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.

Along about April, however, my participation with Cafe’ World and Farmville came to a screeching halt. Why? I was getting ready to move my family cross-country and simply didn’t have any time to waste (there, I’ve said it) on non-real-world activities. Besides, most of my neighbors had trailed off on their participation, and it just wasn’t as much fun sending gifts but getting few in return.

This whole phenomenon of social network gaming is the topic of our latest research report cleverly titled “Social Network Gaming,” and it explores in-depth this relatively new form of gaming that has introduced the world of video games to entirely new groups of people. Of all social network gamers, over a third indicated they had never played a game before. But that means that about 2/3 of social network gamers came from existing gamers, which debunks the theory that “real” gamers could never be interested in such simple games. In fact, I was just chatting with one of my nieces the other day. She’s interested in going into the games industry after she graduates from college, and is a pretty dedicated gamer - playing on everything from mobile phones to PCs to handhelds to consoles. In fact, she was telling me how much she is looking forward to playing Black Ops when it releases, but also told me about the time she spent playing Bubble Island while on the job. For her, the social aspects were meaningless - it was about how easy it was to access these games, and at certain locations, to pass time. Another existing gamer, my friend Tim (his name has been changed to protect his identity), is what I would call a core gamer through and through. His current obsession with Farmville, Mafia Wars, Vampire Wars, Castle Age, and Zynga’s Texas Hold ‘Em left a few of us scratching our heads, since we figured he’d never be the type to succumb to this new form of gaming. He mentions the achievements, the collections, and enjoying the fact that his level is higher than that of his neighbors (because he is more efficient at managing his farm) as similar to his experience on Xbox Live and Modern Warfare! He also doesn’t highlight the social aspects as driving his involvement, other than liking the cooperative nature of the gifting - but that is more about getting the collections and achievements than it is about being social.

Regardless, there is a lot that game developers can learn about the swift adoption of social network games. Whether they’re developing social network game titles or more traditional forms of games for other platforms, developers need to pay close attention to what makes these titles so attractive to gamers, and learn to apply this to their own games. Sure, it’s easy to say that a lot of the appeal comes from the fact that so many titles are free to play, but there is much more to it than that. Things happen beneath the surface that encourages someone to take money out of their wallets and pay for virtual items, or, conversely, make them leave out of boredom.

The concept of the Tech Bench, the in-store service arm for major retailers, appears to have reached a plateau in terms of its awareness, usage, and ability to influence in-store software purchases. While retailer service offerings have clearly expanded over the past couple of years, as have ones offered by hardware brands and independent 3rd parties, the focus of this expansion has been away from the computer and towards more lifestyle service opportunities, hardware training and CE services. Consumers are still highly aware of the tech bench, with 46 percent awareness and 13 percent usage, but those numbers have barely budged from 2008, when usage was 11 percent and awareness was 45 percent. Although this may appear negative, at least some of this plateauing is the result of the demise of Circuit City and its Firedog brand, which stood as the major retail competitor to Best Buy’s Geek Squad. This leveling-off of the computer service opportunity has likely led the in-store service industry to seek opportunities elsewhere, as we mentioned above. But, this shift away from the PC has come with consequences for the software market, especially the security product segment, as share of tech bench interactions that involved a software purchase or installation fell from 2009 levels.

Traditionally security software has used the retail channel as a way to encourage brand switching. By using the box on the shelf and aggressive initial pricing targeted at potential switchers, many brands have been successful at stealing market share from competitors through off-the-shelf selling. With the advent of the tech bench, retailers became more of the partner for brands looking to move consumers away from their current security provider and into a new one and began to control that process more, making it increasingly difficult to use the box and the price to steal competitors’ customers or get them to upgrade to a more comprehensive, and expensive solution.

As we mentioned in our press release brands like Trend Micro, Webroot, and Kaspersky have seen strong growth in awareness through this type of partnership focused on basic security needs, although they remain challenged in turning trials and awareness into long-term installed base gains. And while installed base can take time to shift it can’t be a good sign that even consumers who use or are aware of tech benches are rapidly moving towards suite level protection, something that is not likely facilitated by the aggressive trial offers currently available through tech benches at retail.

Overall the real takeaways from this report show a continuing shift in how software publishers and retailers interact, how the value of the retail storefront continues to evolve for the software market, and how in-store services deliver a mixed set of results to the software market. While confusion and uncertainty are never good, undoubtedly the turmoil at retail and in the economy over the last 18 months has caused at least some of this dislocation. Tech benches remain a key way for software publishers to create demand for their products, and retail remains the best place to implement programs designed to take share from rivals. However, it is likely that the value of these opportunities has begun to diminish over its peak just a couple of years ago and both retailers and publishers continue to search for the best way to deliver profitable sales growth that satisfies the needs of both sides.

However, as both companies realize, they are not completely above the fray. In Q1, for example, as Verizon went on a smartphone tear that marked the rise of the original Droid, Samsung pulled far ahead of LG, which suffered as more Verizon customers adopted smartphones instead of its feature phones that are popular at the carriers. In Q2, as Verizon ended its buy one-get one smartphone promotion, LG made up some lost ground with Samsung. LG also launched the Ally, its first Android smartphone, at Verizon Wireless.

For its part, Samsung, which has dabbled in the Android market with the Moment at Sprint and the Behold II at T-Mobile, has made a multi-carrier assault with four flavors of its Galaxy S device. The Captivate and Vibrant have already launched on the nation’s largest GSM carriers, while the Epic 4G and Fascinate remain on tap for Sprint and Verizon. As Samsung pushes forward on Android and Bada, and as LG becomes a lead Microsoft partner for Windows Phone 7, the next year will help to determine if thee market leaders have been sleeping giants in the smartphone market.

