And look at the console gaming contest between Microsoft and Sony. The Sony Playstation hardware is vastly superior to Xbox 360. But Microsoft wins primarily because of the appeal of the Xbox Live network.

What's happening with these consumer electronics devices is that they're going through the same transitions as PCs did in the early days.

Back in the 1980s, people bought hardware, and the software was secondary. Over time, however, each PC hardware line increasingly resembled all the others, and what really mattered was software. Eventually, even Apple ended up moving over to Intel-based PC hardware. But nobody cared.

What really matters now is the Mac OS X or Windows or Linux, and all the software you can run on these platforms.

And just look at what's different about the iPhone 3G S. Like a new PC, the new phone is pretty much the same as the old phone, just faster. (The "S" stands for "speed.")