaster. How? Well, for starters, the deal creates major channel conflict: Google is now competing with its partners. And hardware manufacturing is an entirely different kind of business than Google's core business. And hardware manufacturing is a crappy, low-margin commodity business. And Motorola is massive--Google has just increased the size of its company by 60%. And the deal appears to be purely a defensive move, not an offensive one. And so on.

If investors are disappointed in Microsoft's record earnings today, they should blame netbooks and Puerto Rico.

Those were two negative items buried in the companies report on earnings during the last quarter and fiscal year that ended June 30.

Sales were up 12 percent and net profit was up 23 percent, while the PC market was nearly flat.

A few nuggets from the fine print:

OFFICE

Business purchases of Microsoft Office and other productivity applications grew 13 percent, and sales to consumers grew 33 percent during the fiscal year. Consumer sales were down 8 percent in the quarter, compared to the launch period the year before.

XBOX

Kinect kept the Xbox 360 growing and helped the business break $1 billion in operating profit during the fiscal year. Its sales over the year grew 45 percent, including a 30 percent gain last quarter. Sales were $8.9 billion and operating profit was $1.3 billion for the year, up 114 percent from the $618 million recorded last year.

Microsoft sold 13.7 million Xbox 360 consoles during the fiscal year, up from 10.3 million the year before.

There was no word on the performance of Windows Phone, which is part of the same Entertainment and Devices Division. During the earnings call, when asked about how the Nokia deal and upcoming "Mango" version of the phone software will affect sales, Microsoft totally dodged the question and pointed back to the Xbox growth.

BING

Online advertising sales grew 20 percent in the quarter, to $597 million, and 19 percent through the fiscal year, to $2.3 billion. For perspective, the New York Times today reported that its ad sales for the last quarter were $302 million, down 4 percent.

Microsoft cited outside analysts pegging Bing's U.S. market share at 14 percent, or 27 percent if you count Yahoo search powered by Bing.

SERVER & TOOLS

Microsoft spent more providing enterprise services to big customers and paying fees to outside enterprise advisors, but it paid off. Server and tools sales grew 11 percent and operating income grew 19 percent.

Unless the Windows division picks up the pace, Server & Tools is on pace to become a bigger business for Microsoft. S&T sales were $17 billion last year and Windows' were $19 billion.

WINDOWS

What happened to Windows? PC sales are still recovering from consumers' netbook bender:

"We estimate that sales of PCs to businesses grew approximately 8% this quarter and sales of PCs to consumers declined approximately 2%. The decline in consumer PC sales included an approximately 41% decline in the sales of netbooks. Taken together, the total PC market increased an estimated 1% to 3%."

Windows was also "negatively impacted" by growth in developing countries where average selling prices are lower.

CASH & EXPENSES

The cash pile grew to $52.8 billion, up from $36.8 billion at the end of fiscal 2010.

That's after handing over $16.7 billion in dividends and stock buybacks last year and $15.9 billion the year before. (When's Apple going to follow suit?)

Perhaps anticipating Wall Street questions about a 19 percent increase in administrative expenses during the last quarter, Microsoft blamed Puerto Rico.

It said a $192 million increase in general and administrative expenses were "due primarily to new Puerto Rican excise taxes and higher headcount-related expenses."

Is Puerto Rico providing cover for the big raises that Steve Ballmer announced in April?

TAXES

Microsoft worked the globalization thing. Its effective tax rate for the quarter was 7 percent for the year, down from 25 percent the year before. For the year it was 18 percent, down from 25 percent.

Its explanation:

"Our effective tax rate was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore and Puerto Rico, which are subject to lower income tax rates."

Puerto Rico, again.

Check out the Star Wars themed Xbox 360 console that Microsoft and LucasArts unveiled today at the Comic-Con convention in san Diego.

The console is designed to look like R2-D2, and it comes with a C-3PO controller. It also has a white Kinect sensor, which comes in a $449.99 bundle with the new Kinect Star Wars game and is now available for pre-orders.

Microsoft also revealed a new Podracing mode for the game that will be released in time for the upcoming holiday season.

The first Nokia Windows Phone -- the shining hope of Microsoft's future in mobile devices -- was revealed in this video by Nokia Chief Executive Stephen Elop.

Elop asked the room full of employees not to take any pictures or video of the "super confidential" device but someone did anyway. I found this via Liveside.net.

In the video, Elop talks about how the advances seen in Nokia's new N9, which was unveiled Tuesday, will be extended to the Windows devices. No wonder Nokia didn't deny this speculation when the N9 was revealed earlier this week.

"There's a whole collection of innovation in the N9 that's going to live on," he said, before revealing a phone code-named "Sea Ray," Nokia's first Windows phone.

The phone looks great, which may be the reason that details of Apple's upcoming new iPhone were released early, in Wednesday's Bloomberg story.

Sea Ray has roughly the same physical design as the N9 and sports an 8 megapixel camera with a Carl Zeiss lens. It appears about a minute and a half into the video.

I wonder if the code name is a reference to a Sea Ray boat, the kind that Microsoft executives may use to visit each other's homes along the eastern shore of Lake Washington.

Here's a larger picture of a Sea Ray:

A strong voice joined the chorus saying that Apple will release the iPhone 5 in September. Bloomberg's reporting that the device is coming with a more powerful chip and an 8 megapixel camera, up from the current 5 megapixel version.

Apple's also testing a new iPad with a higher resolution screen like the one used in the current iPhone, the report said.

It cites "two people familiar with the product" and said Apple declined to comment.

But the report comes as a wave of competitive new phones are being released, some for the fast new wireless networks that Apple hasn't yet enabled the iPhone to use.

Firmer reports about the new iPhone create uncertainty among phone buyers considering recently released phones, and cast a shadow over Microsoft's Windows Phone launch and new Nokia hardware coming later this year.

The Bloomberg story said the phone will look similar to the current iPhone. It suggests more common hardware between the iPhone and iPad. The iPhone 5 will use the A5 processor that's used in the iPad 2, while the tablet device is getting a display with resolution similar to the current phone.

The report also said Apple's working on a smaller, lower-priced iPhone aimed at overseas markets.

Nokia introduced a gorgeous new touchscreen phone that hints at the kind of hardware that could come with Windows Phone software later this year.

The N9 unveiled at a conference in Singapore is running the Meego software that Nokia is phasing out in favor of Windows, but the real sizzle is its industrial design and specs. It has a 3.9-inch curved AMOLED touchscreen behind Gorilla glass, with a 1 gigahertz A8 processor, 1 gigabyte of RAM and 16 or 64 gigabytes of storage.

It has no physical buttons at all on the face, so you unlock the device by tapping on the screen.

Nokia has also given the device an 8 megapixel Carl Zeiss wide-angle lens that takes 720p video, plus a second camera for video calls. Its HSDPA radio is capable of up to 14.4 Mbps downloads.

Nokia's going to release a mix of Windows Phone models by the end of the year, and it seems a good guess there will be an upper-end version based on this chassis.

(UPDATE: Nokia scheduled a big event for Oct. 26 in London and some are speculating that's when the Windows Phones will debut.)

Meanwhile Nokia will begin selling the Meego-powered N9 "later this year" in black, cyan and magenta. Nokia said availability and pricing will be "announced closer to the sales start." (I wonder if it will appear before or after the iPhone 5, which is rumored to be coming in September.)

The phone also has turn-by-turn navigation for walking and driving and a built-in "Drive" app for automotive use. Microsoft plans to use Nokia's navigation technology as part of their partnership so perhaps this is another preview of what's coming to Windows phones.

A Nokia spokeswoman declined to say whether the N9 hardware will be used with Windows Phone software, saying via email that "we have not provided further information on our first Windows Phone devices at this time."

It also has NFC capability, for wirelessly making credit transactions, which will probably be a standard feature on smartphones pretty soon.

Here's Nokia's demo video:

Microsoft's next Xbox will be unveiled within a year, probably at next year's E3 conference in June 2012, according to a report at VideoGamer.com.

Citing a source at game developer Crytek, the report said Microsoft's gearing up to release its new console ahead of Sony's next PlayStation. The timing would also put the new Xbox on the market at roughly the same time Nintendo releases its Wii U.

From the report:

"The Crysis 2 developer says that Microsoft will announce the existence of a new Xbox within the next 12 months, hinting that an E3 2012 reveal is likely. Crytek believes that Microsoft will announce and launch its new machine ahead of rival Sony, though the developer is also investing resources into next-generation PlayStation development."

This follows a May report that said Microsoft had delivered an early version of the new console - a development box - to Electronic Arts.

Microsoft executives have said they intend to keep selling the Xbox 360 through 2015, and they characterized last year's arrival of the Kinect as essentially a new platform launch, though that doesn't rule out a new system being available before then.

Especially if Nintendo's Wii U starts attracting the hardcore gamers who are responsible for much of the 360's success.

A Microsoft spokesman declined to comment on "the rumors."

Video game sales dove 14 percent in May, nearly erasing the 20 percent gain seen in April, according to NPD's latest report on U.S. game sales.

It was the worst showing since October 2006, pulled down by a slim lineup of new games, the firm said.

The research firm politely waited until after the E3 show to release the data, which would have cast a shadow over the event and changed the tenor of its press coverage.

Total sales were $743.1 million, down 14 percent from $866.8 million last year.

Game software sales were $400.1 million, down from $503.8 million in May 2010. But the report only includes physical games, hardware and accessories and not digital downloads, NPD analyst Anita Baker noted in the release.

"Keeping in mind that these sales figures represent just the new physical portion of the market for video game hardware, software, and accessories and not the growing portion of the industry that is comprised of digital format content distribution, May 2011 was the lowest month of sales for the industry since October 2006. A light slate of new releases is at the heart of this month's performance."

Baker said there were 42 new titles, but SKU, last month, compared to 58 in May 2010 and 72 in May 2009. This in turn reduced promotional activity and advertising, "which undoubtedly affected not only planned but impulse purchases."

All platforms saw declines except the Xbox 360, which was about flat - posting a 1 percent gain. The Xbox has accounted for 34 percent of physical game sales year-to-date, a share increase of 7 percent over last year, NPD said.

Microsoft said the Xbox 360 platform accounted for $265 million in retail sales in May.

Sony's PlayStation 3 and PSP also gained during the month and Nintendo's 3DS sales were "light" though NPD's expect a bump with the "Zelda" game for the 3D handheld.

Here are May's top 10 games in retail, in order of sales:

L.A. Noire (360, PS3)
Brink (360, PS3, PC)
Lego Pirates of the Caribbean: The Video Game (Wii, 360, NDS, PS3, 3DS, PSP, PC)
Portal 2 (360, PS3, PC)
Mortal Kombat 2011 (PS3, 360)
Call of Duty: Black Ops (360, PS3, Wii, NDS, PC)
Zumba Fitness: Join the Party (Wii, 360, PS3)
NBA 2K11 (360, PS3, Wii, PS2, PSP, PC)
Just Dance 2 (Wii)
Lego Star Ware III: The Clone Wars (Wii, NDS, 360, PS3, 3DS, PSP, PC)

Skype's not acting like a company in flux.

Although it's in the midst of being acquired by Microsoft, Skype today joined Comcast in announcing a new partnership that will use Skype to provide high-definition video calling to Comcast customers.

The move will extend Comcast's telecommunication services - it already provides phone service to about 8.5 million customers - at a time when video calling is coming to the TV through a variety of new electronic devices.

Some televisions now have built-in cameras for video calling. It's also a key feature of Google's new TV platform and Microsoft's Kinect controller for the Xbox 360 console.

Comcast will charge a monthly fee for the service, which is entering testing later this year. Customers will receive an adapter box and a camera to mount on the TV, with which they'll be able to make and receive an unlimited number of video calls for no additional charge.

Skype's also going to become part of Comcast's mobile application. Customers will be able to make video and audio calls and send instant messages via Skype on smartphones and tablets.

Pricing and timing of the service hasn't been determined yet. Comcast is demonstrating it today at a cable industry conference in Chicago.

The service will begin with 720p resolution but plans are to increase it to 1080p, according to Cathy Avgiris, senior vice president and general manager of communication and data services at Comcast.

Avgiris doesn't expect Microsoft's pending acquisition of Skype to affect Comcast's plans. Microsoft on May 10 announced that it's buying Skype for $8.5 billion in a deal that's expected to receive regulatory approval by the end of the year.

"From our perspective, we're full steam ahead," Avgiris said. "I don't see any changes. We've been working very closely with the Skype team and we'll continue to work through it."

Skype spokeswoman Brianna Reynaud declined to comment on how the Comcast service will be affected by the Microsoft deal. "It is business as usual for Skype and we don't discuss forward looking plans," she said via email.

Asked if Comcast could also work with Microsoft to provide the Skype service through Xbox 360s, which are used by some cable companies as set-top boxes, Avgiris left open the possibility.

"There are lots of opportunities, lots of possibilities," she said, adding that first "you've got to get the product out to market and make sure it resonates with customers."

Comcast is still analyzing how to bundle the service. Avgiris said it will need broadband with at least 1.5 megabits per second download speeds but won't necessarily require subscriptions to Comcast voice and TV services.

"I don't see it will necessarily be limited to triple play," she said.

Social networking giant Facebook should finally go public in early 2012 with a valuation of more than $100 billion, according to a brief CNBC report citing "people familiar with the matter."

It said the company is likely to start filing SEC disclosure reports at the end of this year, a requirement once it has more than 500 investors.

An excerpt:

Facebook is also facing internal pressure from current employees who, because of internal restrictions, cannot sell their private shares on the secondary market, according to these people.

I wonder if it will list as FB.

One beneficiary of the stock offering could be Microsoft, which invested $240 million in Facebook in 2007, receiving a 1.6 percent stake in the company.

At the time, the deal valued Facebook at $15 billion. Now it's approaching the value of Microsoft, which has fallen to $203 billion with the stock at $24. Maybe investors aren't factoring in the Facebook stake.

LOS ANGELES -- There's another real-estate crisis happening, causing all kinds of grief for people who own multiple video-game systems.

The latest gear from Microsoft, Sony and Nintendo requires more than just a box sitting below the television.

To play their motion-sensing games, you also must mount a sensor unit on or near the TV. If you have more than one console, it gets tricky figuring out where to put all of these peripherals.

It's going to get worse. Google, Cisco, Logitech and others are pushing TV video-chat systems that require their cameras to be mounted somewhere next to your set.

So it's no wonder there was a lot of interest in an odd little gadget on display at the Electronic Entertainment Expo, in the no man's land of aftermarket game-accessory booths.

Called the TriMount, the $30 device clamps up to three different sensors onto the top of a TV set.

Torrance, Calif.-based dreamGEAR will begin selling it Aug. 15.

There's a side benefit for fans of military-action games. When the TriMount is fully loaded with an Xbox 360 Kinect, a PlayStation Eye (for its Move controller) and Nintendo Wii Sensor Bar, it makes your TV look like a radar-encrusted warship.

Stats galore

Those motion sensors are helping to change people's perception of video games, according to a new report from the Entertainment Software Association (ESA), the trade group that hosts E3.

Its surveys found 59 percent of parents think computer and video games provide more physical activity now than they did five years ago. The ESA also found 72 percent of American households play computer or video games, the average age of players is 37, and 29 percent were older than 50.

By gender, 58 percent of gamers are male and 42 percent are female. The ESA notes young boys aren't the primary audience -- boys younger than 17 account for 13 percent of the game-playing population. Women 18 or older account for 37 percent.

The report also said 86 percent of parents are aware of the rating system that labels games with their appropriate age range.

Girls, girls, girls

The other 14 percent of parents better start paying attention to game ratings because of another trend in evidence at last week's show.

That would be misogyny, which appears to be making a huge comeback in video games. "Leisure Suit Larry" -- the pervy game character from 20 years ago -- would feel right at home.

As you approached E3, THQ's "Saints Row: The Third" was being promoted with (teeny) bikini carwashes. Inside, game developer Nival invited attendees to "get some tail" in an inflatable bouncy house with "booth babes" sporting pinned-on fox tails and wiggling their chests.

Provocative releases include "Catherine," a racy Japanese anime-style horror game coming to the Xbox 360 and PlayStation 3 this summer, and "Duke Nukem Forever," an update of the 1990s action hit with strippers, booze and guns.

"Inappropriate, insensitive and offensive -- you bet," the Duke Nukem box promises.

Maybe studios were desperate after game sales declined last year. Or they're just being opportunistic and publishing what sells to a mostly male audience.

Yes, these games are rated "M," for mature audiences.

Force is with us, forever

Games look better and are getting cool new control systems, but their stories must keep up with the technology.

Practically every major title promoted at the show was a sequel, and the biggest were the third installments of trilogies. Microsoft's biggies included "Mass Effect 3," "Battlefield 3," "Call of Duty: Modern Warfare 3" and "Gears of War 3," plus "Forza 4" and an early peek at "Halo 4."

Sony blockbusters included "Uncharted 3: Drake's Deception" and "Resistance 3," while Ubisoft announced "Far Cry 3."

There were also more "Star Wars" games, including a Kinect version (below) coming out this holiday season and EA's multiplayer, online "Star Wars: The Old Republic" launching by year's end.

I love "Star Wars," and it's amazing how much creativity the movies inspired. But after dozens of "Star Wars" games over the last three decades, you've got to wonder how long it can go on. I guess it's like the burger and fries of video games -- everybody does a version, and people keep eating them up.

I left the show wondering what's going to inspire the next generation of games and whether we're just going to keep updating the golden oldies forever.

Maybe we'll move forward, now that we've figured out what to do with all those sensors stacked up by the TV.

LOS ANGELES -- Here's Peter Molyneux, creative director of Microsoft's European game studios, explaining how "Fable: The Journey" was designed to use the Kinect sensor while sitting on the couch.

During a closed-door demo, he said it's easier to get immersed in the rich story when you're seated, as opposed to leaping and waving in front of the sensor.

Players explore the fantasy realm from a horse-drawn wagon, using arm gestures to control the reins.

Molyneux said the sensor's scanning capability will be used during emotional parts of the game that will be disclosed later. The game's scheduled for release in 2012.

A screenshot:

LOS ANGELES _ Microsoft will partner with regional cable companies to bring live TV onto the Xbox, a new feature that it announced Monday at E3.

That means the TV services will be provided through cable and satellite companies, and Xbox owners will need to subscribe to their services to get the live TV onto their game console.

That's according to Mike Delman, vice president of global marketing for Microsoft's interactive entertainment business group.

During an interview in Microsoft's elaborate, two-story booth at the show, Delman also talked about Skype on the Xbox, Kinect's new capabilities and how Xbox Live is going to become an entertainment service for Windows 8 PCs.

Here's an edited transcript of our conversation.

Q: Do you feel you've got as much at E3 as the other guys?

Definitely. We don't have an announcement like a new console but the combination of the games for the hardcore, starting to answer the question about the Kinect for the core, and having a lot more Kinect for broader audiences and the live television has played real well.

Q: Some of your announcements were just a tease, like live TV coming this fall to Xbox. Did you hold back details because partnerships aren't done yet?

We have partnerships in certain places. It's kind of ironic we have a lot of international partnerships before we got some of our U.S. partnerships done. The reason we talked about it is doing the platform work - doing voice, doing Bing search, getting the UI to be a modern UI, is really the hard work. Layering in the content isn't as hard, so it's a natural sequence.

Q: The interface seems designed to plug in another tile when you get a new content partner.

Yes, bringing in the live content - a lot of people are just layering in tonnage, they're not putting interactivity and discoverability in it. Getting the interactivity and discoverability built, so the content can sit on top of it - getting the platform work done is the hard part.

Q: Will live TV be universal, or will it be regional TV services provided by whoever your cable provider is?

It will be tied to either a satellite broadcast company or a cable company. So in international markets, you'll just have one provider. In the U.S., it will be bifurcated by region, by market. You'll be a Comcast guy (in Seattle), for example.

Q: So you'll have to be a Comcast subscriber, similar to the way you need a subscription to get the ESPN content on the Xbox now?

Yes.

Q: Will the Bing search be full Web search or just for entertainment?

It will be full search on what you have on Xbox Live. So anything that's available on Xbox Live if you're a gold subscriber it will search all of that, it won't go out and search the Web.

Q: Why not add Web search as well?

Listen, when we've got tens of millions of pieces of content just on our service, being able to search that - music for example, we've got 11 million music titles now - just mastering that in a bunch of different languages is a big priority. People at this point have other ways to get out to the Web.

Q: It seems like you could point the search at Bing's entertainment channel.

It's just not in the plans.

Q: Because you are using Bing, can you also serve ads against the results?

That's not part of the plan but it can be done. A lot of it will probably be serving ads within the content more than within search.

Q: It seems to be mostly about utility, making search easier than pecking out letters on the screen.

People will be doing stuff with their voice in probably a quarter the time it takes to go through the menu with the controller.

Q: With hardcore games, Kinect is still doing auxiliary things mostly, rather than controlling the main action. When are we going to see that?

People need time to build a core, triple a title from the ground up with Kinect. People are starting to build core games from the ground up. The core doesn't want the controller to come out of their hand, necessarily. ..In a way I think voice (with a controller in hand) will be as powerful or more powerful to the core than will gestures, and the gestures won't be the sweeping gestures you have in the broader Kinect. I think they'll be more pointed gestures like a head-fake or a head-butt. ... People are being very smart about doing something that will enhance the core experience rather than totally change it.

Q: So will "Halo 4" be a Kinect game?

I'm sure we'll have some Kinect in it but we're not that far along.

Q: We've seen voice and gesture controls but not much use of Kinect's scanning capability.

The scanning actually wasn't fully enabled until the "Fun Lab" stuff unveiled (Monday).

Q: I also wondered if scanning or the finger tracking you've shown here would need new hardware with better sensors.

No, you can actually do that stuff now. Some of the things that will be interesting in the next generation of sensor will maybe a more high-definition RGB camera so the video conferencing is better than it is now. Skype, if it comes to fruition - you can see a lot of possibilities.

Q: I was surprised we didn't hear about Skype in your E3 press conference, but I guess the deal hasn't closed yet ...

I'm probably out of bounds talking about it.

Q: Maybe you'll announce Skype on Xbox at CES in January?

Whenever it clears, there's a lot of possibility with that.

Q: Because there's a new Nintendo console that runs hardcore games coming, will people hold off buying an Xbox or adding Kinect to their console?

I don't know what the reaction's going to be relative to their own platform. All I know is we're in the fifth to sixth year of our platform and platforms have never grown in the fifth or sixth year at what we're seeing. Other platforms is not what we're focused on, we're focused on how do we make Kinect, how do we make Live as compelling as possible. In a way a lot of what's going to happen is the box doesn't become the focus going forward, it's what is the sensor, what is the handheld, what is the phone companion, what is the service companion and what are the experiences.

Q: Speaking of phone, I was surprised we didn't hear about connections between Xbox and Windows Phone here at E3.

Live has been successful on the Windows Phone, Live will be built into the PC; it will be the service where you get your entertainment. We were talking about it - you will not just see consoles and handhelds at this show next year, this show's going to morph into other devices.

Q: Will Xbox offer games on certified phones, similar to what Sony's PlayStation is doing with Android phones?

