Some have questioned the notion of a social network focused on music, but we have seen a number of companies trying more media-focused approaches, including Apple’s competitor Microsoft, which married music and social networking with Zune in the name of discovery. Others include Copia and GoodReads, which have created social network for books, and gdgt, which has done it around electronics community reviews and desirability. Facebook, of course, is a platform for sharing all manner of media, but media discovery hasn’t been well-integrated.

What Zune mostly has over Ping is the ability to share full-length tracks with other subscribers. Discovery is an incentive to keep paying the membership fee. With Ping, there is no membership fee, but one is limited to sharing 30-second samples. In this respect, Ping is really more like the community reviews and forums on Amazon that help to drive commerce. Indeed, Ping is integrated into the iTunes store on the iPod touch and iPhone. It’s social networking not as an ad-supported end, but in support of commerce.

This is when Apple’s patience, or lack of attention, began to pay off. Last fall Apple finally recognized this emerging home server market and recast the Mini as a home server complete with Apple’s server OS and started the process to upgrade the Mini as well. And customers noticed too, as the sales in the Mini line began to revive as Apple started to remove the stigma of being the cheap computer in the otherwise high rent Apple line of products. Finally, last week Apple gave in to its customers completely. While not admitting it directly Apple fully abandoned the low price focus of the Mini, raising its price by $100, upgrading its case and finally adding an HDMI port. With the addition of this ubiquitous video connector it is apparent to all that Apple is finally embracing the positioning that its customers wanted for the Mini i.e. as a fully functioning HTPC (or home server) with the price and specs to match. Rarely does Apple give in to its customers and rarely does it acknowledge a mistake. But this time it did and the results for the Mini are likely to continue to improve because today, as it is more appropriately positioned, there is a much bigger, and emerging market for the PC under the TV. And Apple has finally admitted that in this case, its customers knew best.

I mention this in light of the launch a few weeks back of a software download store by Hewlett-Packard. As one of the leading consumer PC brands, HP’s Web site has lots of traffic. Buyers, tire kickers, comparison shoppers, and curious browsers all make up a stream of visitors to their site as the PC offerings draw a huge amount of traffic. In fact, according to NPD’s Consumer Tracking service the HP Web site was the second largest PC sales Web site in 2009 and accounted for 10 percent of all HP’s consumer PC sales in the U.S. With such a strong online presence it was natural that HP should begin to view its Web site more like a store and less like a PC buying and information site. And of course the fact that HP sells more than half of all the ink cartridges sold in the U.S. helps increase that number dramatically. Up until now HP had been very slow to bring in the accessories, peripherals, and software to monetize that traffic. Certainly HP has a long list of branded accessories like mice, keyboards, and webcams to sell; but to effectively capture all the potential value available increasing the selection to include non-HP branded products that logically attach to the PC, like software, and doing it outside the PC buying experience, through a download store, is a wise extension of the items listed for sale.

As the U.S. retail market for electronics has grown more concentrated it is vital for OEMs, especially ones who have the scale and traffic potential like PC OEMs, to leverage this traffic to create an adjacent retail experience for their direct shoppers. Of course this can be done on the Web, as Dell and now HP do, but also through brick and mortar like Microsoft, Sony, and Apple have done. We expect to see continued growth of these direct sales outlets as the leverage in carrying broader selections grows more compelling, and we expect them to be successful as long as they can maintain their focus on leveraging their traffic with adjacent products.

Best Buy has not yet rolled out enhancements to its store to promote CinemaNow and its music service Napster in-house although that is coming, according to Ryan Pirozzi, director of digital video at Best Buy. Rather, the company is now taking steps to drive connected televisions, including having connectivity products in its AV sections instead of pushing people to the computing section to purchase them. And while it is easy to get caught up in a vision of everything-everywhere Best Buy says it will start by focusing on the big-screen experience targeting TVs and Blu-ray players. It will offer a la carte buying and renting while continuing to evaluate other models.

One question that has been looming in the background has been whether Best Buy and Walmart will seek to block each other’s digital video services. Best Buy says that it will keep TV services a level playing field and not block Vudu or other competitive services. Indeed, at Google IO, Best Buy CEO offered the retailer’s support for Google TV. As I noted in an article I wrote for the Tech Illustrated publication NPD distributed at CES 2010, there are several reasons why TVs may not evolve to have open Internet access the way TVs and mobile phones do, but Best Buy’s restraint should simplify SKU management for manufacturers and service choice acquisition for consumers.

