At least one company is making money off of social networking. The game developer behind 'FarmVille' and 'Mafia Wars' has seen its web-based games take off – and deliver profits.

Mark Pincus, founder and CEO of Zynga

On any given day 500,000 tractors are sold on the Internet. But don't start buying stock in John Deere or Caterpillar just yet. These are $20 "virtual" tractors that belong to the 50 million players of FarmVille, the largest and fastest-growing social game on the Internet.

Social games are free online applications accessed through sites such as MySpace and Facebook. If you've spent any time on either site you're probably familiar with titles such as FarmVille, Mafia Wars, and Caf World. All three games, which rank among the top five games played daily on Facebook, were developed by San Francisco-based Zynga, one of the tech sector's most talked-about companies these days.

Behind the buzz: Annual revenue at the two-year-old firm is likely to surpass $100 million this year, prompting speculation that the company — backed by the likes of LinkedIn cofounder Reid Hoffman and PayPal cofounder-turned-investor Peter Thiel — will soon go public. The software company also has managed to do something that other hot online brands such as Twitter and Facebook have not: Zynga has found a way to make social networking profitable.

Zynga was founded in 2007 by Mark Pincus, 43, who also started social-networking site Tribe.net and software company SupportSoft (SPRT), which eventually went public. (The name Zynga is a misspelled tribute to his deceased American bulldog, Zinga.) While many of his Web 3.0 peers rely on advertising and sponsorship for revenue, Pincus makes its money by getting gamers to buy virtual goods, like tractor fuel or land in the case of FarmVille, that enable players to build bigger farms at a faster rate.

By developing games on social networks, Zynga is able to capitalize on the viral nature of the platform. (Zynga estimates it has 70 million monthly unique visitors.) Gamers can invite friends to join them in the game, and they can send updates on their progress to their friends, stoking interest.

Once hooked, Pincus says, players spend real money on virtual goods to help them advance to higher levels — thereby enriching Zynga. And although playing requires only short spurts of time, the game never ends, as Zynga's designers keep adding levels so that players come back for more.

"For me it's just relaxing and fun. I don't have to think hard about it, and I can do it while watching TV," explains Lauren Kohn, 37, a mother of three in San Jose who has spent more than $100 on virtual goods since she started playing FarmVille four months ago.

Pincus won't reveal his margins, but he acknowledges that the company has been profitable every month since September 2007.

By contrast, Twitter doesn't even have meaningful sales, and Facebook only recently claimed to be cash-flow positive. And if online reports are to be believed, Zynga spends millions each year marketing itself on Facebook, thereby providing the social-networking site with a chunk of its revenue. Talk about the tail wagging the dog.

A year ago this week Apple opened the floodgates and began letting software developers sell software for the iPhone, and geeks everywhere caught iPhone fever.

Since then Apple's iTunes App Store has swelled to more than 50,000 titles, logged more than 1 billion downloads, and inspired an entrepreneurial surge that's reminiscent of the dot-com gold rush — only without the illusion that everyone is making tons of money.

In fact, aside from Apple and AT&T, it's hard to point to many folks that are raking in a pile of iPhone cash quite yet. Matt Murphy, a venture capitalist at Kleiner Perkins Caufield & Byers, guesses that as many as 95% of the developers building iPhone apps "aren't trying to build a company on the iPhone" — they're just hobbyists making a little money on the side, or companies using fun iPhone apps as marketing vehicles.

The world is still waiting for the equivalents of eBay, Amazon, or Yahoo — the groundbreaking new companies that will redefine and inspire the mobile ecosystem.

Not that people like Murphy are discouraged.

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Nvidia inside: Apple's latest MacBook laptops have an Nvidia graphics processor next to their Intel chips, which puts the spotlight on graphics chips as an important part of today's basic computer system. Image: Apple

With all the presidential campaign talk about American exceptionalism, it might be easy to forget that we do a pretty unexceptional job at some things — like shopping for computers.

No question, we Americans buy a lot of them – the latest estimates say more than 75% of U.S. households have at least one PC, among the highest ownership rates in the world. The problem is, we are hooked on the underpowered, bargain-bin variety, the sort that putter around on the Internet, choke on high-definition video, and struggle to render 3D games. Our habits make PC buyers in places like Germany laugh at us. (The mainstream German PC buyer has a nose for good engineering – no big surprise there.)