We think there's a lot of potential on the Windows phones. With the Nokia relationship, we're going to have a lot more distribution of phones and Live will be the primary entertainment service. I think that's going to be a good play for us. If we have that and the PCs to leverage, that will be a big Live base. It's our job to make 'buy a movie in one place and play it everywhere, buy a game in one place and play it everywhere.' Making things portable through the devices will be a big focus of ours.

Q: Will Microsoft's Zune service continue building up its video and music stores, or will you be working more with partners running content stores?

We're very committed to offering music and video and TV shows on our own service through Zune.

Q: I don't think I heard the "Z" word in the keynote. Are you phasing out the Zune brand?

In general I think what you're going to see is us talking about 'music' and 'video.' I think what we're coming to the realization about is putting brands on top of brands on top of brands is not as, you know - if you want to look for music, just knowing it's under a category (music) is a good thing.

Q: Speaking of branding, Xbox brands are all over Qwest Field. Are you going to go the next step and name the whole stadium, taking that over from CenturyLink?

Not that I know of. I'm a little worried we might own the whole city of Seattle if we keep doing sponsorships with everybody.

Q: How will your services and content be part of Windows 8?

There will be a lot of similarities in design and service philosophy. Whether it's us or Apple or anybody else, people want to be able to navigate through multiple devices in a certain ecosystem very seamlessly so we're committed to that.

Q: Will Xbox Live be your cloud media service that works with your Windows PC as well as your phone and Xbox?

Xbox Live will the pervasive media service across devices.

Q: Right now it's a little confusing - you've got Xbox Live, SkyDrive storage and other online places for media.

We have a ton of assets. Unifying the assets will be good for us and good for consumers.

Otto Berkes isn't the only Xbox founder starting something new.

Seamus Blackley, another one of the original four Xbox founders, is starting a new game development company in Los Angeles.

Blackley has been leading the games division of Creative Artists Agency, where he's been since 2003.

Variety broke the story Thursday that he's leaving to start his own company, and Blackely confirmed the move in an email last night.

Blackley's hiring at CAA "breathed considerable life into the 3-year-old division." From its report:

Since then, he's helped lock down lucrative deals for clients, including a groundbreaking pact for Shinji Mikami and Goichi Suda to independently finance games such as their upcoming "Shadows of the Damned" that resembles how indie films are funded. He also led the deal for "Rock Band"-developer Harmonix Music Systems' sale to Viacom.

Blackley left Microsoft in 2002 and co-founded a game financing venture called Capital Entertainment in Seattle before joining CAA.

Here's a clip of an interview with Blackley done five years ago for ACM, the Association for Computing Machinery:

If you're on the edge of your seat, waiting for next week's expected reveal of the Windows 8 interface by Steven Sinofsky, Bloomberg added a few more details today.

In a report citing three unnamed people "with knowledge of the company's plans," Bloomberg reported that Sinofsky will show the new software running on a touchscreen tablet based on an Nvidia Tegra chip.

Nvidia was on hand in Jauary when Sinofsky announced at the Consumer Electronics Show that the next version of Windows will run on the tiny chips powering mobile devices such as smartphones and tablets. A Tegra chip also powers Microsoft's Zune HD player.

Mary Jo Foley has a good rundown of the rumors, reports and whispers about Windows 8, including a tip that it may reach its internal build milestone June 11.

I don't understand why the tech press is so enchanted with Google Wallet, the payment system announced this morning, and other "near field communication" [NFC] products.

Syncing credit cards to particular smartphones that work with a particular kind of credit card reader is interesting. But it's not so transformative that people should skip past questions about privacy, security and whether Google should be the company orchestrating your offline purchases.

It will take awhile before these systems are widely used by consumers, so the buzz seems aimed at pressuring merchants to buy a new kind of credit card reader and move their credit card business to companies on the bandwagon.

Eventually this could probably be a standard feature on phones, just as credit accounts are commonly tied to online stores nowadays. Google's trying to get a jump on it and boost the number of customers who have added credit information to their Google accounts. It's still playing catch up to Apple and Microsoft, which aren't yet doing NFC payments on their phones but have enomous online account systems with millions of customers.

Google is partnering with credit card companies on the Wallet app it's building into its Android phone software.

So far it will work with one phone model with a special antenna and security module. This phone will be able to make payments at the "contactless" card readers that are starting to be used by merchants. These readers detect signals from credit cards with a special chip inside or phones that can broadcast the same short-range signals.

For security, Google Wallet taps into a new "black box" chip that's on the Nexus S 4G phone sold by Sprint. It presumably will become a more common feature on Android phones.

This chip sounds similar to the trusted platform module [TPM] that began appearing on PC hardware around five years ago, sending privacy advocates into a tizzy. We'll have to see how transparent Google is about what it calls the "Secure Element."

I wonder which other programs will access this module. Maybe it's going to be used for digital rights management to appease music and movie companies and get them to participate in future Google media services. Here's a bit of Google's description of its TPM module:

"The Secure Element has many features designed to protect the security of the data it stores. It's separate from the phone's main operating system and hardware, which enables encrypted protocols to enforce access control. Only authorized programs like Google Wallet can access the Secure Element to initiate a transaction."

Google said Wallet "does not currently receive data about what products you purchase with it" but it does record on the phone when you make a transaction and the credentials used. It will also keep track of where you made the transaction, if you click a box agreeing to provide that information.

But by using Google Wallet, consumers will be linking their financial activities and information to their Google accounts, potentially giving the company access to priceless data with which to target advertising. The company already is planning an "offers" program for Wallet users.

Google's putting responsibility for any fraud that occurs with your Google Wallet onto the credit card companies. In its FAQ posted today, it said "the same rules that apply to unauthorized use of your plastic credit card, apply to unauthorized use of a credit card stored in Google Wallet. Many banks apply a $0 liability policy for unauthorized use. For more information, please consult the terms and conditions of your account supplied by your card issuer."

The FAQ also suggests that there will be several steps involved in using Google Wallet, so it won't be quite as simple as just tapping your phone against a special card reader. It's in the response to a question about security:

If someone gets close to my phone, could they read sensitive data from my Google Wallet? The NFC antenna in your phone is only activated when the screen is powered on, and even if the antenna is on and in proximity of a reader, payment credentials can only be transmitted from the Secure Element to a payment terminal if you first enter your Google Wallet PIN.

So yes, consumers won't have to fumble for credit cards at the checkout line. But they will have to wake their phone and enter their PIN number.

The name's a little funny. Microsoft introduced a product called Microsoft Wallet in 1997. It partnered with banks on the system, which synced credit cards with a Microsoft Web account, to simplify online transactions. The system morphed into Microsoft's Passport authentication system, which is now the Windows Live ID program.

It's the end of an era at Microsoft today.

Otto Berkes, the last of the original Xbox founders still at the company, submitted his resignation this afternoon.

Berkes went on to lead development of a new category of ultraportable, wireless touchscreen computers that Microsoft called Ultra Mobile PCs.

Among the prototypes Berkes built was a slate-like touchscreen computing device that Bill Gates showed at a 2005 conference in Seattle, years before there were even whispers about Apple's iPad. But the first generation of UltraMobile PCs were expensive, the hardware wasn't as advanced and Microsoft lost interest before the category blossomed.

"It's unfortunate you can't repeat that experiment," Berkes said, but he tried to cast it in positive light. "One of the outcomes of that effort was a change in thinking around Windows and the PC and touch interfaces and hardware evolution."

In a comeback effort, Berkes worked on the hardware and operating system of a prototype slate computing device code-named Courier that Microsoft brass scuttled in early 2010.

Berkes later was general manager for Microsoft's Chief Software Architect Ray Ozzie until Ozzie left last year. Most recently he's been working on Bing's datacenter hardware architecture.

Berkes is leaving for another company outside of the Seattle area but he wouldn't say which one. He did say the departure isn't because of frustration over projects or strategic choices by Microsoft and is instead about him trying something different after 18 years in Redmond.

"It's a good time for me to make a transition to a different set of challenges and something new and fresh," he said.

Still, his departure comes as Microsoft is struggling to catch up to consumer-market competitors that have been more willing to take and stick with big bets on emerging new categories.

The big question is whether Microsoft's current leadership can nurture and retain the rare kind of employee who can conceive of far-out new products, defend the ideas to fruition and ship the finished product.

Berkes had the most success when Bill Gates led the company, perhaps because they were similarly enthusiastic about the potential of new and transformative gadgets built on the next generations of computer hardware and software.

"Otto definitely did have tighter affinities with Bill," recalled Ted Hase, another one of the four original Xbox founders, who left the company in 2006 and now develops slot machines for a company in Las Vegas.

"There was an aspect of Bill where Bill stayed somewhat of a dreamer. In those dreams come those flashes and those sparks of creativity. And I think the company has lost that which is a sad day."

Hase said Berkes has "the combination of being able to actually see the bigger picture but also he is someone who has the courage and the strength to withstand all of the criticism and ridicule on behalf of that vision."

History will prove out the concepts Berkes fought for behind the scenes at Microsoft, Hase said.

"I think if anything, the successes of the other companies, the success of the competitors, the Apples, the Googles of the world, is somewhat of an affirmation that all of the early criticism Otto had taken was unfounded," he said. "In the end, Otto basically held truth in his hand."

Things turned out differently with the Xbox. But that began when Microsoft was at its apex and ferociously defending its position against challenges from companies such as Sun and Netscape.

Berkes and Hase were among a group of four who first pushed Microsoft to develop a Windows-based gaming system to compete with Sony's PlayStation 2, which was luring game companies from the Windows platform in the late 1990s. The other two were Seamus Blackley, who left in 2002, and Kevin Bachus, who left in 2001.

The soft-spoken Hungarian programmer led Windows graphics teams as the operating system rapidly evolved from Windows NT thorugh XP. He joined Microsoft in 1993 after developing a rendering system for Autodesk's AutoCAD for Windows.

In 1998, Berkes and his team ordered a few Dell laptops, took them apart and built the first prototypes of a Windows gaming console.

Ed Fries was leading Microsoft's games publishing business when the four Xbox founders pitched a "Direct X Box" based on the Windows DirectX graphics technology that was developed by Berkes' team.

"He was one of the crazy guys who came in my office one day with this idea of doing this thing, making this Direct X box," Fries recalled. "They talked me into joining up with them and helping to make it happen. It wouldn't have happened without him."

The Xbox business is now approaching $10 billion in yearly sales and last quarter its growth outpaced that of Windows.

Fries left Microsoft seven years ago but continues to work with its games business through ventures such as Airtight Games, a Redmond studio he co-founded.

He said the Xbox "was definitely the gamble and they stepped up and they did it."

But Fries doesn't believe Microsoft has lost that sort of innovative spirit, based on recent meetings he's had with employees.

"The impression I got is they're making some pretty big bets about the future," he said. "I don't think they've given up."

Berkes, 48, rode the waves up and down through it all but he was diplomatic today.

"No regrets, but it's time to move on for me," he said. "I'm very proud of what I was able to accomplish here."

The toys bundled into premium editions of video games are getting more outrageous.

This year's capper may be the Retro Lancer that's coming with pre-ordered bundles of "Gears of War 3" sold through Gamestop for $140 to $230.

"Gears 3" is a triple A action game coming to the Xbox 360 in September. More than 12 million copies of earlier versions were sold, making it one of the biggest franchises on the console.

Developer Epic Games today shared details of the Retro Lancer, which is made by Neca using Epic's 3-D data to create the weapon in the game.

The toy is 3.5 feet long and "hand painted with weathered and battle worn detail." It also makes a machine gun sound when you pull the trigger.

The Retro Lancer will also be sold direct, without the game, for $100 starting Sept. 13. Just in time for back-to-school shopping.

As modeled by Epic:

Expect to hear more about the next version of Windows next week.

It was just announced that Steven Sinofsky, president of Microsoft's Windows and Windows Live group, will speak at the All Things D conference next week in the Los Angeles area.

Sinofsky [below] has a longtime relationship with conference co-host Walt Mossberg, the Wall Street Journal's personal technology columnist.

The timing is right for another peek at Windows 8 or whatever Microsoft decides to call the next version of its flagship operating system. It's expected to go on sale, along with a wave of new PCs, in early 2012.

At the Consumer Electronics Show In January, Sinofsky gave a technical preview of the software, showing that it runs on small mobile device hardware.

A fuller preview is expected at a Windows developer conference that Microsoft's holding in Anaheim in September.

Perhaps Sinofsky will stoke anticipation -- and further ties with Mossberg -- by using the D9 conference to reveal more details of Windows 8 such as its interface design.

Sinofsky is likely to be asked to clarify some of the details about Windows 8 that were released by Intel. A manager revealed there will be different versions of the software and different application compatibility for systems based on traditional x86 computers and those running mobile ARM processors.

Steve Ballmer gave him an opening, dropping a few tidbits at a developer conference in Tokyo today, Mary Jo Foley noted this afternoon. Ballmer said the new OS will be released in 2012 and he called it Windows 8, although that may not be the final name. From his speech:

We're obviously hard at work on the next version of Windows. Windows 7 PCs will sell over 350 million units this year. We've done a lot in Windows 7 to improve customer satisfaction. We have a brand new user interface. We've added touch, and ink, and speech. And yet, as we look forward to the next generation of Windows systems, which will come out next year, there's a whole lot more coming. As we progress through the year, you ought to expect to hear a lot about Windows 8. Windows 8 slates, tablets, PCs, a variety of different form factors.

D9 co-host Kara Swisher announced Sinofsky's appearance today, but held back on previewing whatever news he'll make next week. Swisher said Sinofsky "will talk about the future of Windows in the era of all kinds of new devices and the cloud."

Microsoft spokesman Lou Gellos had no details to provide, beyond confirming Sinofsky's appearance at the event.

The conference runs Tuesday through Thursday.

Other speakers include a raft of CEOs: Hewlett-Packard's Leo Apotheker, Twitter's Dick Costolo, AT&T Mobility's Ralph de la Vega, Disney's Robert Iger, Zynga's Mark Pincus and Reed Hastings of Netflix. Others include Google Chairman Eric Schmidt and Sinofsky's old co-worker, Nokia Chief Executive Stephen Elop.

Have we passed through a time warp?

On Wednesday San Francisco decided to use Microsoft's email system.

Now U.S. Attorney Eric Holder is leading a dedication ceremony this afternoon for the William H. Neukom Building at Stanford Law School.

I wonder if Stanford held back this event until the Microsoft antitrust decree expired.

Neukom was Microsoft's top lawyer from its early days through its antitrust battles with the U.S. Department of Justice. Holder was deputy attorney general under Janet Reno during the height of the Microsoft case.

Neukom grew up in the San Francisco area, graduated from Stanford Law in 1967 and then came to Seattle and worked with Bill Gates -- father of the Microsoft co-founder in Seattle. Gates asked Neukom to advise Microsoft in 1978, he joined the company in 1985 and retired as its general counsel in 2002.

In 2006 Neukom donated $20 million for the law school building and in 2008 he became managing general partner of the San Francisco Giants.

Here are a few pictures of the William H. Neukom Building, taken by Aislinn Weidele for Stanford:

We've known since February that Verizon's first Windows Phone would likely be the HTC Trophy, a 1 gigahertz slab with a 3.8-inch touchscreen.

Today, the company's made it official and said the device will go on sale online May 26 and in stores June 2 for $150, after a $50 mail-in rebate and with a new two-year contract. Buyers will need a Verizon Wireless voice plan, starting at $40 per month, and a data plan starting at $30 per month.

This is despite Verizon brass pooh-poohing Microsoft's new phone platform, saying it's not as important as Apple, Android and RIM.

Microsoft, Verizon and HTC are putting more emphasis on the device's connections to Xbox Live. Buyers before July 15 get a free Xbox 360 game -- either "Halo Reach," "Kinect Sports" or "Lode Runner."

Specs include:

-- 1 GHz Snapdragon processor
-- WVGA 3.8-inch touchscreen
-- Surround sound through SRS WOW HD
-- 5-megapixel camera with autofocus and LED flash
-- 720p HD video capture
-- 16 GB on-board storage
-- Wi-Fi connectivity: 802.11 b/g/n

The Smithsonian's National Portrait Gallery today is unveiling its latest acquisition, a portrait of Bill and Melinda Gates painted by Jon Friedman.

There's no reference to Microsoft in the portrait, which emphasizes their stature as philanthropists. They're seated in front of a video monitor showing African girls and the motto of their charitable foundation, "All Lives Have Equal Value."

The gallery's advisory board chooses subjects "who are making a significant impact on American culture," a release explained. Its collection includes "poets and presidents, visionaries and villains, actors and activists whose lives tell the American story."

Friedman had only an hour with the Gateses, according to a New York Times editorial that said the artist took digital photos and them assembled the poses on a computer but captured the Gateses "as if he had worked with them for months. The result is quietly inspiring and suprisingly affecting."

The view in the background of the painting suggests Friedman met with the couple at the Kirkland offices that Bill Gates set up in 2008 after he retired from Microsoft. Beyond the monitor and the wall of windows are what appears to be Lake Washington, green ridges of Seattle and the Olympics.

The gallery, in Washington, D.C., began displaying the painting today and hosted a presentation by Friedman. It's an oil and collage on canvas measuring 50 1/8 by 46 1/8 inches and was paid for by the musuem's Marc Pachter Commissioning Fund.

"I am thrilled to accept this commissioned painting of Bill and Melinda Gates into our collection," Martin Sullivan, director of the museum, said in its announcement. "Jon Friedman created a compelling portrait that tells the story of their foundation's work."

Bill and Melinda Gates provided a statement, saying "It is an honor to have our portrait joining those of so many outstanding Americans in the National Portrait Gallery. Our thanks go to Jon Friedman for creating the portrait in so thoughtful a manner, and for calling out the work of our foundation so evocatively."

Microsoft buying Skype is like Seattle buying Italian streetcars.

On the surface, it seems like an outrageously expensive indulgence.

But if you can ignore the insane amount of money being thrown around and focus only on how it will help a few businesses, it makes some sense.

Microsoft already has powerful and widely used software for making phone and video calls and communicating over the Internet. Its messaging systems are among its crown jewels and used by far more people than Skype.

Similarly, Seattle is served by a vast and reliable bus system and is building up a light rail network.

But it still decided to spend $60 million - not counting priceless right-of-way - on streetcars that duplicate several bus routes. Sound Transit's going to spend another $132 million more more streetcar service.

Some people think the streetcars are neat, and they add flair and freshness to the mix of infrastructure in Seattle. But they'll never carry as many passengers as Metro and they'll probably never pay for themselves.

The trolley is largely an amenity, increasing the appeal of commercial property mostly owned by Paul Allen.

City leaders who took flak for this quasi subsidy may now feel vindicated by Allen's success redeveloping South Lake Union. The area along the trolley route has transformed into a vibrant, active neighorborhood anchored by Amazon.com's new headquarters.

You can't say the area blossomed because of the trolley but it helped.

With Skype, Microsoft now has a groovier, Web-native service that complements its established, industrial-strength communication systems.

Skype and particularly its video calling capabilities will be a focal point for the bundle of online services Microsoft will offer to consumers and businesses. Having one killer app in the bundle is enough to get people to enter Microsoft's online realm, or at least prevent them from logging into a competing suite of online services.

My guess is that Skype and video messaging will also be a cornerstone of Windows 8 or whatever the next version of Microsoft's flagship operating system is called. It's designed to work well on portable devices running the tiny processors used in smartphones, where video calling is coming to be expected as a standard feature.

Apple and Google have already developed video calling services for mobile devices and PCs but they don't yet have the critical mass of Skype. Microsoft has struggled to build a critical mass in search and now it has a head start as the next phase of online messaging is developed on fast, new 4G wireless networks.

Meanwhile Microsoft's going to use Skype to boost the appeal and reach of its Xbox, phone, Web mail and communication software products.

In its release, Microsoft noted that Skype has acquired the intellectual property powering its network. Perhaps that's a signal that Microsoft will assert its ownership of the patents, which could limit what competitors can do in the space or require them to send royalties to Redmond.

Skeptics expect Microsoft to fumble Skype somehow. To avoid this, Microsoft took the unusual step of creating an entirely new, autonomous group for Skype, giving the relatively small business organizational stature comparable to that of the massive Xbox, Office and Windows groups. Skype Chief Executive Tony Bates will be president of the Microsoft Skype Division, reporting to Steve Ballmer.

Microsoft actually has done pretty well with its messaging acquisitions. Key elements of Outlook were acquired, and it's now the most widely used email system in the world and an essential tool for most business PC users.

Microsoft also spent crazy money buying Hotmail in 1997 for around $400 million, when it was competing with AOL and Yahoo and was building out its suite of dotcom-era online services.

Microsoft's anxiety about falling behind Apple and Google no doubt led the company to overpay for Skype. But if the team in Redmond can avoid crashing their new trolley and it helps deliver a few big hits, the cost won't matter in the long run.

The next version of Microsoft's Xbox console is already being tested by an outside developer, although it's unlikely the system will be revealed to the public anytime soon, according to a new report.

Develop Magazine heard from a source that Electronic Arts received an early test version of the new console last month, so the game company can begin developing the first batch of games for the system.

It's really just an early build of the hardware components in a PC case and no details were provided about what's new to the system. The story said only that the new hardware "will feature enhanced support for Kinect with just a couple of alterations."

Microsoft executives have said they expect the current Xbox 360 to have a 10-year lifecycle, meaning it will be sold through 2015.

The Kinect motion sensor released last fall refreshed the console, boosting sales and extending its appeal midway through the cycle.

The news comes just before the E3 game conference in Los Angeles in early June, where Nintendo plans to reveal a replacement for the Wii. It's going to compete more directly with the Xbox and Sony's PlayStation by offering consumers -- and game developers -- full resolution graphics.

Today's leak may be intended to take some steam out of Nintendo's announcement.

It's no surprise that Microsoft is working on the next Xbox. It's probably even thinking about the one after that.

But it's the first hint that the Xbox 720 or whatever it will be called has gelled enough to be distributed outside of Redmond.

If EA and other big developers take three years to develop new games for the 720, perhaps the device will surface at the Consumer Electronics Show in 2014 and be on sale that holiday season.

Nielsen today released a report on how U.S. consumers are using their iPads and other tablet computing devices.

The research suggests that the risk to the PC industry from the iPad is there, but awfully overstated. It also makes me wonder how pleased buyers are with their expensive new tablets.

The majority of people told Nielsen that buying a tablet hasn't led to a reduction in how often they use PCs, netbooks, portable media players, game consoles, smartphones or connected TVs.

A tiny number of tablet buyers said they've stopped using their computers since their purchase - 2 percent said they're no longer using their laptop, 3 percent stopped using their desktop and 5 percent stopped using their netbook.

But a greater number of people said they've been using their computers more since they bought an iPad or other tablet. Nielsen found 22 percent are using their netbook more often, 13 percent are using their laptops more and 9 percent are using their desktops more since buying a tablet.

Can you imagine the conversation between spouses in those households? "Why did you have to spend $800 on that thing, honey? You're just spending more time on the plain old computer ..."

We'll have to see what the next few installments of the survey say about computing trends. So far it sounds like tablets are being used as computer accessories more than computer replacements.