On the other hand, Best Buy will be far from a passive provider of digital content. The company is looking to link its Napster CinemaNow and Rewards programs, which could enable interesting bundling capabilities or promotions for the company’s best customers. Still, Best Buy has no illusions that the over-the-top video business will be anything but a slow march for the next few years as broadband and home networks evolve.

As my colleague Ross Rubin discussed earlier this week, the level of distribution for e-readers has undergone a significant upheaval in the past two weeks. The Kindle is being slowly rolled out at Target and the Nook will be available at Best Buy. This is changing the way we need to view their sales opportunity and why sales now matter most and shipment data is less relevant.

Go pick up your Sunday paper and check the circulars from this past weekend. Check out the front page of the Best Buy circular. There is the Nook in all its glory being introduced to Best Buy’s customers. So let’s do the math. Approximately 1000 stores, 50-100 per store (a best guess) comes out to 50k to 100k units B&N had to ship to Best Buy. And of course some ODM in Taiwan had to build them, and it takes time to do all that so it is a pretty good bet that those 50k or so units were built in March. That is a lot of e-readers to build in one month and that is why the Nook could out-ship the Kindle in March.

Now of course this is not to imply that the Nook can’t outsell the Kindle, or that the Kindle isn’t doomed, but merely to point out it is easy to ship a lot of anything, to fill all this wonderful new distribution, but that shipments are not the same measure of success as sales. Shipments are the fuel but sales are the engine. Long-term success is best measured, as it always has been, in units out the front door, not receipts through the back. Because sales matter most.

Still, that exclusivity has made it difficult for consumers who would like to kick the Kindle’s keyboard before buying the product, an advantage that Amazon’s old rival Barnes & Noble has — and is exploiting — with its Nook device. While the Nook also began as a device distributed exclusively via its retailer, both products will now be sold indirectly, with the Nook on the shelves at Best Buy and the Kindle coming to Target.

 
The expanded distribution makes sense given the state of the e-reader market. Like other portable digital content devices, such as MP3 players, e-readers are high-tech products that appeal to consumers at Best Buy, and the retailer is devoting shelf space to them. However, like digital picture frames, they are also lifestyle products that have relatively strong appeal for women, hence the Target fit. NPD’s research has also indicated that e-readers are popular gift items, and having e-readers present at these retailers will enable them to partake further of the fourth-quarter frenzy of the holiday sales season.

 
Ultimately, both Amazon and Barnes & Noble care more about their digital bookstores than their digital book readers. Barnes & Noble, for example, is also the default bookstore on the forthcoming Plastic Logic and RCA devices, and Amazon, of course, will be happy to sell you a book to read on your iPad as well as on its Kindle. By opening up distribution, these retailers maximize their potential to sell more of their literary candy by having their candy machines in the homes of consumers who might not be as inclined to visit a physical or online bookseller. It also sets the stage for having a broader, more mainstream variety of content available to e-readers beyond bestsellers.

The store is set up with lots of table-type merchandising similar to the Apple store and to some other retailers’ concept stores that I have also visited. Clearly the future of in-store PC merchandising is to move it off the traditional retail fixtures and onto less cluttered shelving options. Among some of the cooler features was the ability to buy any piece of software and have it burned right in the store for you, while you waited, additionally you could also order a custom skin for your notebook and have it created directly in the store. Both felt like great personalization opportunities for the store personnel to sell. The clerk made sure to tell me about the Microsoft optimization on the PCs, which had the Microsoft suite of Live products pre-installed. Most of the store’s PC selection was notebooks, and most of the notebooks were standard product, priced competitively with the marketplace. There were sections dedicated for Zunes, for the Xbox, for software and other PC accessories, and for phones as well. But as good as the product merchandising was the store presentation was even better. It felt like a great place to shop with a good vibe.

After this visit I am more convinced than ever that Microsoft is on the right path with this retail strategy and as they roll out new products like Windows Phone 7 and more Microsoft-branded hardware having a high quality platform like these stores to showcase and sell it is a strategy that will benefit Microsoft and all its partners.