What should we Americans be buying that we're not? Something called a graphics processor is high on the list. These special chips made by companies like AMD (AMD) and Nvidia (NVDA) speed up visually intensive (and increasingly popular) tasks such viewing photos and high-definition video, and playing games. According to research firm IDC, last year 39% of consumer PCs worldwide shipped with graphics chips — but both AMD and Nvidia says the United States lags savvy countries in Europe and Asia when it comes to embracing the technology.

That's why when Apple (AAPL) unveiled new MacBook laptops last week, the specs turned a few heads. Unlike the other mainstream PC makers, Apple has chosen to stop using the standard-issue integrated graphics that come packaged with Intel (INTC) chips, and switch to a new setup from Nvidia, which Apple says can run about five times faster. Apple will continue to source the main laptop processors from Intel, but those Intel processors will now work in tandem with a respectable graphics chip, part of Nvidia's GeForce 9400M chipset.

It's not that graphics chips are new – add-on, or "discrete" graphics chips have around for a long time. What's new here is that these Nvidia graphics are built into the basic chipset. So mainstream Mac users will get the benefit of improved visual performance without having to pony up for a separate chip. It's an acknowledgment that these chips can lead to a better experience for everyone, not just gamers and video geeks. (And Nvidia managed to keep this chip from being a heat-making power guzzler; otherwise, it never would have fit into the svelte MacBook Air.)

Could this endorsement from tech's hottest company finally put graphics processors on the map for the mainstream? The folks at Nvidia certainly hope so. The day after Apple's announcement, I caught up with Drew Henry, general manager of Nvidia's media communications processor business unit, and he was practically gushing.

"I think this is the beginning of the era of visual computing," he said. "I believe that Oct. 14, 2008 will be remembered as the moment when an inflection point happened." He said other computer makers have already expressed more interest in the chipss. "You'll see other designs over the next few weeks and months," in time for the holiday season, he said, though Apple won the opportunity to release it first.

Apple just weighed in on one of the most intense battles brewing in technology. Nvidia and AMD's ATI graphics unit have long vied for supremacy in their niche. Patrick Moorhead, AMD vice president of advanced marketing, recently showed me a demo to drive home this point; he displayed two computers, one with AMD graphics and one with Intel's basic integrated graphics, running the popular Iron Man game and playing "The Simpsons Movie."

The Intel-powered machine failed to display some ceilings and walls in the Iron Man game, and sputtered during complex scenes in the movie; the AMD-powered machine handled both smoothly. Adobe Systems (ADBE), maker of graphics-heavy software programs like Photoshop, Flash and Illustrator, recently threw its weight behind the graphics chipmakers' point of view; its latest version of those programs, CS4, is crafted to tap a graphics processor for a speed boost.

Intel, meanwhile, is not sitting still. In the hours after Apple's laptop announcement, it put out a statement saying it intended to fight hard for Apple's future business. One of the ways it will do that, no doubt, will be to try to lure Apple back into the Intel fold with its own upcoming graphics processor, code-named Larrabee, which will use multiple Intel computing cores to deliver extra visual oomph. The first products should arrive next year at the earliest.

So where does all of this leave consumers? And will Apple's move really make U.S. computer buyers smarter about buying PCs? In the short term, probably not. The most affordable laptop to carry the chip so far costs $1,299, and folks like Hewlett-Packard (HPQ) and Dell (DELL) sell laptops with discrete graphics processors for less money. But Apple's embrace of graphics is clearly just a first step — it's only a matter of time before it begins offering similar graphics performance in systems priced at $1,000 or less, and then in every computer it makes.

And that's when things will get really interesting. Once Apple has built special graphics capabilities into most of its consumer systems, it's sure to release a new version of its iLife software suite that takes advantage of the extra speed. And once that happens, it's possible that mainstream American consumers will finally start to see the benefit of investing in graphics when we buy PCs — and those Europeans will have one less thing to snicker about. (MSFT)

Using OptiTex software, fashion designers can simulate real fabrics on the computer screen – right down to seeing how they'll move when a model twists on the catwalk. Image: OptiTex

You wouldn't know it from browsing the chic fall styles at the mall, but fashion is a messy business. For example, a designer typically makes a shirt three times before perfecting the one you see on the rack, and often the rejects go straight to the trash.

