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Andrew Tonner: Obviously Microsoft has a vested interest in trying to gain some share of what people expect would be the "TV operating system," so to speak, and integrate into the living room.
Do you give any credence to them maybe making a move, especially Xbox 360 will have an updated console this year? I think Microsoft is eyeing the living room. Do you think they can make their presence felt there?
Eric Bleeker: Well I think one thing is that their model is so different than Apple. They're selling Xboxes at cost, or sometimes, at the launch of a new console, at either breakeven or at a loss.
Eric: They have to make it back on the sales, often, of video games or secondary sell-ons. An Apple TV sold at $1,500 might have $500 to $700 of profit from the get-go. It's so much more of a powerful model, even in lower volumes.
I think one nice thing about Microsoft is, no telecoms want to get in bed with Apple right now because they're afraid Apple is going to bamboozle them. Fair or unfair, they feel that Apple got the better deal in music, Apple got the better deal going into telecoms.
The market value of Verizon and AT&T is essentially unchanged since the day the iPhone was released. It's not unchanged for Apple. It's up still $350 billion or so after the run, so they feel like they're getting bamboozled a bit, so actually, Microsoft might become the pragmatic alternative.
We've seen them willing to make concessions to get the Xbox essentially as a set-top box, so maybe telecoms go, "The world is changing, but Microsoft will yield to our will, whereas Apple wants complete control." They kind of see it as the half-measure to get there.
I think one of the really interesting things about Microsoft is their will to concede to some telecom demands, and that might push them more into the living room. I think that's a threat Apple investors should take into account.
I don't know if Microsoft sees the same gains for helping it, but hey, you get in the living room, you've got an operating system in there, you can extend Bing onto the Xbox and you can get all these tangential wins to it. It's not anything to sleep on.
Austin Smith: Yeah, the "enemy of my enemy" thesis definitely plays out in this industry right now. Everybody's kind of scared of Apple, in some ways. The easiest way to fight them is to hitch up with another company, frankly.
Eric: Yeah, and no one wants to be the next one to get their lunch money stolen, so...
Austin: Not at all.