It would be helpful if Nielsen provided information on whether tablets are meeting buyers' expectations. How many buyers thought they were getting a computer replacement?

The survey says 68 percent of people who bought tablets are using their laptop the same or more since the purchase, and 72 percent are using their netbooks the same or more.

Were they expecting the tablet to take the place of other gadgets in the home?

Of those that had another e-reader, like Amazon.com's Kindle, 72 percent said they're using their e-readers the same or more since buying a tablet, and 89 percent said they're using their Internet-connected TVs more since buying the device.

Then again, these are people who bought a tablet when they already had computers and perhaps a Kindle, Web-connected TV and game consoles. Maybe they just don't have much time for their latest toy.

About a third of tablet buyers said they're using their computers less or not at all. Nielsen provided a few reasons why, after asking tablet buyers why they're using the new device for things they used to do on a laptop or desktop.

Here are the reasons, which should be a roadmap for PC makers designing their Windows 8 machines:

Details are scarce, but Microsoft confirmed today that it's opening a new game studio a few hours north of Redmond, in Vancouver, B.C.

A spokesman told me via email that the studio will be focused on "games for core gamers" but wouldn't say much else.

A Gamasutra report suggested the studio was initially working social, microtransaction games, but will now build a triple A shooting game for Kinect, something that hasn't been done yet. Maybe it will produce the first Kinect-enabled Facebook action title.

Microsoft is advertising for 10 positions at the studio, including creative, technical and art directors, so it apparently doesn't yet have a huge team in place yet.

What's a little odd is that Microsoft already has another game studio in Vancouver.

In 2009 it bought BigPark, which was part-owned by Don Mattrick, the Vancouver native who is now president of Microsoft's interactive entertainment group. BigPark became part of Microsoft Game Studios and made "Kinect Joy Ride."

Microsoft also set up a big research and development center in Vancouver in 2007, with more than 250 people.

There's something for almost everyone in Paul Allen's new memoir, "Idea Man."

There are chapters on the Seahawks, the Trail Blazers, space travel, billionaire vacations, brain research and Jimi Hendrix.

Woven throughout are anecdotes and sometimes catty asides about the amazing parade of people Allen met as he worked his way up and partly back down the list of the world's richest people.

This makes it the most revealing book yet about lifestyles of the software tycoons living along the east shore of Lake Washington.

But "Idea Man" provides only a partial view of the rise of Microsoft and the modern tech industry. Allen played an important role in the early days and clearly feels his contributions are underappreciated. That's fine, but the book's insistent portrayal of Allen as a visionary compromises its documentary value and pushes it toward the category of public relations.

The first third of the book describes how a geeky Wedgwood kid discovered computers, fell in with Bill Gates and eventually suggested they start a company making software for the first microcomputers.

Allen drops names left and right -- teachers at Lakeside, woolly programmers from the early days and celebrities he schmoozed with after joining the billionaire club.

As in a movie, some of the best lines were revealed in the previews. Excerpts published in March included most of the juicy bits, where Allen describes Gates' abrasive style and how Allen overheard Gates and Steve Ballmer "scheming to rip me off" by diluting Allen's Microsoft stake.

It turns out the book is less a vendetta than an effort to shape and polish the legacy of an unusual man whose technical skills and vision launched Microsoft at the dawn of personal computing. I'd put it on the same shelf as the $625, 2,400-page cookbook that former Microsoft Chief Technology Officer Nathan Myhrvold published last year and the authorized Steve Jobs biography that's being released in early 2012.

Allen's biggest business lately seems to be real-estate development. But he's put renewed effort into defining himself as a tech visionary after brushes with death in 2009, when he received a pacemaker and fought a recurrence of the cancer that precipitated his resignation from Microsoft in 1983.

While writing the book, Allen simultaneously sued Apple, Google, Facebook and other major tech companies. He alleged they were infringing on patents from a research lab he funded before the dot-com crash. The suits describe the lab as "one of the preeminent technology firms" and Allen as "one of the earliest pioneers of personal computer software."

Allen never says so directly, but the book leaves the impression he's resentful or jealous of Gates' fame, accolades and reputation. Several "told you so" passages drive this home.

When antitrust investigations of Microsoft were peaking in 1997, "I advised Bill to temper his stance," but Gates insisted he could bundle a browser or other features to his products, Allen wrote.

He also claims to have foreseen the importance of Google: "Years before Google became the goliath it is today, I repeatedly asked Bill how Microsoft was going to catch up in search, or whether the company might consider buying Google instead. Bill was unimpressed by his then much smaller rival. 'In six months we'll catch them,' he kept saying."

Allen also takes a few jabs at Jobs. He recalls being appalled by Jobs' berating an employee in a meeting, and another incident where Jobs rejected Allen's suggestion that a computer mouse would be better with two buttons, rather than the single mouse button Jobs planned for the Macintosh.

"In time I'd be vindicated," Allen wrote, noting Windows became the dominant PC platform, the second button helps millions of users and Apple began offering its multi-button Mighty Mouse in 2005.

Tech leaders aren't the only ones skewered. Allen gets in several digs at his former investment manager, executives at the cable company where Allen lost $8 billion, and Bob Whitsitt, the former Sonics manager Allen hired to lead the Blazers and the Seahawks.

The gentlest rebuke is given to his beloved mother, for selling Allen's childhood collection of science-fiction books 25 years after he had moved out of the family house. She proudly told him a man paid $75 for the lot.

"It was hard to forgive her for that, but an old photograph saved the day," Allen wrote. "After enlarging the picture, I was able to make out the titles on my old collection's spines. I had copies tracked down and retrieved almost all of them."

"Idea Man" is the recollection of one person and not a transcript of history, of course. It's not journalism, and some controversies are skipped over.

Prurient readers will be disappointed the book isn't as candid as promised on its front flap. There are no juicy stories from the $10 million parties the guitar-playing bachelor hosted on yachts and in exotic locales for friends and celebrities.

There's no mention of Allen's relationship in the late 1990s with tennis champion Monica Seles, who is half his age. Allen talks about his ill-fated investment in the DreamWorks movie studio, but he doesn't mention an earlier production company he bankrolled until the co-founder accused him of sexual harassment.

Also missing are details of Allen's reincarnation as a real-estate mogul.

It's still fun and enlightening to peek behind the curtain that Seattle's most colorful billionaire has pulled around his life. Even if you're only seeing a stage carefully filled with Allen's favorite things.

Bill Gates shared a few thoughts on Microsoft's deal with Yahoo during a Fox Business Network interview keyed to the Berkshire Hathaway shareholder meeting.

Gates was interviewed by Liz Claman along with Buffett and Susan Decker, former Yahoo president.

Gates and Decker both said the Yahoo merger was sensible, although other Microsoft shareholders were relieved that Yahoo rejected Microsoft's $44.6 billion offer before the economy dove in 2008.

Here are a few excerpts provided by the network.

Decker on whether Yahoo should have teamed up with Microsoft:

"Yes absolutely. I think it was a mistake that the merger was not effected for Yahoo shareholders."

Gates on the strategic partnership between Yahoo and Microsoft:

"The companies are doing a lot together. Google is a tough competitor, so combining some of the strengths of Yahoo and Microsoft clearly made sense; whether that was done through a merger or a key business deal where it ended up that gives that partnership a chance of competing with Google and making sure they don't get too lazy."

Gates on whether he advises Buffett to buy technology companies:

"I think he is very wise in sticking to businesses that have a more predictable future."

Gates, Buffeet and Berkshire Vice Chairman Charlie Munger all said the rich should pay more taxes -- and the Bush tax cuts shouldn't have been extended -- to help lower the deficit. The exchange:

Munger: "No. I would argue that we could stand a little higher taxes on people like me."

Buffett: "And me."

Munger: "And you, too."

Claman: "Bill?"

Gates: "Absolutely."

Claman: "Bill's a little quiet there."

Gates: "I'll pay if you pay."

(LAUGHTER)

Gates: "No, I pay more taxes than anyone so I'm -- and I'm glad to pay more."

The general manager of Microsoft's datacenter operations has left, apparently to help Apple expand its cloud infrastructure, according to a report today in Data Center Knowledge.

Kevin Timmons came to Microsoft in 2009 from Yahoo and worked on the modular design Microsoft's now using at its Quincy datacenter.

Here's a Microsoft video about the Quincy center:

The big two PC research firms both said first quarter PC sales were awful. Gartner and IDC had predicted it would be a slow quarter and it turned out to be worse.

Events in Japan and the Middle East were factors, as were the economic situation and Apple's iPad. But mostly people are doing fine with the PCs they have and aren't in a rush to upgrade, apparently.

"While it's tempting to blame the decline completely on the growth of media tablets, we believe other factors, including extended PC lifetimes and the lack of compelling new PC experiences, played equally significant roles,'' Bob O'Donnell, IDC vice president, said in the release.

IDC said global PC sales fell 3.2 percent compared with the first quarter of 2011, much worse than the 1.5 percent growth the firm had predicted. In the U.S., shipments fell 10 percent from the high demand seen in recent years.

Gartner said global sales fell 1.1 percent, below the 3 percent growth it had predicted. It blamed the decline on weak demand for consumer PCs.

"Low prices for consumer PCs, which had long stimulated growth, no longer attracted buyers. Instead, consumers turned their attention to media tablets and other consumer electronics," Mikako Kitagawa, Gartner principal analyst, said in its release. "With the launch of the iPad 2 in February, more consumers either switched to buying an alternative device, or simply held back from buying PCs."

Corporate spending on replacement PCs kept the market from "one of the worst declines in recent history," Gartner said. It expects the corporate replacement sales to continue into late 2011 or the start of 2012.

IDC said spiking fuel and commodity prices were also a factor -- you may hold off on that new PC when a tank of gas costs $75 -- and sales in China cooled after big growth in 2010.

Both firms said HP held its position as the world's biggest PC company. IDC puts Dell in second place, followed by Acer, Lenovo and Toshiba. Gartner puts Acer in second place, followed by Dell, Lenovo and Toshiba.

In the U.S. market, Lenovo is bumped from the top five by Apple, which is fourth or fifth place with 8.5 percent to 9.3 percent market share depending on which research firm you ask.

Here's Gartners rank of the top global PC makers:

Sony Online Entertainment is closing its Bellevue game studio and two others and laying off 205 employees.

The company also said that it's killing "The Agency," a massively multiplayer online spy game for the PC and PlayStation 3 that was being developed in Bellevue.

Sony hired several former Microsoft game developers to start the studio in 2004. The next year they began work on "The Agency" (pictured).

Sony spent millions on the game and at one point employed more than 100 developers at the Bellevue studio, which hosted high-profile media events to drum up interest in the game a few years ago. But the game's release was repeatedly delayed, key leaders of the studio left and Sony hasn't said much at all about the game recently.

A spokeswoman wouldn't say how many employees are left in Bellevue. The company's also closing studios in Tuscon and Denver and transferring their projects to SOE's San Diego headquarters. Altogether it's laying off 205 employees across the three studios.

A Sony statement said the company's closing the studios and killing the game so it can focus on its "PlanetSide" and "EverQuest" franchises "while also maintaining its current portfolio of online games."

"All possible steps are being taken to ensure team members affected by the transition are treated with appropriate concern," it said.

Sony continues to operate Zipper Interactive, a Redmond studio that's about to release a new version of its "Socom" action game for the PS3. The company also has close ties to Sucker Punch Productions, a Bellevue studio that created the PS3-exclusive "inFamous" franchise.

The Bellevue studio that's closing occupied around 15,000 square feet in an office park alongside Highway 520 near the site of the original Dixie's BBQ.

Paul Allen's trying awfully hard to be sure he's remembered as a technology visionary and not just a quirky billionaire.

But perhaps Allen's trying too hard to shape his legacy.

Building edifices such as the Experimental Music Project was just the start -- though it's now looking like an apt symbol of Allen's melting relationship with Bill Gates, whose new foundation headquarters has risen across the street.

Allen's aggressive new approach began last year, after he fought back a recurrence of cancer. In July he publicly pledged to give most of his fortune to charity. Then in August he sued Apple, Google, Facebook and other tech companies, arguing that they copied ideas hatched long ago by his research ventures.

Now Allen's releasing an autobiography -- "Idea Man" -- to tell his remarkable story.

But the reception to excerpts of the tell-all suggests his re-branding effort may backfire.

The excerpts reiterate that Allen made key contributions to Microsoft's genesis and ended up with a smaller share of the company than Gates, a story that's been told before.

What's newly revealed is the depth of Allen's resentment over his dealings with Gates.

It's so catty, Allen risks going down in history as the world's richest disgruntled employee -- the guy who stomped out of the building with $20 billion, thinking he deserved $25 billion.

I've followed Allen for more than a decade and talked to him a number of times. He's always been polite, except for the time his security guard shoved me aside, the night Washington voters agreed to fund a stadium for his Seahawks.

Whenever I asked about Gates, Allen talked up their friendship. Here's what he told me in June 2008:

"We have dinners regularly. We love to see movies together. The thing I always tell people about Bill that they may not know is, he's really a lot of fun to hang out with."

Allen continued:

"We used to go to movies a lot together. We would predict what's going to happen in the movie. If something funny happened, then we would just crack up. We still to this day have a lot of fun just hanging out and talking and brainstorming about future things."

Something must have changed. Maybe he was frustrated at being overshadowed by Gates all these years, or just had to get things off his chest. Still, nobody expected Allen to vent so publicly.

Gates was a brutal boss and a crafty negotiator. He's a ruthless businessman who once aspired to be a lawyer like his wealthy father, who helped set things up. Allen's an eclectic, music-loving son of a University of Washington librarian. Given these backgrounds, it's impressive that Allen ended up with 36 percent of their startup.

Another sore point is the cut Gates gave to Steve Ballmer, to convince his Harvard pal to join the company in 1980.

Allen, who attended Washington State University, writes that he and Gates decided to give Ballmer 5 percent of Microsoft. But when he left on a business trip, Gates gave Ballmer 8.75 percent, "considerably more than what I'd agreed to."

Allen wasn't the only one miffed by Ballmer's hiring package. It caused a "personnel disaster," according to "Gates," a 1993 biography by Paul Andrews and Stephen Manes. They didn't say much about Allen's feelings at the time, but said there was widespread resentment after Ballmer's offer was tacked onto the office bulletin board.

The ones to feel sorry for are Microsoft's early clerical workers, with whom "Gates had been tightfisted beyond the bounds of the law," Andrews and Manes wrote.

While Allen was grousing about dilution, the clerks had to file a complaint with the state to extract back pay for overtime that Gates owed them.

We'll have to see what the rest of Allen's book says, and whether people are as interested in his life before and after Microsoft. There's some irony in the book getting its initial burst of attention because of its candid view of Gates.

Hopefully "Idea Man" is more than a vendetta. That would be a shame because Allen's otherwise providing fascinating new details from his front-row perspective on the birth of the PC industry and a company that dramatically changed the Seattle area and the world.

For better or worse, Microsoft is like a natural element. Much of the world runs on its software, and it may be the most profitable business ever created anywhere.

Allen left Microsoft when it was really just getting started, more than a decade before Windows 95.

Early employees who thought they knew the man don't know what to make of his book.

"I'm taken aback," said Jon Shirley, who became Microsoft's president the year Allen left and served with him on its board.

Shirley said he's been getting calls from very early employees, talking about the excerpts.

"I think everybody's sort of in the same situation I am -- it's very hard to understand," he said.

Shirley said the book probably won't alter the general perception of Microsoft, which was more affected by antitrust cases.

"Microsoft is no longer Bill and Paul," he noted.

Gates and Allen have also changed, presumably.

"How the world wants to view the interchange of these two very young men -- when they were young men -- I don't know," he said. "You'll have to decide whether you accept this story or not. It's shocking to me -- it doesn't sound like Paul."

Or maybe there's a lot more to Allen than everybody realized.

Hooking up with Nokia will help Microsoft overtake Apple's iPhone and Research In Motion's BlackBerry within a few years, according to a new report from research firm IDC.

The combination should boost Windows phones to second place among smartphone platforms worldwide by 2015, IDC said in its latest Mobile Phone Tracker report.

For now, the big story is Google's Android software. IDC expects Android will become the most-used smartphone platform this year, after zooming up to second place in 2010.

"For the vendors who made Android the cornerstone of their smartphone strategies, 2010 was the coming-out party," Ramon Llamas, senior research analyst, said in the release. "This year will see a coronation party as these same vendors broaden and deepen their portfolios to reach more customers, particularly first-time smartphone users."

Overall sales of smartphones will continue growing but not at the same pace as 2010, it predicted. Smartphone sales are expected to grow 49.2 percent this year - to 450 million units - as consumers and business users continue upgrading their devices, it predicts.

Llamas said the Nokia deal will reverse Microsoft's phone slide.

"Up until the launch of Windows Phone 7 last year, Microsoft has steadily lost market share while other operating systems have brought forth new and appealing experiences," he said in the release. "The new alliance brings together Nokia's hardware capabilities and Windows Phone's differentiated platform. We expect the first devices to launch in 2012. By 2015, IDC expects Windows Phone to be number 2 operating system worldwide behind Android."

The chart from the release:

Microsoft must be getting tired of all those stories about Apple app developers striking it rich.

The company today posted details of a study it commissioned from IDC saying that Microsoft partners -- companies offering Microsoft-based technology products and services -- generated $580 billion in sales last year, up from $537 billion the year before.

This comes as worldwide IT spending grew less than half a percent, Microsoft noted in its release.

IDC estimated that for every dollar of Microsoft sales in 2009, "local members of the Microsoft ecosystem" generated revenues of $8.70.

This is like a global version of the multiplier effect cited in Microsoft's local economic impact reports. Last year's report on Microsoft's effect on Washington's economy said every job at Microsoft supported 5.8 other jobs in the state.

Here's the Microsoft graphic accompanying the IDC report:

Microsoft hasn't said a lot about the new TV products and services it's developing this year, but the company has revealed the executive chosen to lead the effort.

Tom Gibbons, a vice president who had been working on mobile device strategy, is now leading the TV and service business within the Interactive Entertainment group.

The move comes as Microsoft is working with computer makers on a range of devices for connecting TVs to the Internet to stream TV and video services, building on the company's Media Center software that's being challenged by new products from Apple and Google.

Simulatenously, Microsoft is working on a range of video services for the Xbox platform, which has been offered in some countries as a modified cable box.

Gibbons has experience releasing gadgets and consumer products. Earlier he was VP of the specialized devices and applications group, leading strategy for groups that built Microsoft's automotive software, Surface computers, hardware and Macintosh software.

His new position was disclosed in a bio updated March 16 on Microsoft's press site, which was called out by Mary Jo Foley at ZDNet.

Every time you turn around nowadays there's another huge tech trade show, at which a bunch of new phones and tablets are announced.

Here's a sample of the cool new gadgets surfacing at the CTIA wireless conference this week in Orlando. Some of the devices were already announced, and some still don't have prices and specific ship dates yet.

Sprint was the first to offer a 4G phone in the U.S., and now it's offering a 4G phones with glasses-free 3D displays, available 2U this summer for a price to be announced later. It's an Android-based device built by HTC, with the "Sense" interface designed in Pioneer Square.

The HTC Evo 3D has a 4.3-inch, 960 by 540 pixel 3D display. Inside it has dual-core 1.2 gigahertz Qualcomm Snapdragon processor, 4 gigabytes of internal memory and 1 gig of RAM. It functions as a 3G/4G hotspot supporting up to eight devices at once over WiFi and outputs 720p video via HDMI. On the back it has dual 5 megapixel cameras for taking 3D images and videos.

Sprint's also going to sell a tablet-sized version of the device, called the HTC Evo View 4G. It has a 7-inch diagonal, 1024 by 600 pixel touchscreen (without 3D). The tablet runs on a 1.5 GHz Snapdragon dual-core processor with 32 gigs of internal memor and 1 gig of RAM. It also uses HTC's "Scribe" system for input with a digital pen and works as a hotspot.

Yesterday, Sprint announced that it's also going to sell Google's new flagship Android device, the Nexus S 4G. The Samsung phone has a 4-inch Super AMOLED screen, 1 GHz processor, a dedicated graphics processing unit and Android version 2.3 ("Gingerbread"). Sprint and Google also said they're connecting Google Voice, so Sprint customers can use their phone number with Google's calling service. The phone's coming this spring.

AT&T yesterday announced that it's also selling a glasses-free 3D phone, the LG Thrill 4G, with a 4.3-inch screen, dual-core 1 GHz processor and Android version 2.2. The Thrill comes with 16 gigs of memory - 8 onboard plus an 8 gig memory card - and records 3D video at 720p and 2D video at 1080p. It also plays back high-def video thorugh an HDMI port or streams it to DLNA devices.

AT&T's also going to sell a version of the Windows-based HTC HD7, which it's calling the HD7S. It's going to use the HSPA+ network and have the updated software with cut-and-paste when it's released in a few weeks.

T-Mobile also introduced several new phones, including the "G2x with Google by LG," or the G2x for short. It's based on a dual-core 1 GHz Tegra 2 processor and Android 2.2. There's also an 8 megapixel camera that takes 1080p video and front-facing 1.3 megapixel chatcam.

T-Mobile announced that it's boosting the maximum speed of its HSPA+ network in a handful of markets - Las Vegas, Orlando and New York - to 42 megabits per second. To get those speeds, you'll need a new device, though - namely the "Rocket" stick modems announced at the show:

The Bellevue-based company also introduced a "value" smartphone, the Nokia Astound, that will cost $80 (after a $50 rebate) when it goes on sale April 6. It has a 3.5-inch AMOLED touchscreen, free turn-by-turn navigation and an 8 megapixel camera that takes 720p video. The Astound is based on Nokia's Symbian operating system that's going to be displaced starting next year by Windows.

Seattle communications software company Varolii reached across Lake Washington for its new president and chief executive, hiring David McCann, general manager of Microsoft's Windows Server product management team.

McCann was previously chief executive at Electronic Evidence and CarParts Technologies, and senior vice president at FileNet Software, leading up to its acquisition by IBM in 2006.

"Varolii is at a strategic intersection of cloud computing services and personalized consumer communications, reaching more than 75 million U.S. consumers each year for some of the world's largest corporations," McCann said in a release.

McCann replaces Nicholas Tiliacos, who stepped down after 10 years at the company.

Varolii provides software and services that companies use to deliver automated messages to employees and customers via phone, email, fax or text messages. It has around 250 employees and 450 customers.

Rick Sherlund, a top-ranked analyst known for his particularly thorough coverage of Microsoft for Goldman Sachs, is at it again.

Tokyo-based investment bank Nomura today announced that it hired Sherlund as managing director and head of its U.S. technology equity research team.

Sherlund left Goldman in 2006 for Galleon Group, the hedge fund now involved in an insider-trading scandal, before moving on in 2008. He has since been mining for gold in Alaska and working as portfolio manager of New York investment firm Ketchem Creek Capital.

"We are committed to driving investment results for our clients through deep industry knowledge and a global perspective, and Rick's record and reputation are unmatched in the business," Nomura's head of equities in the Americas, Ciaran O'Kelly, said in a release. "I had the greatest admiration for Rick as a formidable competitor when I was a technology trader, so on a personal level this is a special hire, and one that confirms all we are building at Nomura."

