Robbie Bach, the Microsoft executive who launched the Xbox, has been pushed out as head of the gaming and mobile devices division after the company fell behind in technology for smartphones.
Microsoft is also axing another executive from the division, the head of design and development, J Allard.
Bach, 48, who has been with the company for 22 years, was promoted to run a new entertainment division in 2005, four years after successfully launching the Xbox gaming console, but responsibility for the division will now be split between executives who will focus either on phones or gaming.
Only 10% of smartphones sold in the US in the first three months of this year run Windows software, according to the retail research firm NPD Group. That is well behind Apple with 21 per cent, Google with 28% and the BlackBerry maker Research in Motion with 36%.
The entertainment and devices division contributes 11% of the company's sales, but makes just 3% of its operating profit. It has also been the scene of some notable disasters, such as the launch of the Zune, a digital music player that failed to meaningfully challenge Apple's iPod.
Apple overtook Microsoft to become the world's most valuable technology company last week amid optimism it can keep adding customers for its iPhone, Macintosh computer and iPad.
Apple's market value hit $222.1bn (€180bn) last week, compared with Microsoft's $219.2bn. That made Apple the most valuable technology firm in the world and the second-largest US stock by market value, behind oil company Exxon Mobil.
Apple chief executive officer Steve Jobs last month said second-quarter profit almost doubled and sales soared 49% on demand for the iPhone. The results did not yet include the iPad.
The value shift underscores the changing fortunes of two technology industry pioneers. Microsoft, the world's largest software maker, has had mixed success expanding beyond its mainstay Windows operating system business into new markets, including mobile phones, Web search and gaming consoles.
Apple, on the verge of bankruptcy when Jobs resumed leadership in 1997, has transformed itself from the maker of Macintosh personal computers into a consumer electronics trendsetter with the release of the iPod music player in 2001, the iPhone in 2007 and this year's release of the iPad tablet.
"With their relentless pursuit of technological and design innovations - driven largely by Steve Jobs - Apple has become the dominant technology company of this decade," said Michael Obuchowski, chief investment officer for First Empire Asset Management in New York.
Apple sold more than a million tablets in the US in the first 28 days after its 3 April debut and has said that demand is outpacing supply. The iPad went on sale in Britain, France, Germany, Canada and Japan, last Friday. It will be available in Ireland in July. (Bloomberg)
From Silicon Valley to New York, technology start-ups are tapping individual investors, friends and their own savings to fund operations and product development as cheaper hardware, software and storage has become available. That helps owners keep greater control of their companies and more of the equity.
"The biggest line item in these companies now is rent and food," said Chris Sacca, a former Google executive who has invested in several early-stage start-ups. A decade ago, "I don't think you could write a line of code for less than $1m," he said.
That means there's less demand for big venture investments. The size of the average venture round has shrunk by half to $6.3m since the dotcom bubble in 2000, according to the National Venture Capital Association in Arlington, Virginia.
Start-ups are getting by on less because they don't need to pay for software from Microsoft and Oracle -- free programs are available from Google and the open-source community.
And instead of using servers and storage from IBM and Hewlett-Packard, they can pay much less for web-based services from Amazon.com and Rackspace Hosting.
The boot-strapping trend is depriving large venture capital funds of some of the most promising potential investments, says Steve Blank, an eight-time entrepreneur who teaches classes at Stanford University and the University of California at Berkeley.
"If you've got a billion-dollar fund, there's no way the math works for you to put half a million dollars to work," Blank said. "The most exciting and profitable areas the past couple years have been internet startups, which structurally, the big guys with the billion-dollar funds can't attack." (Bloomberg)
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