Silicon Valley motion-sensing technology company Canesta has announced that it is being purchased by Microsoft, with the sale due to be finalized before the end of 2010. Canesta develops 3D sensing hardware not unlike that used in Kinect, which launches next week.

The company also develops software for working with 3D tracking data, which is where we'd most likely see the deal bear fruit in terms of gaming, specifically in the evolution of Kinect's software-driven capabilities. It's also possible that the acquisition -- at least in the short-term -- is a move to head off any potential claims that Microsoft may have infringed on Canesta's patents during the development of Kinect.
Microsoft has issued its earnings report for Q1 of its fiscal year 2011, and things are looking good for its gaming division. The company reported revenue of $16.20 billion for the period, which ended on September 30. This amounts to a 25 percent increase over Q1 FY 2010 overall.

When it comes to Xbox 360, the console was cited as a top performer, alongside Windows 7 and Office 2010. In fact, Microsoft reports that sales are up 38 percent overall, compared with the same quarter last year, "outselling every competing console in the U.S. for each of the past four months," it gloats.

Diving into the numbers, Microsoft's Entertainment and Devices Division (home to Xbox, Zune, and Windows Phone 7) benefited from a 33 percent rise in revenue from Xbox 360 sales over Q1 FY 2010, to the tune of $409 million. Shipments of the console to retailers totaled 2.8 million units for the quarter, up from 2.1 million during the same period last year.

Revenue from software sales also increased, bolstered by (what else?) Halo: Reach. The Bungie title generated a whopping $350 million for Microsoft in the quarter -- a number made more impressive by the fact that, having launched September 14, that revenue resulted from only 17 days of the game's sales. No wonder Microsoft is considering releasing Halo games on a more frequent basis.
While Microsoft's first attempts at a motion-sensing peripheral were relatively primitive affairs, the very first prototype of Kinect was worth an absolute fortune. A report on the New York Times says that the first working version of what's now known as Kinect cost Microsoft $30,000 to build. That's not the cost of the entire project. That's just the cost to build one camera. Expensive!

Things are now a lot cheaper, of course, with Microsoft selling Kinect for $149 and claiming that every unit sold is being sold at a profit. Most of that is of course down to the economy of scale, mass production and R&D, but let's not also forget that Kinect was originally intended to be a more powerful device than the one we'll be seeing next month.

With Kinect, Microsoft Aims for a Game Changer [New York Times]
Four years after Microsoft purchased in-game ad firm Massive in a reported $200 million to $400 million deal, the Xbox 360 maker is shutting down the business. In a post on the Microsoft Advertising blog, community manager Rik van der Kooi confirmed the closure, which was first reported by Adweek earlier this month.

  If publishers want truck and taco ads in their games from now on, they'll have to do it themselves.

While Microsoft is shutting down the service that worked with third-party publishers to put dynamically changing ads, it will still attempt to salvage some value from its acquisition. According to the blog post, Microsoft will be taking the Massive technology and incorporating it into its own properties on Xbox Live and MSN Games.

"In the future, game oriented advertisers will find it easier to do business with all Microsoft properties with a singular focus, unified sales force and unique advertising opportunities across a suite of gaming properties," van der Kooi wrote.

The blog post did not address the reasons for the closure given in Adweek report. The trade publication blamed Massive's closure on two big factors. First was Xbox Live, which it said Microsoft was favoring because unlike with Massive, Live's ad revenues didn't need to be shared with third-party publishers. The second reason given was one of those third-party publishers--Electronic Arts--decided to take all of its own in-game ads in-house earlier this year, thereby depriving Massive of a large chunk of its business.

Massive will continue to work with existing third-party partners through the end of the year, when the brand will be terminated.
The Windows Phone 7 section of the Zune Marketplace looks a bit like a barren wasteland at the moment, but there'll be worthy apps aplenty ready for next month's launch. Here are your first priority downloads. There are still more apps to be announced before launch, and obviously the huge ramp-up will continue as the devices gain popularity. But as of right now, this is your must list. Not surprisingly—given the Xbox Live connection—it's relatively game-heavy.