Sherlund covered Microsoft since it went public in 1986 and for years was ranked the top-ranked tech analyst by Institutional Investor magazine.

Microsoft is going to stop making Zune media players, ending a five-year effort to catch up to Apple's iPod, according to a Bloomberg report.

The company will continue developing the Zune software that's used as a media player on the Xbox and in Microsoft's mobile phone platform.

Although the latest versions of the Zune drew respect for their hardware and software design, Microsoft seemed to have lost interest in promoting the gadgets as it turned its focus to phones.

Killing Zune hardware comes as Microsoft is reportedly building up a team in the same division to develop new media services allied with the Xbox.

A Microsoft spokesman provided the following statement:

"We're absolutely committed to providing the best movies, music, and TV show experiences through Zune on Xbox, the PC, Windows Phone 7 and Zune devices. We'll share more information about the evolution of the Zune entertainment service and Zune hardware as future plans develop."

Here's Bill Gates launching the Zune at Seattle's Westlake Park, sporting a brown Zune coat.

No wonder Nokia agreed to use Windows Phone software.

Microsoft will pay Nokia more than $1 billion to promote and develop Windows phones, according to a new report by Bloomberg's Dina Bass.

The story, based on two unnamed sources "with knowledge of the terms," offers new details about the huge deal announced Feb. 11.

It said the contract between the tech giants struggling in the smartphone market will last more than five years and has yet to be finalized.

Despite the huge payout, Microsoft will still make money from royalty payments made by Nokia, the story says. The Redmond company will also give Microsoft the right to use Nokia's huge patent portfolio.

Google's Android operating system topped the U.S. smartphone market in January for the first time, with 31.2 percent of the market, according to a new comScore report.

The firm said Android's market share grew 7.7 percent from October through January, while Research In Motion fell 5.4 percent and Apple was nearly flat at 0.1 percent growth. Microsoft's share fell 1.7 percent.

Among handset makers, Samsung led the U.S. market with 24.9 percent of the market in January. The market leadership didn't change much; Samsung was followed by LG, Motorola, RIM and Apple.

The report's based on a survey of more than 30,000 U.S. mobile subscribers.

Here are the charts from the news release:

SAN FRANCISCO -- One of the most enthusiastic people at last week's Apple iPad 2 launch was Mark Rein, co-founder and vice president of Epic Games.

Epic, based in Cary, N.C., is known for full-bore, action blockbusters, such as "Gears of War" on the Xbox. Its "Unreal" game platform is also widely used by other studios to build games on multiple platforms.

Apple has highlighted Epic's work on "Infinity Blade," a high-definition fantasy title released in December for the iPhone and iPad.

Rein (left) said the iPad is on its way to becoming a game console, with the new version coming Friday having a dual-core processor, improved graphics system and a new accessory for connecting the device to a digital TV.

"For us, it's like Christmas," he said, when we talked at Apple's launch event.

Here's an edited excerpt of our conversation:

Q: I've heard a lot about the iPad being great for casual games. Will this power boost make it better for hard-core action games as well?

A: That's what "Infinity Blade" was -- the first core, triple-A game designed specifically for these environments. So we already think it is.

It means that now, even [with] the casual experiences, you'll be able to make those look even better. Even "Angry Birds" could take advantage of having more computing power.

Q: When will games appear that take advantage of the new iPad's increased power?

A: I don't think it will take very long. "Infinity Blade" (below) will already run faster and better because of this, and we can now turn up the texture detail and turn on some of the effects that we'd turned off on iPad because iPad was a more challenging development environment than iPhone, given the higher resolution screen.

An iPad has 20 percent more pixels on the screen than an iPhone 4, yet the CPU [central processing unit] and GPU [graphics processing unit] in the iPad were introduced before the iPhone 4, so the iPhone 4's more powerful and has more features.

Now this leapfrogs that again, and gives plenty of power to take advantage of the full resolution of the machine.

Q: If you bought the game for an iPad 1, then upgraded to an iPad 2, would you have to buy a new version of the game to get the improvements?

A: No, we will just adjust the game to take advantage of what it can do, the same way we adjust the game for iPhone 4 and 3GS. For us, it's just settings.

Q: Will game developers take advantage of the new HDMI adapter for displaying iPad content on a big TV screen? Could that make it more like a handheld console?

A: Yes, absolutely. I've been actually saying that since the first iPad came out: This is a great way to play games.

It's going to get more feasible -- your game console could be a tablet you walk around with, and you use it as a controller in your home game experience. Or eventually you'll put this down, you'll pick up a DualShock [game controller], this will talk wirelessly or through HDMI to your TV, and you'll play.

That's the future, and Apple has clearly made a big step toward that with their digital [AV] adapter.

Q: Does the iPad 2's processor have enough oomph for big-screen games?

A: I hate to say it, but there are game consoles you buy today that you connect to your TV that don't even hold a candle to this.

Q: Are you talking about the Nintendo Wii?

A: I didn't say a name. This is now more powerful than the first-generation Xbox. This is probably more powerful than a PlayStation 2 or a PlayStation 1 for sure. This is on the road to that, if it's not already.

You can set this down, connect it in and get like a PlayStation controller -- a controller that has Bluetooth -- and away you go. I'd love to see where we could use a controller and play the hard-core experiences on these because that would be great. Especially with a stand, you just stand the thing up and play.

You know, like Microsoft's Kinect -- there's a camera in here and some pretty good processing horsepower. You could make a "Dance Central" game for this thing. The possibilities are getting better and better every year.

Q: Are you going to release Epic's "Bulletstorm" on the iPad now?

A: Would "Bulletstorm" or "Gears of War" be on here? The IP [intellectual property] could be, but I don't think that we'd make that kind of dual-stick type game unless this thing spawned dual sticks -- you know what I mean?

It's just a different experience, what you do for this and what you do for a game console.

The really best experiences for [the iPad] are ones that are really designed for what you do on a touch screen.

But I play "Call of Duty" on it, I like shooters on it. It can be all things.

If you want to be super successful, you have to make the thing that people really want to play on this instead of a game console.

Q: So when will Epic open a Seattle office?

A: When we buy Microsoft.

Research giant Gartner slashed its influential PC sales forecast today, saying that sales will be much slower than expected in 2011 because of growing interest in smartphones and tablet devices such as the iPad.

Gartner cut its 2011 forecast of PC sales growth to 10.5 percent, down from 15.9 percent. It's expecting 387.8 million units to be sold.

Weakness in China's mobile PC market is a factor, but there's "a general loss in consumer enthusiasm for mobile PCs," Ranjit Atwal, Gartner research director, said in a release.

Mobile PCs were key to the industry's growth over the last five years, with average growth rates approaching 40 percent, but all sorts of devices can now be used to connect wirelessly to the Internet, it noted.

Gartner had thought mobile PC sales would continue to grow as consumers bought their second or third systems but it's now thinking that enthusiasm for alternative devices will "dramatically slow home mobile PC sales," George Shiffler, Gartner research director, said in the release.

Shiffler said, "we now believe that consumers are not only likely to forgo additional mobile PC buys but are also likely to extend the lifetimes of the mobile PCs they retain as they adopt media tablets and other mobile PC alternatives as their primary mobile device."

Gartner's now expecting home mobile PC sales to grow less than 10 percent a year in mature markets from 2011 through 2015.

Some consumers are buying tablets instead of PCs. But the bigger issue is that consumers are holding off PC purchases because they're curious about tablets and waiting to see what's available during the rest of 2011.

Corporate sales of PCs will continue to see double-digit growth in 2011 and 2012 as older PCs are replaced around the world but even in this market, some purchases are being delayed as buyers consider whether to buy tablets instead.

Gartner said mobile PCs have lost their cachet as a fashion accessory and aren't living up to their mobility promise.

"The current 'cool' device is the smartphone, and now PCs will soon have to do battle with media tablets when they are launched in large numbers in the second quarter of 2011," the release said.

"Up to now, the appeal of mobile PCs has been their portability. But mainstream mobile PCs have not shed sufficient weight, and do not offer the all-day battery life, to substantiate their promise of real mobility. These limitations have become all the more apparent with the rapid spread of social networking, which thrives on constant and immediate connections. In short, all-day untethered computing has yet to materialize, and that has exposed the "mobile" PC as merely a transportable PC at best."

So when is Microsoft launching that new, more mobile version of Windows?

If you stuck with a T-Mobile Danger Sidekick phone after the 2009 data crash, it's probably time to shop for a new phone.

Danger data services for Tmo Sidekicks will stop working after May 31, the carrier announced tonight.

Microsoft has run the services since it acquired Danger. It's been rocky for Sidekick customers, some of whom suffered through the 2009 system crash and were compensated with $100 gift cards.

T-Mobile set up a tool on its website to help Sidekick users export personal data, such as photos, contacts, calendar items and bookmarks to a new device, a computer or an e-mail account.

The company's also going to provide special offers to Sidekick holdouts. Details about the offers will be provided in a few weeks.

I'm guessing T-Mobile is going to encourage the customers to upgrade to the new Android-based 4G Sidekick that the company's releasing this spring, if it ever comes.

Microsoft has run the Danger Sidekick services since it acquired Danger in 2008.

This is going to be a big week for gadget news.

Apple is headlining it with the iPad 2 that it's unveiling Wednesday in San Francisco. The early line on the device is that it's slimmer, more powerful and has a camera.

A new leak at 9to5mac.com says there will be a white version of the iPad, based on a white bezel that surfaced in China.

Also appearing today is an image of an HTC Trophy smartphone running Windows Phone 7 on Verizon Wireless.

Verizon hasn't yet said when it will carry WP7 devices, and its executives have talked down Microsoft's mobile effort, but the phones were still expected to arrive soon.

Engadget's report on the Verizon WP7 Trophy also says it has copy-and-paste capability.

If that's not enough, more hints that Apple may offer lower-cost iPhone options were floated in a Bernstein Research report that was picked up by Forbes blogger Eric Savitz. It quoted Apple CFO Tim Cook saying the company is planning "clever things" to serve the lower-end, prepaid cellphone market.

To accommodate new employees that it expects to hire this year, Google is expanding its offices in Seattle and Kirkland.

The company's been talking up its growth plan over the past month, saying it expects to add more than 6,000 employees this year globally.

After that news came out, Google received a record 75,000 resumes in a single week. Locally, applications to the Seattle and Kirkland offices jumped 62 percent above the weekly average.

Google's hiring talk comes as tech companies large and small ramp up their hiring after running lean through the downturn. The situation is exacerbated in Seattle by Silicon Valley companies such as Facebook, Zynga and Salesforce.com setting up new engineering offices here.

Competition for top talent is leading to dot-commish hiring gimmicks, including referral bounties of $10,000 to $12,000 being offered by Seattle startups SEOmoz and EnergySavvy.

Seattle and Kirkland Google managers wouldn't talk about competing for talent with any particular company, but in a meeting today they emphasized the thoroughness and responsiveness of Google's hiring practices.

Google is expanding its Fremont campus by leasing 30,000 square feet formerly occuped by Getty Images, adjacent to Google's building just north of the Fremont Bridge.

In Kirkland, Google began moving employees into the third building on the campus it opened in 2009.

Combined employment at the two sites grew 50 percent last year, to about 800 people, according to site managers Brian Bershad and Scott Silver.

Google's likely to hire more than 100 this year,but the managers wouldn't provide specific forecasts. However, they offered plenty of clues and hints to inform speculation about what to expect.

"I do expect, given what we're seeing in terms of resumes and the amount of resources we're putting into the hiring process, that we will grow substantially in 2011," Bershad said.

Google is expecting 2011 to be the biggest hiring year in its history, and the "Sea-Kirk" facilities should get their share.

"In this area we've always grown faster than the rest of Google, always, every year," said Silver. "It's mostly a testament to the talent that are here."

Google is working on a number of projects in the local offices, including search, messaging, maps, ad systems and the Chrome browser and operating system. Bershad said a particular emphasis in recruting this year will be for user-experience experts, to improve the design of Google products.

Unlike most of Google's regional offices, the Seattle and Kirkland facilities are almost entirely filled with engineers, with more than 90 percent of the staff involved in research and development, as opposed to sales and administration.

Google's engineering presence in Seattle began in 2004 with three employees in Kirkland.

The company leased the three-building Kirkland campus while it was under construction in 2007 and moved into two of the buildings in 2009. Silver said Google will eventually fill the third building, which has about 75,000 square feet of space.

Among the occupants may be former employees of Widevine, a Seattle digital-rights management software company that Google acquired in December. At the time, plans were to move the 60 Widevine employees to the Kirkland campus.

It's hard to keep the big chair warm in Microsoft's ad sales department, apparently.

Kara Swisher's reporting that Carolyn Everson (left), vice president of global advertising sales and trade marketing, is leaving after just seven months in the job. Everson, a former MTV Networks executive, led Microsoft's multibillion ad business on Bing, MSN, Windows Live, mobile, gaming, Atlas and the Microsoft Media Network, according to her official bio.

Everson replaced Robin Domeniconi, who held the spot for 18 months.

Facebook confirmed Everson's hiring to Swisher, who noted that Everson will report to a former Google employee, David Fischer, Facebook's vice president of advertising and global operations.

It's a little awkward because Microsoft's a big investor in Facebook.

But it's not like she's moving from Redmond to Palo Alto, though. Everson continued to live in New Jersey, according to her Microsoft bio.

If you haven't upgraded to a smartphone running Qualcomm's 1 gigahertz Snapdragon processors yet, there's no rush.

Dual-core models are just arriving, and Qualcomm just announced a quad-core, 2.5 gigahertz beast to arrive in early 2012.

The capabilities of the new APQ8064 processor blur whatever's left of the line between mobile phones, tablets and PCs.

They also preview what's coming to smartphones and tablets shown at next January's Consumer Electronics Show:

-- 12 times more power and 75 percent lower power usage than the first Snapdragon.

-- Quad-core graphics processor "for a console-quality gaming experience." (Qualcomm's chief executive hinted at this during HP's WebOS launch last week).

-- Support for cameras with up 20 megapixel resolution.

-- 3-D stereoscopic photo and video capture and playback.

-- Full 1080p HD and 3-D video output to large screens, via HDMI.

-- Integration with LTE/3G radio modules.

-- Support for PC-type DDR3 memory, plus PCIe interfaces and multiple USB ports.

-- Support for near-field communication.

Snapdragon processors are used in many of the latest smartphones, but the quad-core model seems aimed at tablets and other mobile computers as much as phones.

Qualcomm's announcement said it will provide computer makers with a platform "that can meet all of their design configuration needs for tablets and next generation computing and consumer electronic devices."

This hardware hints at the sort of mobile computers that will use Windows 8, or whatever Microsoft calls its next major operating system. Microsoft announced in January that it's designing the software to run on this kind of system-on-chip hardware.

With a 2.5 Ghz chipset the size of a matchbook, your next PC may be the size of your phone, and your phone may be more powerful than your current desktop.

This may be the most exciting Windows Phone 7 development announced today by Microsoft at Mobile World Congress -- a demo of WP7 phones connected to an Xbox Kinect game.

I wasn't there for Steve Ballmer's keynote but everything else -- Twitter, cut-and-paste, IE9, Office in the cloud -- was previously announced or unsurprising. Or maybe it all just seems anticlimactic after the Nokia partnership announced Friday.

Microsoft's isn't yet bringing Kinect motion sensing to the phone. Instead, it's taking player input from the phone and adding it to a Kinect game, turning the phone into an auxiliary controller.

When I asked the company when this sort of thing may come to market, a spokesman provided the following statement:

"The technology shown in the video is real and is an example of the types of experiences we'll be bringing to market. We remain committed to building a network that connects you to your friends and entertainment in innovative ways. This is just one example of what's possible as we explore new ways to interact with our technology. At this time, we aren't discussing specific experiences we'll be offering or a product timeline, but we look forward to sharing more in the future."

Images of Nokia concept phones running Windows Phone 7 were posted this afternoon by AOL blog Engadget, and they look pretty credible.

They also look a little bit like the Samsung Focus Windows Phone 7, at least from the back, with the subtle taper on the back.

I wonder if this was a deliberate leak to build enthusiasm among gadget fans who weren't captivated by this morning's business-heavy announcement by Microsoft and Nokia.

Here's a screengrab of the page:

The top executive at HTC's U.S. headquarters said he's not too worried about Nokia hooking up with Microsoft and the deal validates HTC's approach to the smartphone business.

After getting an early boost from Microsoft, HTC has emerged as a leading producer of advanced phones, claiming higher-end market share that Nokia's hoping to win back with Windows-based devices.

Mighty Nokia is actually following the same path HTC took to its success, said Jason Mackenzie, (left) Bellevue-based president of HTC for North America and Latin America.

Mackenzie said Nokia's partnering with Microsoft is "a validation of what we're doing."

"Nokia's following a similar lead to what HTC's been doing, in not investing in our own platform, taking solid platforms and filling the gap to deliver a solid experience to the end user," he said.

As for the competition HTC will face from Nokia phones running Windows, it's "one more competitor," he said.

"I feel confident in what we're doing," he said. "We've got a fresh brand that's resonating with consumers."

HTC emerged in the late 1990s as the first manufacturer of Microsoft Pocket PC devices and early Microsoft smartphones that appeared starting in 2002.

In recent years the company invested heavily in software and hardware design studios in Seattle and San Francisco to differentiate its phones. It developed a polished software interface that it layers over the underlying operating system.

HTC continues to make phones based on Windows -- including five Windows Phone 7 models so far =- but it's now selling more phones based on Google's Android software. It released the first Android phone in 2008.

Mackenzie said HTC will continue to produce Windows Phone 7 devices, despite the Nokia announcement. It won't be announcing any new Windows models next week at the Mobile World Congress in Barcelona but several will be announced later in the year.

"Obviously Windows Phone 7 is a platform we've invested tremendously on" and "we'll continue to support that," he said.

Asked if the Nokia deal will improve the momentum of Windows Phone 7, Mackenzie said: "It broadens the ecosystem, which is good for everyone. We'll see."

Google's apparently not going to be dancing with Nokia.

Nokia's preparing to make a big announcement Friday, presumably about whether it will partner with Microsoft or Google to help revamp the Finnish phone giant's smartphone business.

But over the last few days, a few prominent Google employees have posted snarky comments on Twitter that imply Google's Android platform is no longer in the running. That implies that Nokia's going to announce that it will use Microsoft's Windows Phone software instead.

Fortune blogger Seth Weintraub and others called out the first, a coded Feb. 8 pronouncement from Google Vice President Vic Gundotra. He tweeted "#feb 11 "Two turkeys do not make an Eagle."

February 11 is the date of Nokia's partnership announcement. Weintraub noted that the "two turkeys" comment also echoes a 2005 comment by a Nokia executive, dismissing a competitive challenge from Siemens and BenQ.

If that wasn't enough, today Google's Android developer advocate, Tim Bray, trashed the judgement of Nokia Chief Executive Stephen Elop, former president of Microsoft's business division until last September.

Weintraub also spotted Bray's snark:

"Poor Mr. Elop. Has to make the big tech call not ever having written a line of mobile code or done system bring-up work."

Elop has a degree in computer engineering and management and worked at Lotus, Juniper, Adobe and Macromedia before joining Microsoft in 2008.

Bray tried to downplay the comment with followup tweets, saying that "I have no inside info on Nokia. What I said is also true of every other handset-maker CEO. Core prob in technology management."

Poor Mr. Bray and Gundotra. Their tweets also reveal something about Google.

Nokia's deal with Microsoft may not last forever. How enthusiastic is Mr. Elop going to be about Android the next time around?

SAN FRANCISCO -- Hewlett-Packard on Wednesday outlined a billion-dollar bet to reshape its huge personal-computer and mobile-device business to be more like Apple, using an in-house operating system rather than Microsoft Windows.

It's a blow for Microsoft to have its largest customer -- and the world's largest PC maker -- reject Windows for its new push into the fast-growing mobile-device business.

But shoppers may benefit from the increased competition and new options coming later this year.

HP plans to release two phones this spring and a tablet computer in the summer, all based on the latest version of the WebOS software the company acquired when it bought Palm last April for $1.2 billion.

HP's tablet -- the TouchPad -- joins a flood of tablet computers to be released this year, including new versions of Apple's iPad, devices running Google's Android software and Windows-based tablets from Dell and other major PC makers.

Research firms forecast more than 50 million tablet computing devices will be sold this year. Gartner expects 64.8 million will be sold globally, rising to 154 million in 2013.

"These things are proof that the future is really wide open when it comes to growth and opportunities in the mobile space," Qualcomm Chief Executive Paul Jacobs said during the HP event.

The TouchPad was the highlight of a splashy media event in a waterfront pavilion Wednesday morning.

Yet HP made clear it was launching more than a few devices. It was presenting a new platform it expects to rival Windows, Android and Apple's iOS software used in the iPhone and iPad.

The company aims to build the largest community of connected devices in the world, creating a big draw for software developers, according to Steven McArthur, senior vice president for applications and services.

"Virtually no other company could credibly put forward such a goal," said McArthur, a former president of Expedia.

HP emphasized that the WebOS platform can be pushed through its vast network of customers, partner companies and retail outlets. The Palo Alto, Calif., company has more than a billion customers and distributes its products through 88,000 stores around the world.

It's going to count on wireless phone companies to help move the TouchPad, though. Verizon and others will start selling the device in summer for a price somewhere below $800.

The 1.6-pound TouchPad has a 9.6-inch diagonal display with 1,024 by 728 resolution and a front-facing camera for videoconferencing. It's powered by Qualcomm's newest dual-core, 1.2 gigahertz Snapdragon processor and will come with 16 or 32 gigabytes of storage.

It will be available first with Wi-Fi and later with 3G wireless service through multiple carriers.

The new phones include the tiny Veer, about the size of a credit card with a 2.6-inch screen. It has 8 gigabytes of storage, a slide-out keyboard, HSPA+ wireless and an 800 megahertz Snapdragon processor. It will go on sale in "early spring."

"Never before has a smartphone done so much and felt so little," said Jon Rubinstein, the former CEO of Palm and now an HP senior vice president.

Rubinstein also showed the Pre3, a larger phone with a 3.6-inch diagonal screen, slide-out keyboard and HSPA+ and EVDO rev. It runs on a 1.4 gigahertz Snapdragon processor and will be available this summer.

Rubinstein said that with WebOS, the company aims to transform how people think, feel and connect to different devices and services. Devices running the software stay synchronized with online services and can integrate multiple providers of e-mail and online calendars, for instance.

To use all the features, though, users will need both a TouchPad and a WebOS phone.

For instance, the demonstrations Wednesday showed how messages coming into a Pre phone can be answered on a tablet. Web pages being browsed on the tablet -- such as a restaurant's website -- can be shifted to a Pre phone by tapping the phone against the tablet.

Todd Bradley, HP's executive vice president for personal systems, said the company is bringing memorable new experiences comparable to the first time he heard the whisper of an electric car.

"We should all witness these firsts as often as we can in our lives. If you think about it, creating those experiences for a living is what the technology industry is all about."