Fashion industry veteran Shenlei Winkler has estimated that in the process of working on one collection that sold at Wal-Mart (WMT) years ago, she generated more than 10 cubic yards of landfill, and spent about $75,000 on materials. "It's a lot of waste," she says, of both time and resources.

Experiences like that inspired Winkler to see if technology can come to the rescue. As founder of the Fashion Research Institute, she's now working with IBM (IBM) Research on a virtual environment where designers up clothes on their PCs, fit them on digital models and revise their patterns. If you've heard of Second Life, you get the gist – except instead of using her virtual space as a digital pickup joint or storefront, Winkler is using it as a workshop.

It's just one example of the fashion world's flirtation with 3D graphics, a trend that could eventually cut the time it takes to bring clothes from concept to the catwalk. It's easy to see why the business could benefit from going digital; unlike many other industries, where robots assemble products, clothes still require lots of costly human handling. Winkler believes that using virtual worlds as a proving ground for ideas, she can cut thousands of dollars – not to mention hours – out of the production process.

But as is often the case with new technology, we have to be careful not to let the hype get ahead of reality. Experts say that while 3D tools might help the designers, they probably won't transform it anytime soon by dramatically lowering costs or upsetting the balance of power in the industry. Instead, says Forrester Research analyst Paul Jackson, designers who digitize more of their work might be able to get new products into stores faster – and that could potentially give them an edge over the competition.

And speed has real value. Just look at the success of Zara, a Spanish retailer that grew into a multibillion-dollar force in global fashion by getting clothes off the drawing board and into stores in weeks rather than months. Winkler is convinced that by using virtual tools, designers will be able to similarly capture some of that speed: "Designers are just going to be able to blow through their work," she says, "and turn in much higher quality."

The tools themselves certainly look promising. One of the standouts is 3D Runway Designer from OptiTex, an Israel-based company. The software is downright uncanny. Plug in information about fabrics, including how they stretch, twist and drape, and you can watch a movie-like sequence as a virtual model tries out the clothes. (Tommy Hilfiger and Target (TGT) are among the customers.) The results are photo realistic, down to the difference in the look of silk versus cotton.

Meanwhile, 3D technology is even appearing closer to retail. In the online stores at H&M, Sears (SHLD) and Land's End, shoppers can try simplified versions of clothes on a digital mannequin that matches their measurements, using technology supplied by Montreal-based My Virtual Model.

The results have been good enough that My Virtual Model says it does about $7 million annually in sales to retailers. But even so, it's not going to replace the dressing room anytime soon, says Trisha Okubo, founder of fashion-advice site Omiru.com.

"Buying a little black dress online isn’t the same as buying a digital camera," Okubo says. "The technology is far from the mainstream – and it very well may stay that way."

Those are probably wise words of warning for fashionistas eager for a 3D revolution.

The first phone to use Google's Android operating system will be available on October 22.

If Google plays its cards right, its unveiling of the first Android-powered phone on Tuesday will prove to be more than a distraction from iPhone-mania – it will be the moment the search giant capitalizes on Apple's control issues.

First, the lowdown on Google's (GOOG) Android mobile operating system. The first phone to use it, the $179 G1 from HTC, will be available around October 22 and will use T-Mobile's wireless network. Data plans will start at $25 per month, and cost $35 per month for unlimited access. (Voice plan is separate.) It comes with nifty programs like Gmail, YouTube, contacts, calendar, IM, and Google Maps with Street View, which shows pictures of locations on a map.

Think of Android as an attempt to do for phones what Windows does for the PC, or OS X does for the Mac. But unlike Microsoft (MSFT) and Apple (AAPL), Google isn't looking to make money off of phone software or hardware; instead, it's giving Android away for free to any phonemaker and wireless carrier who will bake it into a handset. Why? If people use their phones to get online, the more they'll do Google searches, click Google ads, and in the process, make Google money.

That clears up why Google needs Android. But do the rest of us? After all, there's no shortage of smartphones out there already; if you don't want RIM's (RIMM) BlackBerry, you can get Apple's iPhone, Nokia's (NOK) N95; or a Windows Mobile phone from Palm (PALM), Motorola (MOT) or Samsung.

