Verizon: Who Needs the iPhone?

Verizon: Who Needs the iPhone?
To stay ahead of AT&T and Apple, Verizon is placing a big bet on Android smartphones and other new gadgets

By Spencer E. Ante

Can Verizon Wireless keep its spot as the leading wireless company in the U.S. if it doesn’t have the industry’s hottest phone?

Lowell McAdam, the company’s chief executive, is trying to make the case that it can. Two years ago, Verizon Wireless passed on the chance to become the exclusive U.S. distributor of the Apple (AAPL) iPhone and pushed Apple into the arms of rival AT&T (T). Since then the iPhone has become a megahit, helping AT&T close the gap with Verizon. In the most recent quarter, AT&T added 2 million wireless subscribers, bringing its total to 81.6 million, while Verizon Wireless added 1.2 million, for a total of 89 million.

Now, McAdam is launching a slew of products designed to keep Verizon ahead. In the fourth quarter the company is rolling out its largest new-product lineup ever: 14 devices, vs. half that number a year ago. Among those will be two netbooks and five smartphones, including the Droid phone from Motorola (MOT), a sleek device with a touchscreen and keyboard that runs on Google’s (GOOG) Android operating system. The new products are backed by an unusually aggressive marketing campaign. In one TV spot, Verizon takes direct aim at Apple with a series of “iDon’t” quips that explain all the things an iPhone can’t do. “The Droid can compete head to head” with the iPhone, says John Stratton, chief marketing officer of Verizon Wireless.

Check out the rest of my BusinessWeek story here, along with a video of me discussing the Droid launch. We’ve already got 44 comments on the story. Join the fray!

Behind the Droid Lauch: A New Motorola?

Who was the big winner of today’s much-hyped Droid launch?

Sure, the warm reception that the new Android-based smartphone is receiving is a big win for all of the parties involved: Verizon Wireless, Motorola and Android-maker Google. (Personally, I was impressed by the phone, and thought it represented a nice package of features, design and functionality.)

And the stock market seemed to agree. Today, Verizon’s stock was up nearly 3% and Motorola’s stock was up 1%, while the Nasdaq tanked nearly 3%. Google fell about 1.5%. And Apple took a hit, falling 2.5%.

[Verizon Wireless Chief Marketing Officer John Stratton and Motorola co-chief executive Sanjay Jha hold up the new Droid cell phone.]

But I’d venture to say that Motorola was the big winner, if only because the company was in such desperate need of a win. After all, the cell phone biz is a hits-based business. A best-selling product can reverse a company’s fortunes quickly, as Motorola has seen first with its popular StarTAC, and then with the Razr line of devices.

Since Motorola has bet the farm on Android, technologists and investors would have lost a whole lot more confidence in the company’s ability to manage a turnaround if it blew this launch. There was so much at stake with Droid that they had to nail it, or come close to nailing it.

At today’s unveiling at the W Hotel in New York City, Verizon Wireless Chief Marketing Officer John Stratton went out of his way to pump up the fallen icon. “This is a new Motorola,” said Stratton. “We took a chance, some would say a big risk at this early stage in their turnaround. But I am delighted at the level and quality of work. We will continue to work with Motorola.”

Motorola co-chief executive Sanjay Jha, who seemed nervous at first, grew more comfortable as the event wore on and the media got their hands on the devices. Next year, Jha said Motorola would release at least 20 Android-based handsets. The strategy, he said, is to offer more smartphones for the lower end of the market, as well as selling more devices around the world. “Android is evolving faster than any other platform,” said Jha.

For now, though, Jha was all about the Droid, claiming it was the world’s best current smartphone.

Stratton agreed wit Jha’s assessment, arguing that the Droid could “compete head to head” with the Apple iPhone. But he acknowledged that consumers would be the ultimate judge. “The market will tell us how well we did,” said Stratton.

Verizon Still Wants the iPhone (Despite those Droid Ads)

Despite a recent slew of negative ads dissing the Apple iPhone in support of Verizon’s new Android-based device, Verizon chairman and CEO Ivan G. Seidenberg told investors on its earnings call today that the company still covets the iPhone.

“This is a decision that is exclusively in Apple’s court,” said Seidenberg. “We obviously would be interested in any point in the future they thought it would make sense for them to have us as a partner. And so we’ll leave it with them on that score.”

This statement jives with my feeling that Verizon’s embrace of the Google Android operating system is just as much a negotiating tactic as a hedge against the iPhone.

Without the iPhone, a game-changing devices that is the world’s single hottest smart phone, Verizon is pursuing a sort of spread-your-bets strategy in which they offer a whole range of new devices, including most importantly a series of Blackberry handsets.

For example, Verizon this week is launching the Storm 2, an updated version of the first touchscreen Blackberry, which is getting much better reviews than the first one. And the Motorola Droid, a super-thin phone that uses Google’s Android operating system, will be unveiled on Wednesday.

“We have expanded our base of other devices,” explained Seidenberg. “So our view is to broaden the base of choice for customers and hopefully along the way, Apple as well as others will decide to jump on the bandwagon.”

A Chat with FCC Chief Genachowski

A Chat with FCC Chief Genachowski
FCC Chairman Julius Genachowski on broadband access, net neutrality, a spectrum gap, innovation, competition, and consumer empowerment

A day after the Federal Communications Commission voted to explore new rules to prevent Internet service providers from blocking certain services and content, the agency’s chairman, Julius Genachowski, stopped by BusinessWeek’s offices to discuss regulations for an open Internet as well as other media, telecom, and technology issues. A final decision on so-called net neutrality regulations isn’t expected for months.