The phones and tablet had been expected, but Bradley added something extra when he announced the company also plans to extend WebOS to desktop and laptop PCs.

Executives provided no details of when WebOS PCs will arrive and said the company will continue to produce Windows-based PCs also.

Microsoft declined to make executives available to discuss HP's move but a spokesman provided a statement: "HP is a valued Microsoft partner, and we continue to work closely with them on many new products that bring great experiences to our mutual customers."

In January, Microsoft disclosed the next version of Windows will run on the tiny, integrated hardware platforms used in smartphones and the latest tablet computers, including the Qualcomm hardware HP is using for its WebOS devices.

But the new version of Windows may not arrive until late this year or in 2012.

HP looked into different operating systems when it began developing slate-type tablet computers five years ago, according to Chief Technology Officer Phil McKinney.

It decided the best approach was an operating system designed from the ground up for mobile devices and one that could be tailored for tablets.

"There are operating systems appropriate for the job," McKinney said.

That approach is similar to that of Apple, which develops its own hardware and software, and has led the emergence of mobile computing devices since its iPhone was first released in 2007.

HP also may have decided it was simply cheaper to develop its own operating system and developer platform, instead of paying to license the multipurpose Windows.

It's a challenge to lure developers to a new platform, especially when they're already stretched developing applications for multiple platforms and devices, but HP has already landed a few big ones.

Time Inc. showed TouchPad versions of "Sports Illustrated" and "People" magazines that are expected to be ready -- along with Fortune magazine -- when the device launches.

HP also worked with Amazon.com on a TouchPad version of Kindle that supports the Kindle's new "collections" feature for managing libraries of Kindle books.

(This is an expanded version of my blogging live from HP's event)

SAN FRANCISCO -- Hewlett-Packard on Wednesday outlined a billion-dollar bet to reshape its huge personal-computer and mobile-device business to be more like Apple, using an in-house operating system rather than Microsoft Windows.

It's a blow for Microsoft to have its largest customer -- and the world's largest PC maker -- reject Windows for its new push into the fast-growing mobile-device business.

But shoppers may benefit from the increased competition and new options coming later this year.

HP plans to release two phones this spring and a tablet computer in the summer, all based on the latest version of the WebOS software the company acquired when it bought Palm last April for $1.2 billion.

HP's tablet -- the TouchPad -- joins a flood of tablet computers to be released this year, including new versions of Apple's iPad, devices running Google's Android software and Windows-based tablets from Dell and other major PC makers.

Research firms forecast more than 50 million tablet computing devices will be sold this year. Gartner expects 64.8 million will be sold globally, rising to 154 million in 2013.

"These things are proof that the future is really wide open when it comes to growth and opportunities in the mobile space," Qualcomm Chief Executive Paul Jacobs said during the HP event.

The TouchPad was the highlight of a splashy media event in a waterfront pavilion Wednesday morning.

Yet HP made clear it was launching more than a few devices. It was presenting a new platform it expects to rival Windows, Android and Apple's iOS software used in the iPhone and iPad.

The company aims to build the largest community of connected devices in the world, creating a big draw for software developers, according to Steven McArthur, senior vice president for applications and services.

"Virtually no other company could credibly put forward such a goal," said McArthur, a former president of Expedia.

HP emphasized that the WebOS platform can be pushed through its vast network of customers, partner companies and retail outlets. The Palo Alto, Calif., company has more than a billion customers and distributes its products through 88,000 stores around the world.

It's going to count on wireless phone companies to help move the TouchPad, though. Verizon and others will start selling the device in summer for a price somewhere below $800.

The 1.6-pound TouchPad has a 9.6-inch diagonal display with 1,024 by 728 resolution and a front-facing camera for videoconferencing. It's powered by Qualcomm's newest dual-core, 1.2 gigahertz Snapdragon processor and will come with 16 or 32 gigabytes of storage.

It will be available first with Wi-Fi and later with 3G wireless service through multiple carriers.

The new phones include the tiny Veer, about the size of a credit card with a 2.6-inch screen. It has 8 gigabytes of storage, a slide-out keyboard, HSPA+ wireless and an 800 megahertz Snapdragon processor. It will go on sale in "early spring."

"Never before has a smartphone done so much and felt so little," said Jon Rubinstein, the former CEO of Palm and now an HP senior vice president.

Rubinstein also showed the Pre3, a larger phone with a 3.6-inch diagonal screen, slide-out keyboard and HSPA+ and EVDO rev. It runs on a 1.4 gigahertz Snapdragon processor and will be available this summer.

Rubinstein said that with WebOS, the company aims to transform how people think, feel and connect to different devices and services. Devices running the software stay synchronized with online services and can integrate multiple providers of e-mail and online calendars, for instance.

To use all the features, though, users will need both a TouchPad and a WebOS phone.

For instance, the demonstrations Wednesday showed how messages coming into a Pre phone can be answered on a tablet. Web pages being browsed on the tablet -- such as a restaurant's website -- can be shifted to a Pre phone by tapping the phone against the tablet.

Todd Bradley, HP's executive vice president for personal systems, said the company is bringing memorable new experiences comparable to the first time he heard the whisper of an electric car.

"We should all witness these firsts as often as we can in our lives. If you think about it, creating those experiences for a living is what the technology industry is all about."

The phones and tablet had been expected, but Bradley added something extra when he announced the company also plans to extend WebOS to desktop and laptop PCs.

Executives provided no details of when WebOS PCs will arrive and said the company will continue to produce Windows-based PCs also.

Microsoft declined to make executives available to discuss HP's move but a spokesman provided a statement: "HP is a valued Microsoft partner, and we continue to work closely with them on many new products that bring great experiences to our mutual customers."

In January, Microsoft disclosed the next version of Windows will run on the tiny, integrated hardware platforms used in smartphones and the latest tablet computers, including the Qualcomm hardware HP is using for its WebOS devices.

But the new version of Windows may not arrive until late this year or in 2012.

HP looked into different operating systems when it began developing slate-type tablet computers five years ago, according to Chief Technology Officer Phil McKinney.

It decided the best approach was an operating system designed from the ground up for mobile devices and one that could be tailored for tablets.

"There are operating systems appropriate for the job," McKinney said.

That approach is similar to that of Apple, which develops its own hardware and software, and has led the emergence of mobile computing devices since its iPhone was first released in 2007.

HP also may have decided it was simply cheaper to develop its own operating system and developer platform, instead of paying to license the multipurpose Windows.

It's a challenge to lure developers to a new platform, especially when they're already stretched developing applications for multiple platforms and devices, but HP has already landed a few big ones.

Time Inc. showed TouchPad versions of "Sports Illustrated" and "People" magazines that are expected to be ready -- along with Fortune magazine -- when the device launches.

HP also worked with Amazon.com on a TouchPad version of Kindle that supports the Kindle's new "collections" feature for managing libraries of Kindle books.

(This is an expanded version of my blogging live from HP's event)

SAN FRANCISCO -- Hewlett-Packard on Wednesday outlined a billion-dollar bet to reshape its huge personal-computer and mobile-device business to be more like Apple, using an in-house operating system rather than Microsoft Windows.

It's a blow for Microsoft to have its largest customer -- and the world's largest PC maker -- reject Windows for its new push into the fast-growing mobile-device business.

But shoppers may benefit from the increased competition and new options coming later this year.

HP plans to release two phones this spring and a tablet computer in the summer, all based on the latest version of the WebOS software the company acquired when it bought Palm last April for $1.2 billion.

HP's tablet -- the TouchPad -- joins a flood of tablet computers to be released this year, including new versions of Apple's iPad, devices running Google's Android software and Windows-based tablets from Dell and other major PC makers.

Research firms forecast more than 50 million tablet computing devices will be sold this year. Gartner expects 64.8 million will be sold globally, rising to 154 million in 2013.

"These things are proof that the future is really wide open when it comes to growth and opportunities in the mobile space," Qualcomm Chief Executive Paul Jacobs said during the HP event.

The TouchPad was the highlight of a splashy media event in a waterfront pavilion Wednesday morning.

Yet HP made clear it was launching more than a few devices. It was presenting a new platform it expects to rival Windows, Android and Apple's iOS software used in the iPhone and iPad.

The company aims to build the largest community of connected devices in the world, creating a big draw for software developers, according to Steven McArthur, senior vice president for applications and services.

"Virtually no other company could credibly put forward such a goal," said McArthur, a former president of Expedia.

HP emphasized that the WebOS platform can be pushed through its vast network of customers, partner companies and retail outlets. The Palo Alto, Calif., company has more than a billion customers and distributes its products through 88,000 stores around the world.

It's going to count on wireless phone companies to help move the TouchPad, though. Verizon and others will start selling the device in summer for a price somewhere below $800.

The 1.6-pound TouchPad has a 9.6-inch diagonal display with 1,024 by 728 resolution and a front-facing camera for videoconferencing. It's powered by Qualcomm's newest dual-core, 1.2 gigahertz Snapdragon processor and will come with 16 or 32 gigabytes of storage.

It will be available first with Wi-Fi and later with 3G wireless service through multiple carriers.

The new phones include the tiny Veer, about the size of a credit card with a 2.6-inch screen. It has 8 gigabytes of storage, a slide-out keyboard, HSPA+ wireless and an 800 megahertz Snapdragon processor. It will go on sale in "early spring."

"Never before has a smartphone done so much and felt so little," said Jon Rubinstein, the former CEO of Palm and now an HP senior vice president.

Rubinstein also showed the Pre3, a larger phone with a 3.6-inch diagonal screen, slide-out keyboard and HSPA+ and EVDO rev. It runs on a 1.4 gigahertz Snapdragon processor and will be available this summer.

Rubinstein said that with WebOS, the company aims to transform how people think, feel and connect to different devices and services. Devices running the software stay synchronized with online services and can integrate multiple providers of e-mail and online calendars, for instance.

To use all the features, though, users will need both a TouchPad and a WebOS phone.

For instance, the demonstrations Wednesday showed how messages coming into a Pre phone can be answered on a tablet. Web pages being browsed on the tablet -- such as a restaurant's website -- can be shifted to a Pre phone by tapping the phone against the tablet.

Todd Bradley, HP's executive vice president for personal systems, said the company is bringing memorable new experiences comparable to the first time he heard the whisper of an electric car.

"We should all witness these firsts as often as we can in our lives. If you think about it, creating those experiences for a living is what the technology industry is all about."

The phones and tablet had been expected, but Bradley added something extra when he announced the company also plans to extend WebOS to desktop and laptop PCs.

Executives provided no details of when WebOS PCs will arrive and said the company will continue to produce Windows-based PCs also.

Microsoft declined to make executives available to discuss HP's move but a spokesman provided a statement: "HP is a valued Microsoft partner, and we continue to work closely with them on many new products that bring great experiences to our mutual customers."

In January, Microsoft disclosed the next version of Windows will run on the tiny, integrated hardware platforms used in smartphones and the latest tablet computers, including the Qualcomm hardware HP is using for its WebOS devices.

But the new version of Windows may not arrive until late this year or in 2012.

HP looked into different operating systems when it began developing slate-type tablet computers five years ago, according to Chief Technology Officer Phil McKinney.

It decided the best approach was an operating system designed from the ground up for mobile devices and one that could be tailored for tablets.

"There are operating systems appropriate for the job," McKinney said.

That approach is similar to that of Apple, which develops its own hardware and software, and has led the emergence of mobile computing devices since its iPhone was first released in 2007.

HP also may have decided it was simply cheaper to develop its own operating system and developer platform, instead of paying to license the multipurpose Windows.

It's a challenge to lure developers to a new platform, especially when they're already stretched developing applications for multiple platforms and devices, but HP has already landed a few big ones.

Time Inc. showed TouchPad versions of "Sports Illustrated" and "People" magazines that are expected to be ready -- along with Fortune magazine -- when the device launches.

HP also worked with Amazon.com on a TouchPad version of Kindle that supports the Kindle's new "collections" feature for managing libraries of Kindle books.

(This is an expanded version of my blogging live from HP's event)

SAN FRANCISCO _ Microsoft leadership announcements and leaks about the next iPad can't distract from the fact that the world's largest computer maker today is launching its own operating system.

Hewlett-Packard is holding an Applesque launch event at a waterfront pavilion to present the latest version of the WebOS platform it acquired with the purchase of Palm last April for $1.2 billion. The company's also presenting new smartphones and a touchscreen tablet based on the software.

In addition to tablets, HP is going to put its operating system on personal computers, including laptops and desktops that have traditionally used Microsoft's Windows.

I'll be updating this entry as the event progresses.

HP's executive vice president for personal systems, Todd Bradley, opened the event by saying the company's bringing memorable new experiences comparable to the first time he heard the whisper of an electric car.

"We should all witness these firsts as often as we can in our lives. If you think about it creating those experiences for a living is what the technology industry is all about," he said.

Bradley said the company has more than 1 billion customers around the world in 174 countries, with 88,000 retail locations, and it's selling 120 PCs every minute.

Our intention with WebOS is to transform how people think, feel and connect to different devices and services, he said.

Jon Rubinstein, senior vice president, came on stage for the actual launch.

After talking about the genesis of WebOS five years ago, Rubinstein presented the first new product, the tiny Veer phone that's about the size of a credit card with a 2.6-inch screen but has 8 gigabytes of storage, HSPA+ wireless and an 800 megahertz Snapdragon processor. It also works as a mobile hotspot for up to five devices, and will go on sale in "early spring."

"Never before has a smartphone done so much and felt so little," he said.

Then he pulled out the Pre3, a more business-oriented phone with a 3.6-inch diagonal screen, slide-out keyboard and HSPA+ and EVDO rev. a world phone radios. It runs on a 1.4 gigahertz Snapdragon processor.

It's going to be available in the summer.

The tablet is called the TouchPad and has Qualcomm's newest dual-core Snapdragon processor that runs at 1.2 gigahertz.

The tablet is 1.6-pounds, a 9.6-inch display with 1024 by 728 resolution, has video calling capability and 16 or 32 gigabytes of storage.

Rubinstein said the pad has features that "blow away" the competition, including multitasking and "activity cards" that show open applications.

Driving home some capabilities that exceed those of the iPad, he said the device can be used to work with Microsoft Office documents via Quickoffice, runs Adobe Flash and has standard printing options. The device has printer drivers built-in and discovers and prints to wireless printers made by HP; there wasn't word on how it works with other companies' printers.

A demo showed how the TouchPad and Pre phones sync together in the home, so calls and messags can be handled on the larger device.

Its calendar syncs with multiple sources, including Microsoft's Exchange and Google Calendars, and its email boxes supports multiple accounts at once.

Although HP's firing a broadside at Microsoft by declining to use Windows on its new tablet, the company did throw roses to a few smaller Seattle tech companies. During the demo, the TouchPad was used to shop for a diamond at Blue Nile and find a recipe at AllRecipes.com.

The demo also highlighted a TouchPad Kindle application that renders pages with color illustrations and supports the new Kindle "collections" feature. Also shown was a special version of Sports Illustrated for the tablet.

HP repeatedly called out the touchscreen keypad on the TouchPad, which includes a dedicated row of number keys.

HP will begin selling the TouchPad this summer in a WiFi version. A 3G version will follow later. Pricing hasn't been disclosed yet.

Rubinstein mentioned that the device's Skype application will work over Verizon's network, so Verizon's at least one of the 3G providers.

Qualcomm Chief Executive Paul Jacobs is now on stage, talking about the company's partnership with HP.

"These things are proof that the future is really wide open when it comes to growth and opportunities in the mobile space," Jacobs said.

Qualcomm's dual-core Snapdragon chips power console-quality gaming and stereoscopic 3D on mobile devices, he said.

HP has ambitious goals for the WebOS platform, which it sees as a major challenge to Windows, Google's Android and Apple's iOS.

The company's goal is to build the largest community of connected devices in the world, creating a big draw for software developers, according to Steven McArthur, senior vice president for applications and services (below).

"Virtually no other company could credibly put forward such a goal," he said.

McArthur - a former president of Expedia's leisure travel group - went on to say TouchPad will be the best mobile gaming platform.

Bradley came back on stage for the biggest news, though. HP plans to extend WebOS to other devices including printers and its laptop and desktop PCs. There were few details about the PC plans but it's a big blow to Microsoft.

I wonder what Microsoft, Apple and Google think of this bravado.

The National Academy of Engineering today announced that it's adding 68 new members, including three from the Seattle area.

Altogether the academy now has 2,290 members chosen for outstanding contributons to engineering research, practice or education and "pioneering of new and developing fields of technology, making major advancements in traditional fields of engineering, or developing/implementing innovative approaches to engineering education."

Locals named to the academy are:

-- James F. Albaugh, Boeing executive vice president and president and chief executive officer of its commercial airplane division. He was chosen for "for technical leadership in defense and commercial aerospace industry."

-- Susan T. Dumais, principal researcher in the adaptive systems and interaction group of Microsoft Research. She was chosen for "innovation and leadership in organizing, accessing, and interacting with information."

-- Henry M. Levy, Wissner-Slivka Endowed Chair in Computer Science and Engineering and department chair at the University of Washington. He was chosen for "contributions to design, implementation, and evaluation of operating systems, distributed systems, and processor architectures."

After launching a series of tablets based on Google's Android software, Dell today gave a sneak peek at a Windows 7 model coming out in a few months.

The device is aimed at business customers - but will be sold to consumers as well - and has a 10-inch diagonal screen, Intel's latest processors and an iPad-like design.

That's based on various reports from an event in San Francisco today where Dell announced 39 new PCs for 2011. Most are updated laptops and desktops.

This must be new PC week. Hewlett-Packard on Monday announced its new touchscreen desktops and today announced its new laptops. On Wednesday HP's also showing off its WebOS operating system, presumably with new consumer tablets.

There are also several rumors floating around about Apple unveiling the next iPad this week.

Dell's going to start selling its Windows tablet in May, according to PC Pro's report, but I wonder if the mockup was rushed out to get ahead of the HP news.

The device shown today was a non-functioning demo unit, with a decal instead of a working display, according to Cnet's blog from the event, which has a good picture of the tablet here.

Dell's also going to develop a 10-inch Android tablet, joining the 5-inch and 7-inch "Streak" models now carried by AT&T and T-Mobile.

During Dell's presentation, an executive said big companies want a Windows tablet that fits into their IT plans. Android can also fit, he said, but more want a Windows version, according to Cnet's report.

Get ready for a bunch of tablet announcements as PC makers start building devices based on Intel's "Oak Trail" system and launch them in time for the graduation and Father's Day sales season.

Maybe this is why Google's been publicly trashing Bing.

Microsoft's underdog search engine saw a jump in market share over the last month, increasing its U.S. market share 6 percent, according to an Experian Hitwise report today.

Google's U.S. market share fell 2 percent over the same period. No doubt it's because Bing was siphoning off searches for terms like torsorapy and mbzrxpgjys.

Experian reported that Microsoft-powered search engines - Bing and Yahoo combined - had a higher "success rate" in January than Google by a significant margin. It said that 81 percent of searches at Bing and Yahoo resulted in a visit to a Web site, versus a 65 percent success rate with Google searches during the same period.

But could searches also be considered a success if people found what they were looking for without clicking through and beyond the search results? For instance, searchers may have been asking Google to help spell a word or find a phone number that's displayed without cicking through.

Experian also listed the retail sites that drew the most paid clicks in January. Naturally the list was topped by Amazon.com, which drew 11.25 percent of paid click traffic in January followed by Target, JCPenney, Sears and Lowes.

If you're in the market for an all-in-one Windows PC, there's a new option from Hewlett-Packard coming out this week.

The company today announced the TouchSmart 610, a $900 consumer model going on sale Wednesday, and the 9300 business version, which goes on sale in May.

Both have 23-inch diagonal touchscreens, slot-load disc players and a sleeker design than the slablike TouchSmarts that first debuted with Windows Vista. They're still not as gorgeous as an iMac, but they're getting closer and have more hardware bang for the buck.

Their money feature is a tilting stand that reclines the display nearly horizontal into a position that's easier for prolonged touch activity and more natural for doodling, arranging photos, playing games. When reclined, the touchscreen is in a position more akin to using an iPad or other tablet computer while seated.

HP also added a new laptop link application that lets users access and control the desktop of their laptop from the TouchSmart. The laptop's desktop appears as a window on the TouchSmart, and gestures and taps on the screen are converted to mouse clicks to remotely control the laptop.

The TouchSmart 9300 is going to be based on Intel's "Sandy Bridge" hardware platform, which was recalled with a glitch. The press release mentions the "second generation Intel Core processors." Pricing hasn't been announced.

The consumer 610 model is shipping with the first-generation Core i5 650 processor, at least to start.

It would have been nicer if the base 610 came with the quad-core i5, but the specs nevertheless aren't too shabby. The base model comes with 6 gigabytes of DDR3 RAM, a 1 terabyte hard-drive, a built-in TV tuner, HP's upgraded "Beats" audio system and a Bluetooth/80211.n radio.

UPDATE: The initial price and specs provided by HP were a little misleading. The base, $900 model has much lower specs. It doesn't have any flavor of Core i5 processor - it has an AMD Athlon X4 with 4 gigs of RAM and a 750 gig hard drive.

There's a higher-end model that starts at $1,149 that has the i5 650, 6 gigabytes of RAM and a terabyte drive. That changes the value equation.

Brad Lovering, one of Microsoft's top engineers until he left last year, is heading a new Seattle office for Splunk, according to a report by Mary Jo Foley.

Lovering is now vice president of development platform with the San Francisco-based company, which provides an enterprise IT data management system used by thousands of customers.

During his 24 years at Microsoft, Lovering rose to become one of the company's elite Technical Fellows.

Splunk investors include Bellevue's Ignition Partners, a venture firm led by a number of Microsoft veterans.

UPDATE: Lovering told me he'll be hiring five to 10 developers over the next year to work at Splunk's office, which is going to be in South Lake Union.

Ignition also announced today that Frank Artale is joining the firm as managing director.

Artale worked at Microsoft before joining a series of enterprise startups, including several backed by Ignition. He was chief executive of Consera before it was sold to Hewlett-Packard, and vice president of XenSource before it was sold to Citrix, where he was most recently vice president.

Ignition's release said Artale will focus on core infrastructure, networking and security investments for Ignition Venture Partners IV, a $400 million fund.

(Today's column ...)

With all the lingering angst over bailouts for banks and carmakers, you'd think we'd be taking a closer look at stimulus funds for high-tech companies.

Especially since government isn't recovering from the downturn as quickly as industry, especially in Washington state.

Tech companies have turned the corner. They're growing, hiring and reporting record profits.

It seems like a good time to ease up on their tax breaks and shift some of that money to education and science that fuel the industry's future growth.

But just the opposite is happening.

You know times are tough when kidnappers will take a used Xbox.

That's what allegedly happened Sunday in Kingsport, Tenn., according to a police report posted by The Smoking Gun.

The report said a man kidnapped a 21-year-old employee who he believed had stolen rings from a job site, jeopardizing the man's business.

The initial demand was for $245 to cover the rings, but the 21-year-old didn't have the money and was allegedly getting roughed up while in captivity.