Google's answer for why we need another: to save us from folks like Apple and Microsoft. "No one party will control this platform," Rich Miner, Google’s group manager for mobile, said at the Mobilize conference in Silicon Valley last week. In theory, such a hands-off approach makes it easier for bright entrepreneurs to set up shop and make money without answering to one powerful company. Jason Bremner, senior director of Qualcomm's (QCOM) cellular products group, vouches for that. "It helps innovation," he said. "And it drives costs down."

It's a timely argument, because Apple has been a bit heavy-handed with its popular gadget lately. We already knew about the iPhone's basic restrictions: AT&T (T) is the exclusive U.S. carrier, Apple is the only company allowed to make iPhones, and Apple itself decides which programs you can legitimately download and install through its App Store. But in recent weeks, Apple's inner control freak has grown especially active.

It began in August, when Apple's App Store police rejected programs including "I Am Rich," which was little more than a very expensive picture for $999; NetShare, which turned the iPhone into a modem; and Murderdrome, a violent digital comic book.

But a real backlash began a few days ago, when Apple nixed Podcaster, a program that lets people directly download shows without going through Apple's iTunes. The app didn't seem to violate any of Apple's published rules – so why was it tossed?

Creator Alex Sokirynsky, a 27-year-old web developer who writes software in his spare time, blogged his rejection letter: "Since Podcaster assists in the distribution of podcasts," Apple wrote, "it duplicates the functionality of the Podcast section of iTunes." The implicit message: Don’t try to improve on our way of doing things. The move even angered some Apple fans. Longtime Mac developer Paul Kafasis blogged that Apple had "gone too far;" online publishing pioneer Dave Winer called it a dealbreaker for developers. (Apple did not respond to a request for comment.)

Actually, Apple has always had control issues. When CEO Steve Jobs returned to save the company a decade ago, one of his first acts was to cancel agreements that allowed other companies to make Macs. Executives almost decided not to release a Windows-compatible version of the iPod partly because it would mean dealing with Brand X operating system.

And of course there are those strained relationships with Hollywood studios, because Apple insists on dictating the pricing for most songs and videos in the iTunes store. To be fair, Apple's meticulous streak has its benefits, of course – if the company wasn't so particular, do you think it could build iTunes into the top-selling U.S. music retailer, invent the iPod, and win all those design awards? Yeah, probably not.

But in this case, there's reason to believe Apple's hands-on approach could eventually lose out to Google's more open model. Assuming Google can build and maintain a reliable operating system on its first try (and that’s a big assumption), it's reasonable to expect major players like Motorola, Samsung and Sony Ericsson to build phones around the free software. And since the wireless carriers are hungry for Internet-friendly phones to compete with AT&T's lock on the iPhone, Android phones could prove popular. It's conceivable that in a year, Google-backed phones could be available from all four major U.S. carriers next to Apple's one, with a wide-open distribution model next to Apple's curated App Store.

Still, even in Google's dream scenario, Android won't gain ground overnight. The first model out the gate is from HTC (hardly a household name), running on T-Mobile's second-tier network. Adding to the uncertainty around the launch, a number of software developers are taking a wait-and-see stance toward Google's debut effort.

Andrew Stein, director of mobile business development for Popcap Games, said that while the maker of titles like Bejeweled and Zuma jumped at the chance to be first on the iPod and iPhone, it's not so excited about Android. "Apple's been doing operating systems for a very long time, but this is really Google's first," Stein said. "I don't think the first couple of devices are going to be multimillion-unit phones."

But Google's got at least one developer eager to take a chance. Sokirynsky, whose rejected iPhone app became a cause for bloggers, said he's now turned his attention to building a version of Podcaster for Android. "I only developed Podcaster for the iPhone because that was the phone I used and the app I wanted," he said. "I plan to keep developing for other platforms that are more open."

Click above for video of AMD vice president Patrick Moorhead talking about how the chipmaker will face the competition from Intel and turn things around.

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Click above to see some of the futuristic technologies Intel is cooking up in its labs.

Earlier this week at Intel's (INTC) annual research day in Silicon Valley, the company showed projects that could influence the way we live tomorrow.

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The new Voodoo Envy 133 is .7 inches thin, and has a carbon fiber body strong enough to support a removable battery. Image: HP

A little more than a week ago, Rahul Sood blogged a picture that showed him cutting his birthday cake with a $1,800 MacBook Air laptop.

It's so damn sharp, he wrote underneath, it did a fine job.