You might be tired of tower defense games by this point. Don't be. Because as you can see, this one's 3D animations and perspective-shifting use of accelerometer make it a must-try. Fruit Ninja: One of our favorites for the iPhone and iPad will be on WP7 at launch, so limber up those fingers for some pineapple-slicing action.

The Harvest
It's a cool-looking, graphics intensive RPG Microsoft's got on its hands. But more importantly, it's an exclusive cool-looking, graphics intensive RPG. Meaning your only chance to slay this particular alien horde is on WP7. Sims 3: EA played coy for a while when it came to WP7 development, but thank goodness they're along for the ride—and bringing the venerable Sims franchise with them.

Three Zombie Games: What can I say? I'm a sucker for all things BRAAAIIIIIINNNNNNNSSSSSSS. And between Zombie Attack!, Zombies!!!!, and Age of Zombies it looks like I should be getting my fill.

Media Netflix: Netflix will be there from the start, along with Watch Instantly functionality—which is going to look pretty sweet on those WP7 displays. Even more ways to clear out my queue!

Slacker: Don't worry; Pandora's on its way. But in the meantime, it's worth giving Slacker a try—especially if you don't want to bother with a Zune Pass.

AT&T U-Verse Mobile
Here's a neat trick: even if you're not a U-Verse customer, you'll have full access to U-Verse TV content for $10 a month. And if you are a U-Verse customer, you get all the same viewing options along with the ability to manage your DVR.

We were a little worried about Twitter when it didn't show up on our WP7 in-depth look in July, but it'll be there on November 8th, complete with the ability to locate nearby tweets with GPS and the ability to poke around without signing in to a Twitter account. GoVoice
Windows Phone 7 doesn't have an official Google Voice app, but third-party enabler GoVoice is already in the Zune Marketplace. In any incarnation—even for three bucks, as in this case—Google Voice is downright crucial.

Reference IMDb
Want to know why Windows Phone 7 has a real shot? Look no further than the WP7 IMDb treatment. Matt's assessment—that it's "holy crap nice lookin'"—gets a strong second from me.

Microsoft's been stressing that what they lack in quantity of apps they'll make up for in quality. That's good news for auction fanatics, who are going to be treated to a very slick-looking interface that lets you search, bid, and buy from your device.

Fandango: Fandango feels like one of those apps that's table stakes at this point, so it's good to see it here—although the clock's still ticking on Foursquare, Pandora, Amazon, and other essentials.
The first wave of Windows Phone 7 devices kicks off with the November 8 release of the Samsung Focus in North America, with eight more Xbox Live-ready devices making it to market worldwide in time for the holidays. Microsoft's Windows Phone 7 initiative launches on November 8 in North America with the release of the $199 Samsung Focus. As part of the Windows Phone 7 platform, the phone will integrate Microsoft's Xbox LIVE, Microsoft Office Mobile, Zune, Windows Live and more.

In North America, AT&T will offer the Samsung Focus, along with the HTC Surround and the LG Quantum, both due out within the Holiday release window. T-Mobile will offer the HTC HD7 and the Dell Venue Pro.

Here is a full list of the devices coming out worldwide during the holiday season:

In North America:

• HTC Surround, United States
• Samsung Focus, United States
• LG Quantum, United States

T-Mobile USA
• HTC HD7, United States
• Dell Venue Pro, United States

• HTC 7 Surround, Canada
• LG Optimus 7, Canada

América Móvil
• LG Optimus 7, Mexico

In Europe:

• HTC HD7, United Kingdom, Germany

• HTC 7 Mozart, including France, United Kingdom
• Samsung OMNIA 7, including France, United Kingdom

• HTC 7 Trophy, France
• Samsung OMNIA 7, France

• LG Optimus 7, Spain
• HTC HD7, Spain
• Samsung OMNIA 7, Spain

Deutsche Telekom AG
• HTC 7 Mozart, Germany
• Samsung OMNIA 7, Germany

• HTC 7 Trophy, including Germany, Spain, United Kingdom
• LG Optimus 7, including Germany, Italy, Spain, United Kingdom

In Asia Pacific:

• HTC HD 7, Singapore
• LG Optimus 7, Singapore

• HTC 7 Mozart, Australia
• LG Optimus 7Q, Australia

• HTC 7 Trophy, including Australia