The captive's mother didn't have the money either, but her fiance "said he had an Xbox 360 that is worth $400 to $500," the police report states. The kidnapper accepted the deal, and traded the 21-year-old for the console at a Zoomerz convenience store.

There's not much information about the kidnapping victim, but that must be a pretty special Xbox. The top of the line 250-gigabyte model with a Kinect controller retails for $400.

The employer was charged with aggravated kidnapping.

Kirkland startup Inrix is announcing that Audi will use its traffic data services in a new in-dash navigation system the auto maker is debuting in the 2011 A6 in Europe in May.

It's the third major carmaker -- following Ford and Toyota -- to use Inrix's traffic data, which extends beyond highways to arterials and side streets using crowdsourced information from vehicles using the system.

So far 4 million vehicles use the system, mostly in North America, and Inrix has more than 125 customers, including states, online mapping services and mobile application providers.

Audi's system (screenshot at left) will use Inrix data to provide real-time traffic information, alerts and directions influenced by traffic conditions. Plans for a U.S. release of the Audi system weren't disclosed.

Inrix sales have grown an average of 90 percent a year over the past three years, and employment will grow from 75 to more than 100 by the end of the year, Chief Executive Bryan Mistele said.

The company is profitable and on track for an initial public offering in 18 to 24 months, said Mistele, who used to lead Microsoft's automotive software group.

"Our goal is to build this into a billion-dollar business and be the dominant provider of traffic data and services worldwide," he said.

The Inrix system draws on statistical analysis techniques developed in Microsoft's advanced research group, which licensed the technology to the startup.

A burst of sales in December wasn't enough to make 2010 a growth year for the video game industry, which saw sales fall 6 percent to $18.58 billion, according to NPD.

The biggest drop was in game hardware sales, which fell 13 percent compared to 2009, to $6.29 billion.

Apparently people are making do with their hardware, and just buying more games.

Game content sales - including retail packages plus mobile, rentals, social and downloaded games - were $15.4 to $15.6 billion - "flat to down by as much as 1 percent when compared to 2009," according to the firm's preliminary estimate of U.S. sales.

The top five games of the year were "Call of Duty: Black Ops," "Madden NFL '11," "Halo: Reach," "New Super Marios Bros." and "Red Dead Redemption."

PC games and packaged games at retail sold especially well, increasing 3 percent during the year. PC games rose 62 percent by dollar volume in December, pushed up by "World of Warcraft: Cataclysm" expansion pack. For the year, "Cataclysm" and "Starcraft II: Wings of Liberty" were the best-selling PC games.

Also gaining were sales of used games, downloads, mobile gaming apps and social network gaming, which offset declines in console and handheld gaming, NPD said in its release.

The console malaise didn't hurt Microsoft, apparently. The Redmond company crowed about the report, noting that Xbox 360 was the fastest-growing current-generation console in 2010, with 42 percent year-over-year growth.

December was also the best month ever for Xbox hadware sales, although Nintendo still sold more DS handhelds in the month, bringing total DS sales to more than 47 million in the U.S., NPD reported.

Nintendo said Wii sales are now over 34 million and the company has "strong momentum heading into 2011" with the 3DS going on sale in March.

"Nintendo has sold more game systems than anyone else for five years running," Charlie Scibetta, Nintendo of America's senior director of corporate communications, said in a release.

"Of the quarter billion hardware systems sold in the United States during the past 10 years, Nintendo sold more than half. We look forward to bringing fun new experiences to consumers when Nintendo 3DS launches in March."

Consumers spent $6.3 billion on the Xbox 360 platform last year, more than any other current-generation console, according to a selective preview of the NPD report that Microsoft issued earlier today.

Microsoft won't report last quarter's earnings until Jan. 27, but the company has been saying that 2010 was a blowout year for Xbox. Last week Chief Executive Steve Ballmer announced that 50 million Xbox 360 consoles have been sold and 8 million Kinect sensors were sold in its first 60 days on the market.

NPD said Kinect has been the best-selling game accessory since its launch in early November.

Microsoft's expecting the sales growth to continue in 2010.

"We expect to sell more consoles next year than we sold this year," said David Dennis, Xbox group product manager.

Dennis said the business is breaking the usual pattern, of releasing a console and then having sales taper off later in its life cycle.

"What you're seeing with our platform is something that hasn't been seen before, the mid-cycle acceleration," he said.

Here is the list of the top 10 games sold in the U.S. last year:

(Today's column from CES, on Microsoft's Windows and tablet news ...)

LAS VEGAS -- Here at the Consumer Electronics Show, you can see every TV set, iPhone accessory and cellphone ever imagined.

There are thousands of products in more than a million square feet of exhibition space, packed with more than 140,000 people.

But what's really hard to find are people who understand what Microsoft is up to with its mysterious pronouncements at the show about the next version of Windows. It took me four days to come up with a few guesses.

I'm talking about the centerpiece of Chief Executive Steve Ballmer's keynote -- the show's grand opening event, where thousands come to hear what's next from a company straddling the computer, phone and entertainment industries.

Ballmer used the spotlight to present hardware test beds running the next version of Windows on the tiny processors used in phones and Web tablets.

Ballmer also touted the Xbox and Windows Phone 7 with flashy demonstrations.

But his Big Deal was a demonstration of this new software and hardware running Office, Quicken and a high-definition video clip in Windows Media Player.

This probably would win the blue ribbon and scholarship offers at a university computer-science fair. It also sent various messages to Microsoft's industry partners and competitors. But it seemed strangely out of place as the opening spectacle at CES, where most people couldn't understand the semaphore and Microsoft refused to explain the flags.

Microsoft was so reserved and calculated with the presentation, you were left feeling that the company was keeping the cool new stuff under wraps, and using CES to check off a milestone in its secret release schedule.

In years past, Microsoft set the show's tone. Bill Gates used to open the event with bold predictions about software and PC technology spreading into TVs, refrigerators and Web tablets. His keynote usually had a funny video or two, perhaps a celebrity appearance and a few exciting prototypes.

This year Ballmer showed Microsoft is making an important move. It's extending Windows to the minuscule hardware used to produce phenomenally thin and light mobile Web devices. The hardware is primarily based on the ARM architecture that's dominant in smartphones and Web tablets.

A lot of people think Microsoft missed this boat and will never get past the iPad's wake. The bigger competition, though, may be Google and its Android operating system, which was powering nearly all of the new tablets and smartphones debuting at the show.

Either way, Microsoft's big investment into ARM is "a huge, but necessary, step for the company as it works to re-engage with the booming mobile device space," IDC analyst Al Gillen said in a research note.

What's a little strange is that Microsoft already has versions of Windows that run on ARM. The Windows phone software runs on ARM; its mobile Windows CE software has run on ARM since 1996.

But Ballmer made it clear at CES that Microsoft intends to put the full version of Windows on mobile devices coming in 2012 and beyond. He said customers expect "the full range of capabilities from any device" and Windows "will be everywhere on every kind of device without compromise."

Once again, Microsoft is insisting that the full version of Windows be used on what it considers to be primary computing devices.

That gives the devices the benefit of Windows' support for all sorts of programs and hardware. But it can also put a heavy load on the system, affecting performance and battery life.

By pushing "big Windows" onto tablets, Microsoft is saying it considers these devices to be full-powered computing systems, with the capabilities of a laptop. Not just a tablet for browsing and running Web applications.

This pronouncement comes as the definition of Web tablets, and portable computers, is in flux.

Consumers and the industry are still trying to figure out the mix of computing devices we'll use to work, play and communicate.

Microsoft is taking a different path than Apple, which opted to produce a slimmed-down version of its operating system for the iPhone and the iPad. Its mobile operating system has fewer capabilities, but works well for the hardware.

The bigger competition appears to be the Android, which Google gives away free. Android is already overtaking the iPhone and is now aimed at the iPad with a refined version for tablets coming out later this year. Google demonstrated the upgrade at CES, and it looks like it could also become a competitor to Windows 7 and Apple's OS X.

Microsoft has to make some bold moves, because its execution hasn't kept up with its vision for mobile computing.

Early on, the company saw the potential for tablets and smartphones. The first Windows tablets launched in 2002, nearly a decade before the iPad, and its ultra-mobile, handheld PCs launched a year before the iPhone.

Yet ultra-mobile PCs were held back in part because Microsoft opted to use the full version of Windows. Hardware at the time wasn't powerful enough and was too expensive.

Sales were poor and PC makers turned to netbooks.

There were hints Microsoft figured this out. After the iPhone cleaned its clock, the phone group rebuilt its unwieldy operating system, sharpened its focus and unveiled Windows Phone 7.

Windows 7 was also supposed to be better for tablets, with the ability to remove more components and lighten the system, and improvements to touch controls.

But, for tablets, Microsoft's biggest partners are turning from Windows. Dell's new Streak tablet runs Android on ARM, and Hewlett-Packard's next tablets run its own operating system.

It seems Microsoft, with the strategy Ballmer discussed the other night, is moving to reverse that.

But even if it makes full Windows work well with devices, huge obstacles stand in its way -- if my tour of the international section of CES is an indication

A walk through the crowded stalls where Chinese and Taiwanese companies hawk every gadget imaginable, from flashlights to holographic video players, suggested Asian factories are gearing up to produce millions of Android tablets this year.

Last year, this zone was full of netbooks; before that it was iPhone and iPod knockoffs. This year every other company seemed to offering Android tablets, most with ARM processors.

But after talking to one of the manufacturers, I'm not counting on a flood of Windows ARM (WARM?) tablets at the 2012 CES.

The issue isn't hardware support or the software's capability as much as price, according to William Hsaio, deputy general manager of Hopeland Digital in Shenzhen China.

Hsaio hadn't heard of Microsoft's plan for the next version of Windows to run on ARM. But he said it won't matter when he can get Android free.

"Windows? Too expensive for our market," he said. "One license costs $30, $40. That's huge money."

(UPDATE: After this was filed, I heard from a veteran Microsoft engineer who shared a few thoughts. He said it could turn out to be more like Apple's approach after all - taking a legacy operating system to new processor architecture, with more constrained computational abilities, and leaving legacy applications behind.

Deep changes in Windows to make it run well on mobile hardware could result in new efficiencies and responsiveness that would also improve things on Intel x86 architecture.

Maybe we'll learn more about what's meant by "full power" Windows on mobile hardware at Microsoft's Mix conference in April or a developer conference later in the year.)

Here is Ballmer's keynote:

LAS VEGAS -- Here's a demonstration of how content can be streamed from a Windows Phone to the new set-top boxes based on Windows Media Center running on an embedded version of Windows.

The devices take advantage of a "play to" capability built into Windows and based on DLNA media networking standards.

Mark Pendergrast, senior program manager, is showing the technology here at CES.

Sales of tablet computing devices will double in 2011 to 24.1 million units, and keep climbing through 2015, according to a report issued today by Forrester Research.

"Of those sales, the lion's share will be iPads, and despite many would-be competitors that will be released at CES, we see Apple commanding the vast majority of the tablet market through 2012," analyst Sarah Rotman Epps said in a blog post today.

Epps said tablet buying will be more like sales of MP3 players or iPhones than PCs. They are primarily lifestyle devices that people will replace more frequently than computers.

In other words, we think a significant number of first-generation iPad buyers will buy iPad 2 when it comes out this year -- many first-gen iPads will end up entertaining the kids in the back of the car while Mom and Dad get the shiny new (likely Facetime-compatible) model.

As for Android tablets, Research In Motion's BlackBerry PlayBook, Microsoft's Windows-based tablets, and tablets that run on HP's and Nokia's platforms, they'll take a backseat to Apple, but in a market this big, there's room for more than one player. By 2015, 82 million US consumers -- one-third of US online consumers -- will be using a tablet, and not all of them will be iPads.

Here's a chart from her blog:

Here's another from her report, via Mary Jo Foley's blog, where I first saw the report:

The first major CES 2011 announcement for a Seattle-area company is from Inrix, the Kirkland provider of traffic and vehicle information services.

Today, Inrix announced that it's going to provide real-time traffic information to "Entune," Toyota's response to the successful Ford Sync in-dash multimedia system. Entune, which is appearing in some Toyotas later this year, connects to online services via driver's mobile phones.

Inrix characterized the deal as the first of a series of collaborations with Toyota. The company is also working with Ford on its Sync product and mobile applications.

Inrix is "staffing up heavily" with about 15 open positions to support the Toyota work and a contract with an additional automaker that will be announced later this month, spokesman Jim Bak said via e-mail. That's on top of 20 employees added over the last year, which has brought the company to 70.

Here's a screenshot of Toyota's Entune menu. It has another local company's product prominently displayed - Bing Maps and Bing Mobile technology are part of Toyota's announcement today. I wonder if that will get mentioned Wednesday night during the opening keynote by Microsoft Chief Executive Steve Ballmer.

Steve Ballmer's getting scooped.

Asian computer makers are letting news of their Windows 7 tablets trickle out ahead of the Consumer Electronics Show, when Ballmer's expected to show more Windows-based rivals to the iPad during his Jan. 6 keynote.

MSI gave Taiwanese journalists a sneak peek at the Windpad 100W that it's going to present in Las Vegas next week.

Here's a video taken by Netbooknews.com, which had a reporter at the preview event in Taipei. They said the 10-inch tablet running an Intel Atom Z530 chip is about the same as the one MSI unveiled in June. It has an HDMI port, memory card reader, two USB ports and a 32 gig solid-state drive.

New tablets based on Intel's Oak Trail platform will appear in March, according to the report.

Asus is also jumping the gun with preview glimpses of its Eee Pad, a handsome convertible laptop/tablet based on Windows.

Here's the Asus teaser video:

Here's a video, via the LA Times, of USC researchers using a hacked Kinect to play "World of Warcraft."

Curious timing: Goldman Sachs issues another report saying the iPad and tablets are hammering Microsoft, then anonymous sources tell the New York Times that Windows 7 tablets are part of Steve Ballmer's CES keynote.

The Times piece says Ballmer will show Dell and Samsung tablets running Windows 7 and may even give a peek at a device running Windows 8.

A Microsoft spokesman declined to comment, saying "we are not talking at all about CES."

Ballmer already said these devices are coming. He told analysts in July that Microsoft's big push into tablets will come in early 2011 with the release of new Intel hardware for mobile devices.

One of the analysts he was talking to was Goldman's Sarah Friar, who is unlikely to be convinced by a whispery blog entry saying "wait until January!"

Still unanswered are key questions about the next generation of Windows tablets: When exactly will they go on sale, and how much will they cost?

If they're $1,000, they'll die the same quick death as Microsoft's ultra-mobile PC concept, which debuted on Samsung hardware in 2006. The device Ballmer will show in January is "similar in size and shape to the Apple iPad, although it is not as thin," according to "people familiar with the device" who spoke to the NYT.

An appearance at CES doesn't mean the devices will go on sale in January. The show is really for retailers to see products that they'll carry later in 2011.

Hewlett-Packard, for instance, waited until late October to finally, and quietly, take orders for the Win7 Slate PC that Ballmer showed last January. HP was a special case, though, as it's trying to build consumer tablets on its own operating system now.

I'm curious to see whether the "Windows 7" operating system on the tablets will be the full-blown version or stripped-down versions designed for consumer-electronics and portable devices.

Today's column is an extended take on Google's CR-48 preview of its Chrome operating system:

It was thrilling to fire up Google's ultra groovy CR-48 laptop running the company's new Chrome operating system.

The Applesque machine was like an early Christmas present from Silicon Valley Santa. Inside the eco-friendly cardboard package was technology that promised to finally topple Microsoft's 30-year dominance of the PC business.

Who could wait to see what kind of new computer the hottest software company in the world can create with its $3 billion-a-year research budget?

But after spending a few days with the CR-48, I don't think Microsoft has much to worry about yet. If anything, Chrome is more likely to challenge Apple's iOS software used in the iPad.

Chrome OS is elegantly designed with clever features that make it simple to run. But the software is crippled by Google's ambitious business objectives and quixotic pursuit of "online only" computing.
It's not really a personal-computer operating system, like Windows or Apple's OS X. It's more of an embedded system - like the software inside a cable box or phone - that's locked into place, mostly out of reach to users and managed remotely by Google.

What the user sees is just a browser - a version of Google's Chrome browser - with enough software under the hood to make the computer work. As a result the software is fast to start but limited. The user hardly has any control or choice over how to use and manage the computer on which it's running.

Chrome is designed to be always connected to the Web, through Wi-Fi or Verizon 3G Wireless service.

The CR-48 that Google's distributing to developers, testers and the media is a gorgeous laptop but, unfortunately, it's not for sale. It's only a test bed for demonstrating, testing and marketing the Chrome OS, which is to start appearing on computers sold by Acer, Samsung and others next year.

I'm expecting to see a bunch of different Chrome systems shown in January at the Consumer Electronics Show aimed for stores later in 2011. There will probably be a mix of laptops, tablets similar to the iPad and maybe even "all-in-one" systems with a monitor and processor in the same unit.

They'll probably cost about the same or less than low-end Windows PCs.

They should be cheaper, since the systems require you to use Google's ad-supported services. Buyers probably will also end up buying Verizon Wireless service.

Google and Verizon are offering 100 megabytes of free data transmission per month for two years to Chrome users. After that you'll have to pay either $10 per day for unlimited service or sign up for monthly plans that start at $20 for 1 gigabyte of data. (Verizon provides information on how much data various tasks will use; an excerpt below)

The 100 megabytes lasted less than a day. It wasn't enough to watch a single episode of "The Office" on Hulu.com, stuttering and buffering on the 3G service at my house. Partway through, the system showed an error message, blaming the website. It said the site "may be temporarily down or it may have moved permanently to a new Web address." Hulu was still up; the problem was that I needed to start paying Verizon or get on a Wi-Fi network.

Google is taking another stab at the "network computer" that Oracle, Sun Microsystems and others proposed in the 1990s.

The concept is to offer cheap and simple computers that connect to a network where the heavy-duty computing is handled and centrally managed. The PC becomes a simple terminal.

This approach minimizes the importance of the PC and puts the emphasis on the data center.

You've probably used a similar system at libraries, which provide terminals to search and browse the catalog.

Having a browser-only computer is fine for a lot of things we do with computers. You can write and save documents at sites like Google Docs or Office Web Apps, if they're designed to work with Chrome. I was able to edit an Office document with the CR-48 but couldn't stream anything from Netflix, which uses software that's not supported by Chrome.

Last week's "launch" of Chrome was really aimed at Web developers. Google wants them to write special versions of their Web pages for Chrome. Those pages are characterized as applications and distributed through a polished Chrome app store offering free and paid apps. When you "install" one of these pages, they are bookmarked on your Chrome start page, with phonelike icons that you click to open the pages.

But this approach really works only if you're constantly connected to the Web. It also shifts control of the system from the user to the system manager and site operators.

Some people will be uncomfortable using computers that basically require you to log in to Google and store files on its servers.

For all of Google's talk about open software and net neutrality, Chrome OS is pushing computing back toward a model where you've got to sign in and use a big, nosy company's mainframe.

It's also unclear whether Google is willing to invest the massive effort it takes to build and support a true PC operating system. For instance, one of the hardest things about building an OS is making sure it works with different devices people use with their computers.

I connected the CR-48 to a three-year-old printer in my house and was presented with a "white screen of death" - a blank box that froze the browser. I should have read the online help pages first; Chrome OS doesn't have any printer drivers whatsoever.

To print something, you've got to send the file to a Google server, which in turn will send the file to a Windows PC (not a Mac) that's connected to a printer. But first you've got to sync your Windows PC with Google's online print service and be sure that it's logged in to your Google account.

Google may think this is a clever way to piggyback on the work Microsoft's done to support all the different printers people use, at least until all printers connect to the Web. Chrome OS users are going to think it's a royal pain and the software just doesn't work right.

More competition in the operating-system business is good and Chrome is an intriguing entry. But it has a long way to go before it's a contender for your next PC.

Note: For a different perspective, here is a post by Google Chief Executive Eric Schmidt about the CR-48 launch and Chrome OS, relating his work on an early Sun network computer and "going back to old ideas."

SAN FRANCISCO -- It's a challenging day for Joe Belfiore, Microsoft's Windows Phone design and management vice president

Belfiore came to give an update on Microsoft's grand entry into mobile devices to Walt Mossberg, at the Dive Into Mobile conference. Mossberg pressed for an update on Windows Phone 7 sales, saying the lack of sales info makes people wonder if it's not doing well.

Belfiore said Microsoft has been focused on launching the platform and some devices are just now coming to market.

"It's just too soon to talk about numbers," he said.

Mossberg and audience members also pressed Belfiore to explain what Microsoft will do to compete with Apple's iPad and other slate-like computers.

"Stay tuned," Belfiore said.

Meanwhile, elsewhere in San Francisco, Google's captivating the tech press with big news about its Chrome operating system.

Google showed a test-bed laptop that Google employees are using to test the software. It also said Acer and Samsung will begin selling laptops running the software in mid- 2011, according to Engadget's liveblog from the event.

Chrome isn't really launching today -- it's still to come, but Google's progress in the operating system business is sucking air out of the room at Dive Into Mobile.

Google's news is aimed mostly at developers that the company hopes will develop applications for the browser-like operating system. It's also jumping out ahead of the tablet and PC announcements coming at January's Consumer Electronics Show.

Meanwhile, Mossberg kept pressing Belfiore on Microsoft's belated phone software and how long it may take the company to catch up to the leading smartphone platforms.

Belfiore wouldn't give a timeframe but said it could take a few years. (Belfiore is at right and Mossberg at left in this photo by Asa Mathat of All Things Digital.)

A few more bits from Belfiore's on-stage interview:

When Mossberg noted how far behind Microsoft's phone platform has fallen behind the iPhone and Android platforms, Belfiore said Microsoft has "tried to take advantage of what we've seen them do in the market."

"Admittedly we've been doing this for a long time, but now we think we have a product that's right up there with those guys," he said.

Mossberg asked "what makes you think it's right up there" when the Windows Phone 7 software doesn't yet have the multitasking and copy-paste features of the iPhone.

Belfiore said WP7 does some multitasking -- loading e-mail in the background, for instance -- and an update that adds copying and pasting is now being tested. He defended Microsoft's decision to focus first on capabilities that are more widely used, such as texting, browsing, email and multimedia.

"What we've tried to build is a software experience that can appeal to a very broad range of users who have needs that may not be as extreme as those tech enthusiasts," he said.

Belfiore wouldn't say when WP7 will get its first major update but said that the update is currently running on his personal phone.

Here's a video of the interview:

The Cozi family is getting bigger.

The Seattle company today announced that AOL and Working Mother will use its family calendar and communication platform, which should boost the site's usage beyond its current 3 million members.

Cozi helped AOL's MyDaily.com create the "MyDaily Family Organizer." With Working Mother, it built a "Family Control Center" that connects to Cozi's calendar, shopping list and journal applications.

The company also said it's built a "Cozi Express" version of its service for Intel-based netbooks.

Cozi was started in 2005 by veterans of the Microsoft Money team.

If you were wondering how Microsoft's Kinect sensor for the Xbox is doing, the company just issued another update saying sales have now passed 2.5 million units.