For Apple fans this was blasphemy, something like drinking Kool-Aid from the Holy Grail, and they swiftly voiced their displeasure on the web. Sood is the chief technology officer of Hewlett-Packard's (HPQ) PC gaming group after all, so his cake-cutting stunt was clearly not a testament to Apple's (AAPL) design prowess. While Sood claimed that a merry mix of wine, friends and a good cigar had pushed him to it, his closing statement on the offending blog entry suggested a deeper motive:

Ahh well, I wouldn't be needing this notebook for long anyways … : ) Stay tuned for more …

Voodoo Envy 133Dimensions: .7" thick. 9.04" x 12.65" Weight: 3.373 pounds Screen: 13.3" backlit LED Casing: Carbon fiber, available in various Voodoo Allure paint colors Connectivity: USB 2.0 (2), Ethernet (in power brick), HDMI, headphone/microphone, e-SATA/USB Operating systems: Windows Vista, Voodoo IOS (Linux). Includes Lojack recovery software. Price: Starting at $2,099

This amounted to a mischievous hint that Sood had a new product coming – and now, here it is. Today in Berlin, with Sood on hand, HP is introducing the Voodoo Envy 133, a high-fashion laptop that is HP's answer to the MacBook Air.

While the new Envy is not as delightfully aerodynamic as the MacBook Air (this one won't be cutting any cakes), it still cuts quite a figure. When I first saw it during a media preview, I was impressed with its clean lines and its skin made of carbon fiber, a durable material that's more commonly seen on racecars than PCs. Sood, who founded Voodoo PC and sold it to HP two years ago, has a reputation for building high-performance computers, so the construction made perfect sense.

The laptop is part of an update to HP's overall PC lineup that includes 17 new laptops, a new touch-screen desktop, and a flat-panel monitor that displays billions of colors. Voodoo's computers are also getting a major update in the launch; besides the Envy laptop, there's a new Omen desktop and more prominent display of HP gaming PCs labeled as having "Voodoo DNA."

The new products, particularly the Envy laptop (starting at $2,099), mark a shift in how HP is approaching the PC market. Voodoo was best known for catering to the flashy tastes of gamers, but HP now wants to position it as a luxury brand within the company – something for the Lexus and Bentley crowd. "It's going to be all about a customer who's more demanding about technology and personalization – they want something different," Sood says. "It's going to be where arts and technology fuse together."

Why would HP try to sell pretty laptops for more than $2,000 at a time like this? Because people are still willing to pay for the wow factor. Just look at Apple's online store; the cheapest laptop Apple offers is the $1,099 MacBook, but the top seller is the $1,799 MacBook Air. The MacBook is practical, with an equal-sized screen, a faster processor and a bigger hard drive than the Air. (Plus the MacBook has a DVD drive, which the Air lacks.) Still, people are scrambling to spend 63 percent more for a less substantial computer that's thinner and prettier – and that's great for a PC maker's profit margins.

HP figures two can play at that game. While the Envy 133 is bulkier than the MacBook Air (it doesn't have the tapered look and weighs in slightly heavier at 3.37 pounds), it also includes conveniences Apple left out. The Envy has two USB ports, an HDMI port, a removable battery, and a unique feature that lets you plug an Ethernet cable into the power brick and create an instant wireless connection with the laptop. Like the Air, it uses a chip from Intel (INTC).

Most impressive, the Envy also comes preloaded with both Microsoft (MSFT) Windows and a custom flavor of Linux that boots up in less than five seconds to offer a browser, instant messenger and Skype. In the Linux environment, running light tasks, the Envy gets nearly 3 hours of battery life, Sood told me; in Vista, more like 2.5 hours. (This is less than the MacBook Air gets, but I give HP credit for having a removable battery.)

So should Apple worry? Probably not yet. The Envy has yet to prove it can attract the same crowd as the MacBook Air, and it's always possible that Voodoo's fan base will be turned off by the brand's shift toward luxury buyers rather than gamers. But HP's move with the Voodoo brand should certainly put rivals such as Dell (DELL), Sony (SNE), Acer, Lenovo and Toshiba on notice: There's another sharp laptop on the block.

• Earlier: HP reaches for the cool factor

Watch out, Intel: Advanced Micro Devices has a laptop with turbo power.