Microsoft has a very different battle to fight in this release than in either the Office 2003 or 2007 version. Microsoft was very successful with sales of those products and its successful program to eliminate the “free” versions of Office floating around consumers’ homes and replace those with legitimate, upgradeable products that produced incremental revenue for Microsoft. Lifetime sales for Office 2007 at retail exceeded $1.5 billion for the 3.5 years it was on the shelf. A sales level that equated to approximately 10 million new copies of Office into the market in addition to the sales of PCs with Office pre-installed and the existing versions. Office 2007 was a radical new design that certainly helped deliver a lot of curious buyers and it was launched nearly parallel with Vista, adding a good deal of promotional activity in the software aisle, both of which likely helped drive initial sales of Office 2007. This time Office was launched during a seasonally slow period for PC purchases which have, over time, proven to be a have a strong impact on Office sales. The combination of these factors, plus the increasingly saturated installed base likely explains most of the initial weakness in sales of Office 2010.

With the release of 2010 Microsoft has to confront the success of its retail strategy head-on. Selling such a heavily used product into a base that has already been upgrading at a very high rate is an enormous challenge. While Office 2010 has many compelling new features, it is always an uphill battle to sell a high installed base product based on new features alone. Microsoft has been much quieter about selling Office 2010, choosing to release the boxed version at standard everyday pricing with a traditional mix of retail circular and end cap advertising, but without a lot of hoopla and fanfare (although some of this is likely to come during the upcoming back-to-school season). The key card product, designed to facilitate upgrading for PC buyers, has gotten off to a solid start accounting for about one-third of the unit volume. This is important because we do believe that the success of 2007 and 2003 at retail will make it very difficult for the boxed version of 2010 to generate much incremental retail sales volume above the trend line of the past 18 months or so.

However, the one strong opportunity for Microsoft and its retail partners is to add installations onto PCs where once the productivity software choice was Works or nothing. Last summer’s Next Class PCs from Best Buy that came with Office pre-installed were a first for retail and were very successful. The key card program can, as more PCs are shipped with the code enabling key card upgrades, potentially add some incremental revenue opportunities to the retailers that were not available to them previously.

Finally, a word needs to be said about the potential impact of free productivity products on the sales of Office 2010 to consumers. While products like Google Docs are certainly playing a part in the overall productivity software ecosystem, it is a virtual certainty that the slower than expected initial sales of Office 2010 have nothing to do with free alternatives, be they Google Docs or Office 2010’s own online version. These products have little awareness among the mainstream consumer who is the retail boxed version’s primary customer. Over time it is certainly likely that we will see some slowdown in retail sales as consumers alter their productivity software habits, but that time is not now. Mainstream consumers have not embraced the concept of the cloud, nor are they likely in the short to mid-term, making most of the questions around free software moot. The real short-term question is how Microsoft is able to match promotional fervor, pricing, and sales to the long-term opportunity to sell incremental versions of Office into a saturated consumer marketplace.

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.

To support these numbers we just released a survey of SMB buyers focused on companies under 1000 employees and found some optimism towards spending there, which is clearly borne out by the POS results. In the survey we dug a little bit deeper and tried to get at what SMBs intend to spend on in 2010 and whether this spending is above where they were in 2009. The results were extremely positive. More than 60 percent of those surveyed are intending to spend money in 2010 on PCs, networking equipment, and servers and 59 percent are planning to spend on storage equipment.

The main reason sited by companies for purchasing was to keep up with technology by upgrading their equipment. Almost 2/3 of purchase intentions were driven by the need to continue to upgrade their equipment. Certainly we have all been paying a lot of attention to the PC upgrade cycle in 2010 as the release of Windows 7 and the revived economy has helped spur interest in the upgrading clients.

Our survey found some interesting data in PC purchasing intentions. As we mentioned in the press release, PCs had the highest intention of being purchased in 2010 as well as the largest segment of companies planning to spend the same, or more, on PCs in 2010 as they did in 2009. Digging deeper we saw that PC upgrade intentions are very different by company size. Almost 80 percent of companies with more than 200 employees planned to spend on PCs as part of a long-term plan to upgrade equipment, a clear sign that Windows 7 is creating interest in larger firms. Conversely, only 65 percent of firms with less than 50 employees intended to upgrade for that reason. But 80 percent of firms of that size said they did intend to spend more, or the same, as last year. Among firms planning to spend less on PCs in 2010, 56 percent said they had replaced equipment last year and a whopping 75 percent of firms with under 50 employees said they replaced last year and would therefore be decreasing their spend this year. The bottom line then appears to be that sales will begin shifting to larger companies in the PC arena in 2010 as some portion of corporate budgets begin to be spent on new client systems.

In our 2010 online survey, we saw no change in the share of online software buyers who still wanted a disc even after they had digitally downloaded their chosen application. With the vast majority of online downloading coming from subscription renewals for products like security, there feels like an opportunity is being missed here. Two-thirds of all online software buyers are downloading what they bought (or renewed), but one-in-three online downloaders still want a disc. And with so many folks still looking for that physical product to hold it makes perfect sense that one of consumers biggest choices about where to shop online revolves around the availability of free shipping. Free shipping on bits and bytes!!!

With the upcoming release of Office 2010 offering many consumers an opportunity to download an upgrade to their current Office suite, the ability to buy a key card to unlock what sits virtually inside their PC, we may see a growth in awareness in the ease and accessibility that virtual software purchasing can offer consumers. As more and more applications offer cloud based options (as Office 2010 and Google Docs do) it is vitally important for retailers and publishers alike to message this ease of use and convenience to the mainstream consumer to keep them buying retail. Otherwise we could see the consumer lose interest in the benefits of ownership of software in the face of the no cost alternative, which would be a real tragedy when the alternative of virtual purchasing already exists.

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.