That's 100,000 per day since the $150 gadget launched on Nov. 4 in the U.S.

Don Mattrick, president of the interactive entertainment group at Microsoft, said in the release that Kinect is still on pace to sell 5 million units this holiday season.

This follows the Nov. 15 release, announcing that a million Kinects were sold in the first 10 days on the market.

There's still no word on Windows Phone 7 sales, or details of how many Kinect games are selling with the sensor.

ESPN service on the Xbox 360 may be just the start.

Microsoft is in talks with other networks about bringing additional subscription TV services to the Xbox and other devices, according to a Reuters report today based on anonymous sources.

Microsoft has tried for decades to increase its presence alongside the TV. That has led to all sorts of partnerships with networks and cable companies, including some that are now offering a modified version of the Xbox to subscribers as an alternative cable box.

Meanwhile consumer-electronics companies from Apple down are offering a range of new gadgets that connect TVs to the Internet and provide a platform for TV and movie companies to offer rentals and subscription services.

An excerpt from the Reuters story:

The maker of the Windows operating system has proposed a range of possibilities in these early talks including creating a "virtual cable operator" delivered over the Internet for which users pay a monthly fee.

Other options include using the Xbox to authenticate existing cable subscribers to watch shows with enhanced interactivity similar to how pay TV operators have sought to do over the Web, said these people.

Microsoft has already been building up the lineup of entertainment options on the Xbox, which is becoming more of an entertainment hub and an option for people trying to get Internet video content onto their TV.

I'll bet the latest round of talks are focused particularly on new digital TV boxes based on Windows Media Center that Microsoft and hardware companies will unveil at January's Consumer Electronics Show. These $200 to $250 boxes function as TV tuners and gateways to online video services such as Netflix.

(Here's today's column, about why Microsoft should go private. I may have buried the news, that people in Microsoft's treasury group have run the numbers ...)

With interest rates at historic lows, maybe it's time for Microsoft to refinance.

Seriously, the company is unable to convince investors that its business is doing well. So why not say to hell with Wall Street and take the company private?

Microsoft has management challenges and seems less nimble and adventurous, but it's steadily grown the business through the downturn.

The company is now so big that its stock will never perform the way it did in the 1990s.

It's also getting harder to explain all the different things it's building, especially when analysts and the media are more interested in the gadget du jour. Executives seem tired of telling their story over and over, only to be asked about the iPad and mocked for the Kin.

With the stock stuck under $30, investors no longer have the patience to wait the decade or so it takes Microsoft to build humongous new businesses, as it did with servers and is doing with Xbox.

Breaking the company apart or raising the dividend further may give investors a quick hit, but they'd soon be begging for more.

They've already forgotten that last month Microsoft reported 51 percent profit growth, and that it gave shareholders more than $1 billion a month over the past year through dividends and stock buybacks.

Instead of throwing free cash into that black hole, Microsoft could use it to cover refinancing costs and share the rest with employees. It would be a better incentive than middling stock awards and could even start churning out Microsoft millionaires again.

Going private isn't that far-fetched. Dell's been thinking about this and will reportedly discuss it again during a board meeting next month.

Public offerings get all the attention, but 1,199 companies went private over the past decade, including 92 with a combined value of $60 billion so far this year, according to Thomson Reuters.

As of Friday, Microsoft's market cap was $219.8 billion.

To get your mind around this, pretend that's a mortgage (it's easier if you lop off six zeros).

First, deduct the $24 billion in equity still held by Steve Ballmer and Bill Gates.

Make it a cash-out refi - take out 15 percent to sweeten the deal for shareholders. Use the cash on hand if they need more.

You're looking to borrow about $225.5 billion.

If Microsoft refinances at 5 percent - roughly what it sold 30-year bonds for last year - its monthly payment would be about $1.21 billion. Last year the company had profit of about $2 billion a month before taxes.

It looks even better if Microsoft figures out a way to get the principal down. Perhaps a few big shareholders would be interested in a limited partnership that owned Microsoft outright.

Gates and Ballmer together own about 11 percent of the shares. About two-thirds of the rest is held by about 1,700 institutional investors and mutual funds.

To go private, Microsoft would have to reduce the number of shareholders below 300.

Maybe one could be the Gates Foundation. Imagine what it would do for the company's reputation and morale if people buying Windows knew a portion of the profits would directly benefit the world's poor?

Everyone would love that, except Apple and that person at last week's shareholders meeting who asked Gates to give more to investors and less to sick and impoverished children.

I'm not the only one thinking about taking Microsoft private.

The notion has crossed the minds of a few people in Microsoft's internal treasury department, according to Bill Koefoed, the company's general manager of investor relations.

"Sure, in the back of people's minds. We've thought about it," he said.

But it's apparently not something the chairman of the board is interested in pursuing.

For the deal to work, it would need the two largest shareholders - Chairman Gates and CEO Ballmer - to hang on to their stakes and go for it, and lately they've been selling millions of shares.

It won't be too many years before both billionaires move on, and who wants to refinance when they can taste retirement?

I wonder, though, if Microsoft's next generation of leaders will be as immune to Wall Street sirens.

Going private seems like an opportunity for Gates to develop another vaccine, to keep Microsoft's long-term vision clear and to protect it from infectious greed.

If he takes a little cash out from the refi, he could probably get one of those big TVs, as well.

A batch of court documents The New York Times pressed to unseal has more details about a flood of faulty computers the company sold in 2003 to 2005.

The documents include a 2004 Dell study that projected customer problems with 45 percent to 97 percent of the SX270 Optiplex systems, up from its earlier forecast of problems with a minimum of 12 percent of the systems. It ended up replacing 22 percent of the motherboards on 21 million of the Optiplex systems sold during that period, according to the story.

Problems arose because Dell received poor capacitors that bulged and failed when they got hot. But the bigger question surrounds the way Dell responded, and its decision to not issue a recall when it became aware of how widespread the problem had become.

Dell took proactive steps to help customers who bought 50 or more of the machines and had high failure rates, but individual buyers were left to report problems to the company. (I think I heard from a few of them who were having customer service challenges.) At the same time, technicians were advised not to bring the problem to customers' attention and to "emphasize uncertainty," according to the story.

A Dell spokesman told the paper the projected failure rates were theoretical, and the company replaced motherboards on broken systems and extended warranties. He noted that other companies that sold the bad capacitors also declined to issue recalls.

I wonder how much this problem contributed to Dell's loss of its perch on top of the PC manufacturing business. Less than a year after the Optiplex problems, Dell lost 6 percent of its dominant share of the market, and HP is now world's biggest PC seller.

Customers that had extensive problems include the city of New York, which had incidents with 20.2 percent of the 5,000 PCs it bought during the period, and Microsoft, which had problems with 11 percent of 2,800 PCs it bought.

Kudos to the Times for sticking with this story, even after Dell settled a lawsuit over the situation in September.

Hopefully exposure of Dell's cheap response will help PC and electronics companies do a better job when they start seeing double-digit failure rates.

Activision today announced even more amazing sales records for Vietnam-era shooter "Call of Duty: Black Ops."

The game grossed $650 million in its first five days, blasting sales records for video games, theatrical movie releases and books. It also beat the $550 million, five-day take of the last edition, "Call of Duty: Modern Warfare 2."

Microsoft chimed in on the release, saying that "Black Ops" set new records on Xbox Live, with more than 5.9 million multiplayer hours and more than 2.6 million unique players on the service since the game's Nov. 9 launch.

The showing "illustrates the mass appeal of interactive entertainment as millions of consumers are choosing to play 'Call of Duty: Black Ops' at unprecedented levels rather than engage in other forms of media," Activision Chief Executive Robert Kotick said in a release.

It's not necessarily either-or though.

I was able to read the newspaper a bit while different levels loaded and during an overly long soliloquy by Viktor Reznov, the mysteriously invincible Russian in the series. Some players may also end up watching more romantic comedies than planned, as penance for spending too much time in virtual Indochina.

In case you missed them the first time around, Microsoft and Verizon are once again selling the Kin phones.

But these Kin aren't as smart. Verizon's selling them as feature phones with monthly contracts, instead of as smartphones that require data plans.

Kin phones sold poorly after they were launched in the spring and Microsoft pulled them off the market in June. But the weak launch may not have been as much of a factor as internecine squabbling between the Kin team and the group working on the higher profile Windows Phone 7 platform.

The phones now have an "m" after their name. Verizon's selling the compact Kine ONEm for $20 with a two-year phone plan or $120 without. It's selling the Kin TWOm slider for $50 or $220 without.

For awhile this summer, you could buy one from Amazon.com for a penny. Maybe Verizon bought those up and is reselling them itself.

We'll have to see if Miley Cyrus is sporting one Saturday in Bellevue.

Steve Jobs finally landed the Fab Four, and now Microsoft may get the Bizarre 200. Or some of them, perhaps.

Gaming mag Develop is reporting that Microsoft has expressed interest in acquiring Liverpool, England, game studio Bizarre Creations. Or it may just be interested in picking up some of its 200 employees, who are being sacked by parent company Activision.

Bizarre created one of the early hits for the Xbox, the "Project Gotham Racing" franchise. This image is from PGR4, which was released in 2007 and gave players ultra-realistic road racing mixed with classics like sliding around Nurburgring in a Maserati 250F.

But its most recent title, "Blur," wasn't much of a success and news surfaced Tuesday that Activision was closing the studio.

A Bizarre source told Develop that the situation was looking up after a staff meeting today, when word of possible new owners emerged.

"Microsoft aren't stupid," the source told Develop, "They know we're talented and have spoken to Activision about us."

Xbox spokesman David Dennis declined to comment, saying the company won't comment on "rumors."

Microsoft's Kinect is connecting at the cash register. The company today said that it sold 1 million of the $150 controllers for the Xbox in its first 10 days on the market.

This follows news from England that the arrival of Kinect and "Call of Duty: Black Ops" last week combined to give game sellers in the United Kingdom their highest grossing week of all time.

With Black Friday and the real holiday selling season still to come, Microsoft is now suggesting it may beat its goal. Earlier this month it upped the forecast from 3 million to 5 million by year's end. Now it's talking about selling more than 5 million.

In today's announcement, Don Mattrick, president of the Interactive Entertainment Business, said the company is going to "keep pace with high demand and deliver against our plan to sell more than 5 million Kinect sensors worldwide by the end of this year."

Kinect went on sale in the U.S. on Nov. 4 and in Europe Nov. 10. It launches in Asia next week. Microsoft expects the system to be available through 60,000 retailers in 38 countries by the holidays. (Here's my Kinect review.)

Now it's time for Microsoft to tell us how many Windows Phone 7 devices were sold in its launch week.

Here's Sunday's "Up Front" show with Robert Mak on King 5, which has some guy talking about Windows Phone 7, near the end of the show (when it shows about 5:20 remaining).

Facebook is expected to announce a new messaging service on Monday and some are predicting that it's going to unveil a Web email system to compete with Gmail, Hotmail and Yahoo Mail.

Fmail, perhaps?

The move comes as Facebook and Google are in a tiff over exporting contact lists. Google last week making it more difficult for Facebook to hoover up contact lists.

PCWorld has a rundown of the rumors. The latest is TechCrunch's report that the social networking site will launch a "Gmail killer" code-named Project Titan that will offer personal email addresses ending with "@facebook.com."

GigaOm earlier speculated that Facebook's going to upgrade its mobile chat feature and add a "one to many" group chat capability.

The move could make Facebook even more central to users' lives. Avid users may be excited to unify their mail and social network services.

Others may want to keep in mind Facebook's evolving approach to privacy - and challenges simplifying its privacy management tools - before giving it responsibility for their personal mail.

Given the spat with Google over sharing contact information, a big question will be how Facebook's message system syncs with the established Web mail services.

I wonder if Facebook's friendly uncle Microsoft will be involved, supporting Facebook mail with easy connections to its Live.com online services, or perhaps even powering the mail system.

I hate having to write about this sort of thing, but some people are clinging to the debunked story that Microsoft's Kinect doesn't recognize black people.

Pack journalists and blogs gleefully jumped on the non-story, rushing to report a racial issue where there isn't one. It's all about clicks, right?

The story began when GameSpot.com posted an item Wednesday saying one of its "dark-skinned" employees was recognized "inconsistently" by Kinect and it was unable to "properly identify the other despite repeated calibration attempts."

"However, Kinect had no problems identifying a third dark-skinned GameSpot employee, recognizing his face after a single calibration. Lighter-skinned employees were also consistently picked up on the first try," the site reported.

Remember, Kinect is basically a really fancy camera that constantly shoots and analyzes images of players.

This gets to two obvious facts that are being spun and woven into a huge, raggedy shroud obscuring what's really happening.

Fact one: When you take pictures of people, you get different results depending on lighting conditions and skin tones. Sometimes it's trickier than others.

Fact two: Kinect is sensitive to lighting conditions and not absolutely precise.

Fortunately, Kinect primarily relies on skeletal tracking to play games and for most of its controls. It tracks 48 points on the skeleton. It doesn't matter what color your skin is -- as long as you have a skeleton that moves, you'll be able to play the games.

After the GameSpot story appeared, it was quickly debunked by Consumer Reports.

Unlike GameSpot, Consumer Reports explained its testing and posted a video of testing with black and white players.

The magazine noted that Kinect is affected by light levels and advised people to provide plenty of light in the room where it's used.

Consumer Reports said lighting conditions also affected the performance of an HP webcam that caused a similar stir. From its report:

The log-in problem is related to low-level lighting and not directly to players' skin color. Like the HP webcam, the Kinect camera needs enough light and contrast to determine features in a person's face before it can perform software recognition and log someone into the game console automatically.

Essentially, the Kinect recognized both players at light levels typically used in living rooms at night and failed to recognize both players when the lights were turned down lower. So far, we did not experience any instance where one player was recognized and the other wasn't under the same lighting conditions.

This problem didn't prevent anyone who was affected from playing Kinect games, since it can "see" and track players' bodies and motions using a built-in infrared lighting system.

Consumer Reports isn't the only media outlet that didn't see a racial issue with Kinect.

Oprah raved about the system on her show a few weeks ago, and the New York Times' Seth Schiesel gave Kinect a glowing review, even though it sometimes takes a few tries to activate a control.

"Does the system recognize every voice command exactly the first time? Of course not. But it works consistently enough that I never wanted to reach for those relics of the past: a plastic controller or remote control," wrote Schiesel, who is black.

Microsoft finally weighed in with a response to GameSpot:

"Kinect works with people of all skin tones. And just like a camera, optimal lighting is best. Anyone experiencing issues with facial recognition should adjust their lighting settings, as instructed in the Kinect Tuner."

Microsoft could also reassure people that they can get their money back if the system doesn't work for them.

The situation highlights the varying performance of Kinect's facial recognition system. It missed me a few times in late afternoon when the light changed in my living room. The system advises you to rescan your face at different times of day to optimize its recognition, but I didn't bother.

Sometimes it takes a lot of waving to get Kinect's attention, and it can lose track of small children moving too much around the room.

Kinect works well enough to play new games and give you a taste of the future. But it's definitely going to be awhile before this sort of technology is ready for cash registers and airport security systems.

Fortunately, Kinect's not doing anything critical just yet. It's letting you pet digital cats, jump on virtual rafts and throw pretend bowling balls while the technology matures.

Maybe the flap is a mark of success: Kinect is already making it harder for people to tell the difference between reality and make believe.

After the outcry caused by its story, GameSpot did more testing in different rooms and with the players wearing different clothes.

Guess what happened? Kinect correctly identified the same "dark-skinned" players on the first try.

But Kinect hiccuped when one changed to a black shirt from a blue shirt. A fourth employee with dark skin brought in for testing wasn't recognized.

From Gamespot's update:

At first, the two employees who originally would not be recognized by the camera were correctly identified on the first try. However, when one changed from a light blue shirt to a black shirt (but stayed in the same room with the same lighting), the camera again failed to recognize him after multiple calibration tests. It also failed to recognize another darker-skinned GameSpot employee after four calibration attempts.

Bottom line, some Kinect users may be frustrated by its performance but there is no consistent effect attributable to race.

Kinect isn't insensitive. The problem is that it's overly sensitive and a little touchy. How Seattle can it get?

Today's column in the paper is a review of Microsoft's Kinect. It follows a Monday story focused on project lead Alex Kipman, the Brazilian who code-named the system Project Natal after the city where he used to spend summers.

(The stories were staggered in part because Microsoft, as part of its hyper structured launch program, wouldn't provide test gear to news organizations unless they promised to hold reviews until 9 p.m. Wednesday or midnight eastern time, when the consoles first went on sale. Oprah and Ellen didn't count.)

The review, with some photos added:

Sometimes the intense sights and sounds of modern video games stay with you, like scenes from a great movie.

After you're done hopping and waving in front of the TV screen, long-forgotten muscles will remind you of the fun you had with the $150 gadget.

Check out the three-story Kinect countdown clock in Microsoft's Studio A building.

Just in case anyone there can't remember when the Xbox 360 motion controller goes on sale. (bonus puzzle: when was this picture taken?)

A few tidbits buried in Microsoft's blowout earnings report today ought to reassure the Puget Sound region, which has been a little on edge with all the national stories lately about how Microsoft's on the ropes.

Apparently the iPad hasn't yet killed the franchise.

Windows sales grew 66 percent -- to $4.78 billion -- and operating income grew 124 percent -- to $3.23 billion -- during the quarter. So much for the recession.

Business software sales, including Office, grew 14 percent to $5.13 billion and operating income grew 20 percent, to $3.38 billion.

Yes, Microsoft's still selling to consumers -- and not just the Xbox. Consumer sales of Office and other productivity software grew 26 percent to $216 million.

Microsoft spent $4 billion of its cash buying back stock during the quarter, during which it raised its dividend to 16 cents, from 13 cents. It still ended the quarter with $51 billion in cash and investments.

Xbox 360 platform sales grew 33 percent to $409 million, driven by console sales and "Halo:Reach."

Microsoft shipped 2.8 million consoles in the quarter, up from 2.1 million during the same period last year. It said it outsold every other console in the U.S. during the last four months, even the Wii.

"Halo: Reach" generated approximately $350 million in sales during the quarter.

Online ad sales grew 13 percent to $473 million. But the company upped its investment in the war on Google, increasing hiring and research spending by 27 percent, or $61 million.

There were no significant acquisitions during the quarter. Microsoft listed zero acquisition expenses, compared with $39 million the year before. Is that a glass half empty or half full for the Seattle startup crowd?

As a counterpoint to this morning's announcements about Microsoft's progress building cloud services, the company warned investors that it's a risky and expensive venture.

This afternoon's earnings report notes that "the cloud-based computing model presents execution and competitive risks."

The cautionary note has the only nod to competitive risks from the iPad that Wall Street analysts are so concerned about:

We are transitioning to a computing environment characterized by cloud-based services used with smart client devices. Our competitors are rapidly developing and deploying cloud-based services for consumers and business customers. Pricing and delivery models are evolving. Devices and form factors influence how users access services in the cloud. We are devoting significant resources to develop and deploy our own competing cloud-based software plus services strategies. While we believe our expertise, investments in infrastructure, and the breadth of our cloud-based services provides us with a strong foundation to compete, it is uncertain whether our strategies will attract the users or generate the revenue required to be successful. In addition to software development costs, we are incurring costs to build and maintain infrastructure to support cloud computing services. These costs may reduce the operating margins we have previously achieved. Whether we are successful in this new business model depends on our execution in a number of areas, including:

-- Continuing to innovate and bring to market compelling cloud-based experiences that generate increasing traffic and market share;

-- Maintaining the utility, compatibility and performance of our cloud-based services on the growing array of computing devices, including smartphones, handheld computers, netbooks, tablets and television set top devices; and

-- Continuing to enhance the attractiveness of our cloud platforms to third-party developers.

As promised in January, Hewlett-Packard has released its Windows 7 Slate computer before the end of the year.

The Slate 500 is the highly anticipated slatelike computer that Steve Ballmer presented during the opening keynote at the Consumer Electronics Show just before Apple launched the iPad.

HP kept the buzz going for a while last spring with teaser videos poking fun at the iPad's inability to do things like run Adobe Flash, but then it suddenly went quiet about the Slate, around the time it bought Palm and said it would use Palm's operating system in consumer devices.

HP today began taking orders for the $799 Win7 device, which it's aiming at business users.

HP now seems to be trying really hard to downplay its potential as a consumer device for browsing media like the iPad. It's no longer teasing the iPad about Flash or talking up the full computing capabilities of the Slate 500.

The Slate 500 is listed among business computers at HP's website, and the description makes it sound relatively dull. It's being pitched not as an exciting alternative to the iPad, but as a productivity device capable of running enterprise applications.

Does HP think the biggest competition is really the business tablets from RIM and Cisco, or is it keeping things low-key until it releases consumer tablets based on the operating system it acquired with Palm?

Here's how it's describing the long-awaited Windows 7 tablet:

"The HP Slate 500 is the ideal PC for professionals who don't usually work at a traditional desk, yet need to stay productive in a secure, familiar Windows environment. The HP Slate 500 is also intended for those who use custom applications built for Windows."

What happened to the "perfect storm of innovation" stuff HP was talking about in January?

More interesting are the specs HP provided.

The Slate 500 is based on Intel's Z540 Atom processor, which runs at 1.86 gigahertz, and has up to 2 gigabytes of DDR2 RAM. For storage it uses flash memory units with up to 64 gigabytes of storage.

It's built around an 8.9-inch diagonal multitouch screen and has 802.11 b, g and n Wi-Fi and Bluetooth 3.0. The device weighs 1.5 pounds and is 0.58 inches thick. It's overall case is 9.2 by 5.9 inches.

Unlike the iPad, the Slate 500 has a USB 2.0 port and an SD memory card slot for directly loading and transferring files. It also has a built-in 3 megapixel camera, a front-facing VGA webcam and built-in microphone and speakers.

HP says the device's battery lists "up to 5+ hours." Applications preloaded on the device include Adobe Reader and a "Slate Camera" application from HP.

The device comes with a stylus and a dock, but not much of a drumroll.

If you think Microsoft is withering away because it can't figure out how to make a decent phone, you should spend a little time with one of the new Windows Phone 7 devices.

They won't lure iPhone fans over to the dark side or revive Microsoft's stagnant stock price.

But the Windows Phone 7 platform is a strikingly nice system with a refreshingly different design that shows the team in Redmond still has enough vision and talent to be a serious contender.

The software is elegant, fast and battery efficient. A set of Web services connect to the phone and extend its usefulness, but some still have kinks to be worked out.

Windows Phone 7 devices go on sale in some European markets Thursday and in the U.S. on Nov. 8. AT&T and T-Mobile USA will carry five models made by HTC, LG, Samsung and Dell in the U.S., each priced at $200 after rebates (T-Mobile's HD7 has a $50 rebate to get to $200, AT&T's devices are $200 on the shelf). More phones and service from Verizon and Sprint are expected next year.

Microsoft is late to the game, after stumbling with its previous phone systems, and may not catch up to phones based on software from Google and Apple. But Windows Phone 7 gives Microsoft a strong chance.