If the reviewers’ impressions match the early adopters’ usage and satisfaction then Apple, and the industry as a whole, have some serious thinking to do. More than a year ago we warned about the insidious impact netbooks would likely have on notebook pricing, and were correct. Windows non-netbook notebook pricing has fallen considerably since that time and Apple too has been forced to respond to this demand for lower-priced notebooks and has seen its ASP fall by $170 in the past 12 months. Now comes the iPad and soon, other tablets, all focused on the core slice of the typical computer users experience and needs at prices far below, especially for Apple, what I am used to paying for a notebook. NPD’s iPad study found that more than 80 percent of all potential iPad users were focused on Internet and email, and that 90 percent of all computer users do these activities as core functions.

Why do I need a $1200 Macbook when the $500 iPad (or less than that someday) can do almost everything I need to do? It is a question that has not been answered fully by the PC community, and one not addressed by the reviewers in today’s wrap-up of iPad functionality. Yet on a business sense it is a key one. Can the iPad sell enough units to make up for both the trading down phenomenon that we might see as well as the price reductions Apple could be forced to take to keep Macbook sales humming? No one yet knows the answer but the questions should be raised and the implications thought out. If anyone can prevent collateral damage through clever marketing and polished selling it is Apple but the risk remains real.

But none of this should surprise as these are the core Apple loyalists. Among these two groups, their current ownership of Apple products is nearly 50 percent higher than the overall population. 18-34 year olds are approximately 50 percent more likely to own an iPod, an iPhone, or a Macbook. Within the over $100k demographic there is almost 75 percent more likelihood to own an iPhone, or an iPod touch, and 50 percent more iPod ownership.

Combining the interest, awareness, intent to own, and purchase data give us a pretty solid idea of where the iPad might be headed. With these key demographics being the first buyers Apple will have a great opportunity to see how folks that they understand react to the product. This is really the first time in a very long time Apple has released a new product that is actually really new to the marketplace, and in fact few companies ever get a chance to do that. The iPod followed a few years of MP3 player development, and smartphones and internet access on them was certainly not unusual prior to the launch of the iPhone. What they are really doing is creating an army of beta testers (who are paying $500-$800 for the privilege) to help them understand the potential of this new device. While young people thought the product was too expensive, Apple owners and the $100k demographic felt OK with iPad pricing.

It is apparent both from our survey, and the launch event, that even if the potential buyers are pretty obvious, the potential usage and need is not. The launch event was about email and productivity. And while the survey tells us that most of the activity on computing devices surrounds those two activities and that most activity on mobile devices also follows those two paths, the bigger opportunities are around content and many of the likely buyers are looking for new ways to access content. Young people were far more likely to want to listen to music, watch video clips, watch movies, and display photos on the iPad than other age-based demographics.

All of this makes sense for Apple. In a segment with uncertain prospects target your best customers with a value proposition that is focused around what they currently do with similar devices. This lets Apple challenge those current devices (notebooks and netbooks especially) that consumers are currently using for these core activities without cannibalizing their current businesses (except the iPod touch and since the iPad sells for $100 more than the most expensive Touch, that is an OK trade for Apple). Then Apple can watch and see if that productivity story turns to media.

Desktop revenue growth and ASP stability also have the notebook market to thank. In years past the entry-level PC market was always the under $400 (and lower) desktop market popularized by eMachines way back in 1999 in conjunction with the AOL ISP rebate programs of the day. Fast forward to today and we find that notebooks have become the new first-time buyer entry-level product. With consistent offerings under $400, partly in response to the netbook challenge and partly in response to competitive activity in the industry, notebooks now make up the lion’s share (64 percent of the non-netbook under $400 PC market in the six months ending Feb 2010 and one-third of the 4.4 million computers sold at retail for less then $400 in that time, according to NPD’s Retail Tracking Service). In fact, in February notebooks under $400 nearly outsold netbooks.

The strength in Windows desktops is also related to the strength of Windows 7. In NPD’s 2009 Household Penetration Study (being repeated again this spring) we found that 56 percent of Windows notebooks had the Windows XP operating system but 71 percent of desktops had Vista installed. Given the strong message of connectivity that Microsoft has promoted it is not a surprise to see these ageing Windows XP desktops beginning to be replaced. Finally, while the data is still unclear it seems likely that the inclusion of Windows Media Center and streaming capabilities in the Windows 7 desktop, combined with the high level of attention that that feature has received in recent months may be prompting more consumers to think about the benefits of using the desktop as a set-top box device.

All-in-all it is clear that the Windows desktop market, as well as the Mac market, have been reinvigorated by the last iMac refresh and the Windows 7 release respectively. With solid ASPs, better demand, and a strong upgrade path we believe that 2010 is likely to see the best growth rates for consumer desktops in years.