In essence that's what the chipmaker has created in its Puma chip platform, which it plans to unveil Wednesday. On regular settings, a Puma-powered laptop conserves battery life and does a so-so job handling complex graphics. Switch to turbo and it's a powerhouse that effortlessly renders 3D games and plays HD video.

It's a neat trick that AMD (AMD) hopes will remind us of its potential, and take our focus off of its recent screw-ups. The mistakes were big. Last year, in an effort to leapfrog rivals Intel (INTC) and Nvidia (NVDA), AMD gambled on ambitious chip designs and then blew its deadlines for delivering the goods. Profits evaporated and the stock plummeted. Now AMD is eager to show it can handle the basics: Regaining profitability, keeping its promises and churning out smart ideas like Puma.

What's so special about Puma? It mixes two technologies that have never been combined this way before: Integrated and discrete graphics. Integrated graphics, the lower-power and lower-cost method, shoves mediocre graphics functions onto main computer chip. Discrete graphics chips provide high-end graphics performance. Normally a laptop uses one method or the other, but because AMD owns graphics chipmaker ATI, it was able to blend the two. So in turbo mode, Puma laptops turn on integrated and discrete graphics at the same time for an extra performance boost.

Based on early signs, Puma should be a success. Major laptop makers including Hewlett-Packard (HPQ), Dell (DELL), Acer and Toshiba have already agreed to use it, and analysts like the design. "It's the first time AMD has really gone out of its way to optimize a product for the mobile environment," notes chip analyst Nathan Brookwood of Insight 64. "The new chip uses less power, and in mobile that means improved battery life and in many cases improved performance. What's not to like?"

Is that praise for the downtrodden AMD? Yep. Despite the hand-wringing on Wall Street over the stock's fall, the company itself is far from dead. (My colleague David Kirkpatrick pointed this out in an April column.) In fact, conditions are ripe for AMD to make a comeback – as long as management avoids a repeat of last year's fiascos.

And of course, that's what they are promising to do. Executives note that the late Barcelona chip that ruined 2007 is now shipping to server makers such as IBM (IBM), HP and Dell, which seem happy so far. Graphics unit ATI has recovered from last year's setbacks, and is delivering products that match up to Nvidia's. And now there's Puma. Looking ahead to 2009, executives say AMD will offer chips that bring more of its graphics expertise into everyday computers, resulting in more Puma-like products that competitors can't match.

Meanwhile, AMD is quietly gloating over Intel's recent mistakes. Intel's own next-generation laptop chip, code-named Montevina, should be arriving soon but is late because of problems with its graphics and wireless features. If the delays drag into the back-to-school buying season, AMD could benefit by picking up orders Intel can't fill. (Also, AMD is arguing in various countries that Intel has illegally used its dominance to bully customers out of buying from rivals. If regulators order Intel to pay damages and change its behavior, that could give AMD's fortunes a boost.)

But don't expect a quick turnaround. Even if everything lines up for AMD, it won't soon regain the Wall Street clout it enjoyed a couple of years ago. Intel is better at marketing than AMD, and has more money to do it – so even if AMD's new products are good, there's no guarantee that the company will be able to quickly lure away Intel customers.

That's why it's good to see that AMD is preparing for the long haul. Employees I've spoken with seem genuinely confident in the company's strategy, and CEO-in-waiting Dirk Meyer has brought in new leadership and refocused the company's attention on getting projects completed on time.

So even though AMD's struggling, Intel had better watch its back – AMD could switch into turbo mode at any moment.

Later this year, select Micro Center stores will set up HP-branded areas like this one that show off sleek designs and demonstrate how the products work together. Image: HP

Rahul Sood was working in a Calgary rug store when fate beckoned in 1991. A friendly customer saw him fixing a computer by the front desk, and suggested he take his skills into the PC business.

Sood borrowed $1,500 on a MasterCard and started Voodoo PC, buying high-end parts and building powerful workstation computers for clients in the local oil and gas industry. It didn't take long for him to find a more appropriate niche: In the early days Sood and friends stayed up until 2 a.m. playing graphics-rich video games on the office computers, so it felt natural when Voodoo began building eye-catching rigs for fellow video game enthusiasts.

