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Apple (Nasdaq: AAPL  ) can't get a break. Last week, (Nasdaq: AMZN  ) made good on its threats to throw out its Unbox service in favor of a new streaming service called Video on Demand. It's the most serious threat to incumbents I've yet seen.

Amazon, you see, has cooked its code to appeal to a wide range of digital tastes. Mac, PC, Xbox, TiVo (Nasdaq: TIVO  ) ; they're all compatible with Video on Demand.

Mac compatibility is particularly interesting, in that it puts Apple on the defensive. But the addition of the Xbox is potentially brilliant. Microsoft (Nasdaq: MSFT  ) and Netflix (Nasdaq: NFLX  ) are working on bringing the "Watch Now" streaming service to the console. Unbox has been loosely coupled with the Xbox for years.

But we haven't yet seen an Xbox that combines games with Netflix's massive archive of classics and Amazon's collection of new releases. It's a fighting-weight combo that presents a threat to not only Apple, but also to the other console makers.

And how would you like to be TiVo right about now? With so much on-demand content now available, the cuddly little Breaker-cum-Faker might be left with little more than time-shifting patents to its name.

Yet Apple can't be happy, either. The good news? Amazon has gone after Mr. Mac before, and been met with a stiff-arm. Adding high-definition content to iTunes by way of tomorrow's "Let's Rock" event, as is rumored, could help Apple blunt the impact of this otherwise massive deal. At least until the next salvo is fired.

That's the best way to think of this; as a war. Wars have casualties. They also have a way of bringing in billions for the arms dealers. Here, Limelight Networks (Nasdaq: LLNW  ) may profit most. Already the content delivery network (CDN) for "Watch Now," it'll also be the CDN for Video on Demand, according to industry-watcher Dan Rayburn in this blog post.

Who wins this war? Headliners will no doubt post persuasive arguments for and against Apple and Microsoft. Pay no mind. Investors -- the ones who've studied the arms dealers in this conflict -- know better. They'll be betting on Limelight and Apple CDN partner Akamai (Nasdaq: AKAM  ) .

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Fool contributor Tim Beyers owned shares of Akamai at the time of publication. He also hunts for the best of tech as a contributor to Motley Fool Rule Breakers, which counts Akamai among its recommendations. Here's how to try this market-beating service free for 30 days. Get access to all of Tim's Foolish writings here.

Amazon, Apple, and Netflix are Stock Advisor selections. Microsoft is an Inside Value pick. The Motley Fool's disclosure policy is still in demand after 15 years on the job.

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  • Report this Comment On September 08, 2008, at 2:54 PM, prginww wrote:

    The Xbox costs Microsoft out-of-pocket every time one is sold (especially since they have to keep reducing the price to remain competitive with Nintendo and Sony's offerings). Their model is based on recouping these subsidized sales through game sales / licensing fees. They can't actively promote this capability outside of the video game-playing target audience (besides, my mother won't be buying an Xbox no matter how many non-game features are thrown in).

    Apple's been very successful building out a base of loyal customers in emerging markets (like this new video download thing), and making a profit doing it.

    I would be very wary of any company who's business model includes buying an early lead, without a profitable model. Just look at the steaming carcasses of all the internet companies who tried to weld on a profitable business model after expensively wining market share.

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