Remember, it's still early days for smartphones. Despite all the buzz around the iPhone, Android and the market's dramatic growth, most people are still using basic phones. Only 19 percent of the phones sold in the second quarter were smartphones, according to research firm Gartner.

That means most of the world is up for grabs. So winning over gadget enthusiasts who are already on their second or third smartphone wasn't as important to Microsoft as making a phone that's accessible and appealing to everyone else.

That's why Microsoft's phone ads make fun of annoying smartphone users who are always staring into their tiny screens.

It also helps explain the design of Windows Phone 7, which is built around large square "tile" buttons that fill the primary screen. Microsoft calls them hubs, and uses them to organize what you'll do on the phone. Tap one to make a call, another to check your e-mail or send a text message. Some are dynamic, with Outlook listing the number of new e-mails, for instance.

The home screen shows seven tiles at once, but you can move them around and change the selection by pressing and holding the top of a tile for a few seconds, then sliding it around the screen.

You can slide the tiles away by brushing a finger sideways across the screen. Then you'll get a vertical list of icons for applications and services loaded on the phone.

By Microsoft's design specifications, all Windows 7 Phones must have three physical keys below the screen - for "home," "back" and "search." Also required is a dedicated camera shutter button on the case that wakes the phone, if needed, to take a picture.
Cameras also must have at least 5 megapixel resolution. An AT&T Samsung Focus that I tested took nice pictures (sample below, of the 520 bridge) and its 720p camcorder would easily replace a Flip camera. They all have a nice on-screen keyboard, good phone capabilities and gesture controls like "pinch" and "swipe."

This is subjective, but I think having a back button is a big advantage for Windows and Android phones. Apple uses a single home button, plus on-screen buttons that may appear in applications. Apple and Microsoft have been going different ways here since the dawn of the PC, with one- and two-button mice, but I think new smartphone users used to PC controls will like having a physical back button.

My preference for the back button was highlighted when it acted fritzy and stopped working on the Samsung Focus. It came back after I temporarily removed the battery. Otherwise I loved the Samsung's ultra-bright screen and slim case (it's 9.9 millimeters thick, compared with the iPhone's 9.3 millimeters). At first a Microsoft spokesman said it was the first time he'd heard of such a problem. But a contact at a wireless phone company told me I wasn't the only one to see a hardware issue on early devices.

A Microsoft manager, Greg Sullivan, later told me that the phone was a "pre-production" model and the company has seen a "very low single digit percent" of devices with issues.
An AT&T spokesperson didn't have an answer before deadline.

I didn't have button problems on the HTC phones I tried. They were thicker and heavier but had more multimedia features, including fancy speakers and, on one, a machined kickstand for propping it up to watch videos.

One thing that works well - almost too well - is the integration of Facebook. When you log in to the social network, it populates a "people" tile with your Facebook friends and pulls their info into your contact list. Tapping the "people" tile calls up a unified stream of their updates and photos. Their photos also stream into the "pictures" tile.

The phones come with a mobile version of Office, including Word, Excel and the OneNote note-taking application. They can also run PowerPoint, but you can't create a presentation from scratch on the phone and have to import one from e-mail or by connecting to a corporate SharePoint collaboration server.

There are places on all smartphones where the software maker's business objectives butt into the experience. The Office suite does this by pushing SharePoint and OneNote.

Another trick of the Windows Phone is automatic synchronization with "cloud" services, such as Microsoft's SkyDrive online storage service.

If you're signed in to the service, you can have the phone automatically send slightly compressed versions of photos to SkyDrive, where you can share or download them. Microsoft gives everyone 25 gigabytes of free space on SkyDrive but only 5 gigs can be used for phone storage.

Another service tied to the phone is Xbox Live, the online network developed for the Xbox console. There's an Xbox Live tile on the phone that connects you to a game store and Xbox Live profile. Microsoft is still working on the phone features, so I can't say for sure how they'll work. I was able to buy one game over the phone network, but another required me to connect via Wi-Fi or a PC cable.

Most phone shoppers will care more about search and mapping capabilities. Bing shines on the phone, with maps that zoom into aerial photos of your location and provide driving and walking directions. Bing search will be good enough for most users, and its daily home-page image looks great on the phone. But I wish the on-phone search tool wasn't so minimalist. I couldn't search just apps in the marketplace, for instance, so my search for a particular app returned a long list of songs with similar names.

Bing lacks a few killer features of Google's map service on Android devices, including free turn-by-turn navigation that audibly tells you where to drive. AT&T and T-Mobile are making up for this by loading TeleNav's similar service, but it has a recurring fee.

AT&T is also loading a mobile version of its U-verse cable TV service - basically cable TV on the phone. A few shows are free but you'll have to pay $8 per month for a fuller selection. T-Mobile is also offering a pay TV service based on the MobiTV, and preloading a Netflix application that streams movies and TV shows to the device.

To load music and other videos, you connect to Zune software on a PC or an application Microsoft developed for Macs. The phones have a Zune tile that calls up their music, videos and FM radio. It's a very nice media player.

Applications are offered through the Zune marketplace, similar to the way iPhone apps come through iTunes. There are a lot of apps and more coming, but not as many as Apple and Google have now. If there are particular apps you must have, be sure they work on the phone you're buying.

A bigger concern is the raw state of the PC software you use to manage the phones. On the Zune console, apps you purchase won't appear in the console's "apps collection." Zune also wouldn't let me load some of my own music onto the phone because it couldn't find copyright protection information. I paid for the music, except for an album distributed free with no copy protections, by an artist who was working for Microsoft at the time. Grrr.

Microsoft's Live.com offers to let you manage your phone on the Live.com portal. But the "manage" button is a dead-end to basically nowhere. It makes you wonder if the Live team lost a turf battle with Zune over who would run the phone console.

Updates are in the works. Microsoft's promised improvements and new features such as cut-and-paste in the first half of 2011. We'll have to see what's in that service pack but Microsoft has already turned the corner with Windows Phone 7.

Silicon Valley marketing guru Brian Solis and the Jess3 creative agency released a new version of their "Conversation Prism" diagramming the "social media universe."

Version 3.0 is just in time for Web 3.0, but where's Microsoft?

Maybe I missed something, but beyond Newsvine, which was acquired by MSNBC.com in 2007, I couldn't see any Microsoft services on the chart. (Click to enlarge, or get the whole thing here)

AT&T may be the carrier on stage with Steve Ballmer at Microsoft's Windows Phone 7 launch, but T-Mobile's got a bigger WP7 phone.

T-Mobile today is unveiling the HD7, a Windows Phone 7-based touchscreen phone with a 4.3-inch diagonal screen.

T-Mobile is calling it "the largest screen available on a Windows Phone in the U.S."

The HD7 also has a 1 Gigahertz processor, 802.11n WiFi, GPS navigation, 16 gigabytes of internal memory, FM radio and an HD camcorder. It comes with pre-installed media services, including Netflix and the new T-Mobile TV. The latter provides live and on-demand TV content from ABC News, Fox Sports, PBS Kids and other channels.

It weighs 5.71 ounces and comes with a "kickstand" for propping it up to watch video.

Also premiering on the HD7 is T-Mobile's new "Family Room" application for families to connect and coordinate activities. It includes a virtual chalkboard where family members can share notes, a shared calendar and automatic notifications when family members post something.

Pricing and the exact ship date isn't available yet but T-Mobile said the HD7 will be available by mid-November and the price will be comparable to its other high-end smartphones.

You could say the HD7 is the WP7 triple-play phone for Seattle. It's made by HTC, which has its U.S. offices in Bellevue across Interstate 90 from T-Mobile USA, and not far from Microsoft's headquarters (and offices along I-90).

T-Mobile's also going to be the carrier for Dell's new Windows Phone 7 device, the Venue Pro, that will be sold thorugh Dell.com and some retailers. It has a slide-out keypad, a 4.1-inch screen, 5 megapixel camera and 1 Gigahertz processor.

A few pics of the Dell:

Verizon's new president, Lowell McAdam, has a way with words. He can speak volumes with a brief phrase.

In an interview with Cnet at the CTIA conference, he politely eviscerated Microsoft, saying it's no longer a contender in the U.S. mobile business and has lost to Apple, Google and RIM. He also said Microsoft has to innovate if it's going to get products into Verizon stores.

Mee-ow McAdam also likes Verizon's current relationship with Microsoft. That would be cold and distant?

Maybe he's just trying to cozy up to Steve Jobs.

Here are a few bits from the Cnet interview:

What about Microsoft Windows Mobile 7 phones? Microsoft is launching new Windows Mobile 7 phones next week on AT&T's network. Will Verizon offer some new Windows Mobile 7 devices on the LTE network?

McAdam: I can't really say which phones we'll offer yet. We like our relationship with Microsoft. But clearly in the U.S. there are three major mobile operating systems: RIM, Google, and Apple.

So you don't view Microsoft as a major player in mobile anymore?

McAdam: No not at the moment. Microsoft is not at the forefront of our mind.

Does this have anything to do with the short-lived Microsoft Kin? That was kind of a mess.

McAdam: This really goes back to what I said earlier about how innovation in wireless devices and applications is moving so quickly. Our device suppliers have to demonstrate to us that they will be developing leading edge products. And if they are not leading edge, then we can't afford to carry them in our stores. But if they are innovative, we'll offer them.

Santa Ballmer's going to put a Windows tablet under your tree this year, according to a Reuters report on the Microsoft CEO's speech at the London School of Economics.

An excerpt:

"You'll see new slates with Windows on them. You'll see them this Christmas," he told an audience of students, staff and journalists at the London School of Economics.

"Certainly we have done work around the tablet as both a productivity device and a consumption device," he said.

The news follows the bombshell Goldman Sachs report lambasting Microsoft's response to the iPad.

But really the arrival of a Windows tablet this holiday seasons is right on schedule, following Steve Ballmer's unveiling of the Hewlett-Packard Slate at the Consumer Electronics Show last January. HP at the time said it would start selling the Windows 7 device in late 2010.

In recent weeks HP has been letting slip that it's going to be shipping a Windows tablet soon, before it releases one based on the Palm software it acquired.

Meanwhile, analysts are jostling to predict how many iPads Apple has sold so far, ahead of the company's Oct. 18 earnings report. Fortune mag has a roundup of the estimates, which range from 3.8 million to 6 million.

About 350 million PCs are expected to be sold this year globally.

The Goldman Sachs research note slamming Microsoft - and tech stocks in general today - isn't just ripping the Redmond company's mobile efforts.

Goldman's saying the future of its Windows franchise is a concern. It also wants Microsoft to give more of its cash directly to its investor clients.

Just a few weeks after Microsoft raised its dividend 23 percent - and after a crazy streak returning a historic $148 billion to investors since 2002 - Goldman's saying Microsoft needs to go further.

Goldman wants Microsoft to get attention by giving back $10.5 billion next year, or about half of the free cash it's expected to generate in the 2011 fiscal year.

"This level would provide an attractive return in a low-yield environment and potentially attract a new investor base," the report said.

Goldman downgraded Microsoft to neutral from buy and cut its target for the stock from $32 to $28. It closed down 2 percent, at $23.91 today.

It's like the firm's trying to milk a dying cow.

It said Microsoft's stock has been affected partly by investment funds that "have broadly flown out of equities and into bonds this year," and sold off shares to invest in hot category leaders like Apple and F5 Networks.

Corporate tech buyers are also being more cautious and pushing back some upgrade plans.

Still, Goldman seems to have soured on prospects for Microsoft's business based largely on concerns about Apple and Google carving up the Windows PC franchise. This call is being made before Apple reports its first year of iPad sales and Android tablets begin shipping.

Goldman said sales of the iPad and other tablets won't have much effect on Microsoft next year - maybe 3 percent of Windows revenue - but "longer-term concerns" about Apple and Google "have clearly" affected sentiment about Microsoft's stock.

The firm suggested Microsoft needs to break-up its consumer business or lay off a bunch of its employees (create more shareholder value "by meaningfully stepping up cost discipline," it said).

At the same time, Goldman says Microsoft has to hurry up and get a Windows tablet on the market, step up its cloud computing game, improve Xbox profitability and make sure the Windows Phone 7 rollout is a success.

Absolutely, get cracking. Microsoft needs to do something to get those businesses going. It's getting embarrassing - and scary for the Puget Sound region that's counting on Microsoft to get past the iPad and Android.

But to do those things, maybe the company should invest more of its cash in growing its business, instead of throwing it over the stern as a dividend, hoping to attract fish that otherwise don't care about what it's doing.

Microsoft has done what Goldman asks before and didn't get more than nibbles. It grabbed attention by giving back more cash to investors than any company in history since 2002 and look what it's done for the stock.

Instead of dumping or slashing emerging businesses, why not invest more in mobile devices, the cloud and gaming and start "betting the company" again?

If Microsoft wants to lead the mobile market overnight, it has the cash and credit to buy Research in Motion, which has a market cap of $26 billion. It could also buy the world's biggest phone company, Nokia, for $38 billion, without breaking much sweat.

You'd think Goldman - the firm that took Microsoft public - would rather see those deals happen.

Microsoft's publicly confirming now that it's launching the Windows Phone 7 platform in New York on Oct. 11, as the tech press has been reporting for about a month now.

People should be able to start using the long-awaited phones next month.

Steve Ballmer's leading the show, with AT&T Mobility Chief Executive Ralph de le Vega. Microsoft's holding a parallel event with T-Mobile to show its WP7 phones.

The lawsuit Microsoft filed against Motorola and its use of Google's Android phone software is awfully familiar.

Microsoft used the same tactic against Linux when the open-source software reached critical mass in the data center and threatened to derail the growth of Microsoft's server business seven years ago.

After name-calling failed to slow Linux, Microsoft started warning big companies that the free software wasn't really free. It also said companies should take into account the potential cost of patent and licensing litigation around open-source products.

Uncertainty increased in 2003, when SCO, a Utah company, alleged that Linux was using some of its technologies. SCO licensed its technology to Microsoft and sought royalties from hundreds of companies using Linux.

That helped Microsoft persuade customers that free software isn't really free. It even promised to indemnify customers that went with Microsoft products instead, offering a sort of insurance against patent issues.

In recent months Microsoft began dropping similar hints about the true cost of Android, leading up to today's lawsuit. It names Motorola, but an accompanying blog post suggests its looking broadly at Android patent issues:

"Our action today merely seeks to ensure respect for our intellectual property rights infringed by Android devices; and judging by the recent actions by Apple and Oracle, we are not alone in this respect," Horacio Gutierrez, deputy general counsel, wrote.

This probably won't have any effect on people using Android phones today or considering some of the new models coming out soon.

The message is for phone manufacturers. Microsoft is telling them that although Google made Android open-source software, it's not completely free, when you factor in the potential licensing costs that may have be paid to patent holders.

I wonder if Google will step up to defend Android, or resurrect the coalition of phone companies that initially backed the software to either fight Microsoft's lawsuit or sort out a licensing arrangement.

Meanwhile, Microsoft is happy to sell the phone companies its new phone operating system, which has presumably gone through a gauntlet of patent lawyers. Apparently Motorola hasn't signed up yet for Windows Phone 7.

If you think it's going to cost you a lot to retire, consider what it cost Robbie Bach, the outgoing president of Microsoft's entertainment and devices business and head of its Xbox business.

Bach announced in May that he was retiring this fall, but his retirement date is technically Dec. 31, according to Microsoft's new proxy statement.

In his last fiscal year at Microsoft, Bach set records for the business - $8.1 billion in revenue and $679 million in operating income - and was awarded 100 percent of his performance bonus. That's despite struggles of Microsoft's phone business, which was also under his watch.

(Steve Ballmer also received 100 percent of his incentive award)

Bach's bonus was $1.4 million, plus stock awards worth $5.6 million. That's on top of a $645,000 base salary.

But because he's retiring, Microsoft's only giving him 25 percent of his stock award this year - $1.4 million.

In other words, Bach had to give up stock worth $4.2 million to retire.

Still, it doesn't sound like he'll have to become a greeter at Wal-Mart or sling burgers at McDonald's in his golden years.

Stephen Elop, who left the top spot in Microsoft's business software group on Sept. 10 to lead Nokia, is also giving up a few bucks for his move to Finland.

Elop was awarded a performance bonus of $6.72 million - 96 percent of his target - but most of it's staying in Redmond.

He's giving up $5.38 million of it - the portion given in stock. He's also giving up about half of the $1.34 million cash portion "due to the repayment of a portion of his July 2008 signing bonus," Microsoft's proxy said.

Presumably Nokia's going to help him out.

Here are all of the salaries and bonuses for Microsoft's top execs, as listed in the proxy (click for a bigger image):

HP decided not to poach any current or former Microsoft executives for its chief executive position.

The company announced that its new boss is Leo Apotheker, formerly chief executive of German enterprise software giant SAP.

It remains to be seen how the change at the world's biggest computer maker will affect relations with Microsoft and HP's large but shrinking presence in the Northwest.

But SAP has been a key partner with Microsoft, which considered buying SAP around six years ago. The two companies ended up working closely together on ways to integrate SAP with Office and other Microsoft business products.

From HP's release:

During Apotheker's more than 20 years at SAP, he was a driving force in making it the largest business software applications company in the world. Apotheker helped develop and implement the most significant changes in SAP history. During his tenure, he transformed R&D and technology platforms and expanded business models and customer segments. Apotheker also helped lead SAP to 18 consecutive quarters of double-digit software revenue growth between 2004 and 2009.

"HP has a powerful mix of businesses, products and services, one of the most innovative cultures in the industry, and an accomplished management team who have played a critical role in its success," Apotheker said in the release. "I am deeply honored to be joining the more than 300,000 dedicated HP employees."

HP also added former Oracle President Ray Lane to its board and made him non-executive chairman.

Oracle's where HP's ousted chief executive, Mark Hurd, landed after he was found to have fudged expense reports covering dates with an actress.

At the least, Apotheker will make make HP's top office more cosmopolitan. His bio:

Apotheker was born in Aachen, Germany on September 18, 1953, and graduated with a BA in Economics and International Relations from Hebrew University, Jerusalem. He is fluent in five languages (English, Dutch, French, German and Hebrew) and was awarded the French Legion d'honneur in 2007 in recognition of his business leadership and contribution to the French economy.

Here's another way to level the playing field with China, besides getting the country to stop manipulating its currency:

Get Microsoft to start selling Xbox 360 consoles in the country, pre-loaded with "Halo: Reach."

In the six days after "Reach" launched last week, players spent 5,901 man years playing the game online, according to "Halo" creator Bungie.

That doesn't include the millions of hours people spent playing the game's campaign offline, and the hours (or days?) of reduced productivity at work the following mornings.

Bungie also reported yesterday that more than 70 million online "Reach" games have been played. The game's online population surpassed that of "Halo 3," beating its all time record of concurrent players by 65 percent.

Bungie's stats were a sort of rebuttal to the Xbox Live weekly play report that showed "Call of Duty: Modern Warfare 2" still had more unique users on the service the week of Sept. 13-19, but "Reach" wasn't available the full week.

Xbox's Larry Hryb - who caused a kerfluffle when the numbers came out this week with an error - yesterday afternoon provided an update, saying that "Reach" was the top game on Xbox Live for the past seven days with nearly four times the unique users as "Halo 3" had the week of Sept. 13.

China banned the sale of the Xbox 360 and other consoles, fearing they will waste the minds of its youth, who instead are avid players of online PC games and gray market consoles.

But that's not stopping Chinese computer giant Lenovo from developing an Xbox Kinect knock off called the eBox for its home market.

Maybe it's time for Bungie to show the WTO how to set up a Banhammer anti-cheating system. One reason the hammer comes down: "Manipulating network conditions to give yourself an advantage, or to the detriment of the experience for other players."

Tech blogs are apoplectic today over word that Facebook's working with a Chinese company to develop new phones designed around the social network.

It turns out Facebook is working on a software layer that will run on top of Google's Android phone software on the phones, which are coming to Europe in the first half of 2011 and the U.S. later in the year, perhaps on AT&T.

Here's the statement Facebook provided to Bloomberg, which today nailed the story that TechCrunch floated Saturday:

"We've been working with INQ for a couple of years now to help them build a deeply integrated Facebook experience on their devices. While we can't speak for their future product development plans, we can say that our view is that almost all experiences would be better if they were social."

GigaOm provided a few more details. A sample:

Facebook ID's are used for contacts and the call list:

"A consumer's Facebook ID becomes more important than the phone number itself. Login with Facebook ID, and your social network auto-magically syncs up with the phone. (Android users have seen their Google phones do this since day one...)"

The phone's content also syncs automatically with a user's personal Web page, in this case Facebook, GigaOm noted:

"For instance, Facebook photos will communicate directly with the camera and become the repository for photos, with almost no difference in the cloud and the local photo storage. Take a picture and save it to Facebook."

In other words, Facebook is resurrecting the Kin, the Facebook-centric phones that Microsoft sold for about a month before killing the line in June because almost nobody bought them.

Kin phones were notable for a few things. They were designed with a "social" interface, in which Facebook profiles were more important than the phone number itself. You'd call or message people by tapping on their profile picture, which was displayed in the Kin's contact list.

Facebook profile pictures covered the Kin home screen, which displayed friends' Facebook updates.

Best of all, the Kin came with a companion personal Web page that communicated directly with the phone and its camera, and became the repository for photos, with almost no difference in the cloud and the local phone storage. Take a picture on a Kin phone and it's saved to your Kin page.

Maybe Facebook will have better luck than Microsoft with this one, unless people decide that they don't want their phone dominated by a company that makes its money selling targeted advertising.

But instead of haggling with Chinese manufacturers over new hardware, Facebook could probably get a great deal on a warehouse full of unsold phones somewhere in Redmond.

(UPDATE: Facebook's having a major outage today, just after confirming its phone plans. Hmmm ...)

An unusual new game venture called Spry Fox launched this week in Juanita, aiming to bring a Hollywood-style business approach to the online, Flash games industry.

Founders David Edery and Daniel Cook formerly worked at Microsoft, where Edery was portfolio manager of Xbox Live Arcade and Cook was a game designer.

Instead of raising money and building a big studio, they're operating Spry Fox more like a movie studio, assembling temporary teams for individual game projects and sharing the proceeds with the team.

Spry Fox has five games in development with partners in Seattle, the San Francisco area, Australia and Vancouver, B.C. They range from individual developers to small game startups, all drawing on the expertise and connections of Edery and Cook. It's a distributed company, but a hub is Edery's home in Juanita.

Eventually Spry Fox could also provide funding to the teams it works with but for now they're all self-funded.

Edery, who ran a consulting business after leaving Microsoft in 2008, said Spry Fox games - including a new version of the steampunk flying game Steambirds - will appear on Apple and Android devices. But the company's primary focus is downloadable games based on Adobe Flash and distributed through game portals such as Kongregate.

That market appears saturated, but Edery said there's still opportunity for quality games such as Steambirds, which has been played by more than 10 million people. If a Flash game hooks players and lead to microtransactions and subscriptions, there's the potential for the title to generate millions of dollars in a month, he said.

Apple's platform is an interesting opportunity but it doesn't come close to the market share of Flash, which is running on a billion browsers worldwide, Edery said.

"I'm interested in any technology that has 99 percent browser penetration," he said. "Right now, that's Flash."