Now Sood is a key player in Hewlett-Packard's (HPQ) push to create breakthrough new computer designs to push it further ahead of its rivals. Since HP acquired Voodoo in 2006, Sood and his team have been working to bring Voodoo's artistic, high-performance culture to HP's mass-market audience. HP's latest efforts, which will be unveiled on June 10, could begin to establish the company as a provider of beautiful technology gear – an image that consumers had traditionally associated with competitors like Apple (AAPL) and Sony (SNE).

"Voodoo inside HP is very much akin to the acquisition of Lamborghini into Audi," says Sood, a car buff who races in his spare time. "In the new Lamborghinis the quality is 100 times better, and in Audis, the styling has gotten more aggressive – it's a win-win situation for both companies."

HP's moves are about more than looks. The PC wars have changed. In the 90s, victory meant building PCs cheaper and faster. Michael Dell (DELL) defined the era by establishing a build-to-order process at his Texas plants, tightly managing parts and inventory, then cutting prices to bleed his rivals. Since then, Dell's competitors have largely neutralized its cost advantage, so today victory is more likely to mean building innovative PCs and selling them in a high-class environment. (Dell has responded by focusing more on retail sales, and courting gamers through its Alienware unit.)

That's why HP has already been putting more focus on aesthetics. When PC unit chief Todd Bradley arrived at HP three years ago, he observed that business laptops had all the flair of military tanks and challenged his team to radically redesign them.

Since then, HP's entire line of machines has begun dramatic changes. Many laptops now come with stylish, eye-catching engravings. A quirky touch-sensitive computer won raves from Martha Stewart, and a muscle-car desktop excited video-game enthusiasts with its precisely-engineered parts. The company even worked with the Pasadena College of Art to rethink computer packaging. A marketing makeover completes the package, with commercials featuring celebrities like rapper Jay-Z and snowboarder Shaun White. (By way of contrast, a recent Dell ad featured Burt Reynolds.)

Yes, HP has come a long way. In the spring of 2005, when Bradley first sat down with CEO Mark Hurd to talk about joining the company, HP was still struggling to digest its acquisition of Compaq and still trailed Dell in the marketplace. Over breakfast at the Stanford Park Hotel in Palo Alto, the two men talked about how to streamline the PC division and make it a winner. "I really believed in our ability to drive innovation into the core PC space," Bradley says. "It was an interesting opportunity to change the way people viewed computing, and make it personal."

Weeks later Bradley joined the company, and began to deliver. He quickly brought in a new leadership team and standardized the basic skeletons of HP's computers to simplify manufacturing and speed innovation. Profit margins have steadily risen from less than 1 percent the year before Bradley took over to more than 5 percent now.

Now that Bradley has the mechanics down, more attention has shifted to marketing. Aside from the design of the PC lineup, his team is also working on a novel retail strategy.

I got a peek at the retail part a few weeks ago. During a conference for its reseller partners, HP built a mockup of its store-in-a-store concept in a room at the Ritz Carlton in San Francisco. The most impressive thing about the setup was how well everything worked together; computers, printers, displays and other items sat on polished white surfaces, organized by how they might be used. The packaging matched, too – from printer cartridges to laptops, everything sported a black background accented by bright colors.

Versions of the retail space will begin appearing in stores this summer and fall. Micro Center, a U.S. electronics chain, will test the concept ahead of the holiday season; and HP will set up a boutique in Harrod's, the upscale department store in London, this summer. The stores will include specially trained workers, promotions to draw people inside, and a commitment to continually improving the experience based on customer feedback.

For Satjiv Chahil, who heads up marketing for the PC division, it's a reflection of how computing has gone mainstream. These days electronics stores aren't really competing with each other – they're up against chic fashion shops like Hollister, Louis Vuitton and Miss Sixty, competing for disposable income. "The purchasing power that people have is going to go somewhere," Chahil says, and he has a point. Visit the mall, even during tough economic times, and you're sure to see plenty of money being thrown around. Why shouldn't HP get more of it?

"They've taken a stronger look at the experience of shopping for their product, versus just having their product available at multiple outlets," says Kevin Jones, vice president of merchandising at Micro Center, who has been working with HP on the in-store concept. "This is about getting the cool factor into the PC product."

That's a tall order, since few computer makers have managed to make a strong case for why their machines are better than the competition – and in an economic slowdown, it can be harder to entice consumers to buy. But with it's number-one global position, the backing of HP's huge research labs and new ideas coming in from folks like Sood, HP may be better positioned than any other company to define the battlefield in the new PC wars.