But the unanimous FCC vote on Oct. 22 is a significant early victory for Genachowski in what is a major—and controversial—policy priority for the chairman, who has been on the job for just three months. Below are edited excerpts from Genachowski’s conversation with BusinessWeek staff members, compiled by senior writer Tom Lowry.

Q: You support a sweeping plan to make broadband more accessible in this country, an initiative that will require lots of private investment. At the same time, new regulations for a neutral Internet will certainly antagonize many of the companies that will be needed to make those investments. How do you reconcile that?
A: First of all, we are not regulating the Internet. What we did yesterday was launch a rule-making process where over the months ahead, we will be getting a lot of public input on what are fair, common-sense rules of the road to ensure that any small business, any entrepreneur, any speaker engaging in a lawful activity can have access to the Internet and the ability to reach an audience.

Q: When talking about net neutrality, is it a good idea to allow companies to charge more for better services on the Internet?
A: We need to make sure that our rules allow for business-model experimentation. Who knows exactly at this point how that will work? We want to make sure what we do welcomes technological changes, because the last thing we want to do is freeze anything in place.

Click here to read the rest of the interview.

Does Microsoft Have its Mojo Back?

Here is a clip of my appearance on CNBC Power Lunch today in which I hash over the state of Microsoft with CNBC anchors Dennis Kneale and Sue Herrera and VC-basher Paul Kedrosky.

We had a spirited debate and came to a consensus that Windows 7 is reviving the Microsoft franchise. I also think investors are starting to give Microsoft some credit for the recent progress the company has been making in the Internet ad business. However, Kedrosky is less bullish on that, and said he does not like the Bing story.

I couldn’t disagree more. If Microsoft is able to continue to gain market share on Google in the Internet search business that would be a major advancement for the company that would really help lift the stock out of the sideways trading pattern its been stuck in the last nine years.

New Memoir from Computer Visionary and DEC Cofounder Harlan Anderson

Digital Equipment Corp. cofounder Harlan Anderson, who just turned 80 this month, is publishing his memoirs next month, reports Scott Kirsner in this column.

The book is called Learn, Earn & Return: My Life as a Computer Pioneer, and is being published by Locust Press. And Anderson has also started blogging recently.

(The photo above is of Anderson’s “Employee #2″ badge from DEC, which appears on the book’s cover.)

In the book, Anderson writes for the first time about his experiences at DEC during the company’s initial decade, and the events that led to his leaving in 1966 — the same year that DEC became one of the most profitable initial public offerings in Wall Street’s history. Anderson is candid about his relationship with DEC co-founder Ken Olsen: and later, how Olsen’s autocratic leadership style alienated some of the company’s most talented engineers, and ultimately contributed to Anderson’s departure.

He also discusses how American Research and Development, the venture capital firm run by Georges Doriot, financed this groundbreaking startup.

When Digital first took money from American Research & Development, Anderson writes that ARD invested $70,000 for seventy percent of the company. “This deal seems ridiculous and unfair by today’s standards; however, we never contacted an alternative source of capital,” Anderson writes. “We were very naïve and there was very little venture capital money available then. We accepted the offer without any negotiation.” (In the photo is Anderson, sitting in front of Digital’s PDP-6 computer, with Georges Doriot, the founder of ARD.)

Congrats Harlan!

Required Tech Reading: Mary Meeker’s 2009 Web 2.0 Presentation

On Oct. 20 Morgan Stanley analyst Mary Meeker delivered her annual “Economy + Internet Trends” report. For techies, this is required reading, so I am posting an embed of the report on this blog.

Among the most important takeaways:
* The Tech Sector is a Growing Part of the Global Economy
* Ad Spending Should Grow in 2010
* Mobile Internet Usage Will be Bigger Than Most Think
* Apple Mobile Share Should Surprise on the Upside Near-Term
* Mobile Internet Outpaces Desktop Internet Adoption!
* Facebook is the Largest Share Gainer of Online Usage Over Past 3 Years

Mary Meeker’s Internet Presentation 2009

Regulating Venture Capital: Off the Hook Now But “Very Far From the Finish Line”

Earlier this year, Silicon Valley freaked out when U.S. Treasury Secretary Timothy Geithner told Congress that large venture capital firms should be declared as systemic risks and put under tight restrictions as part of the broader re-regulation of financial firms.

Such regulations would force VCs to register with the Securities and Exchange Commission, and submit regular reports on their investors and portfolios, costing firms up to $1 million. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren’t “a threat to financial stability.”

But techies breathed a sigh of relief earlier this month when Financial Services Chairman Barney Frank proposed draft legislation rejecting the Treasury plan, carving out an exemption for VCs from the “Private Fund Investment Advisers Registration Act of 2009.” (see draft below)

That was good news for innovation. VCs do not pose a systemic risk to the economy, as Gordon Crovitz pointed out in this astute column in the Wall Street Journal. The venture capital industry is small compared to other capital markets. VCs do not use debt, so that sharply limits their risk. And they are not tightly interconnected with other financial firms, like AIG or Lehman Brothers.

But they do represent an incredibly important part of the economy that helps generate significant wealth and job creation–a unique economic pillar the Treasury Dept. should be strengthening, not weakening.

But National Venture Capital Association President Mark Heesen says the VC industry is not out of the woods yet. “We are very far from the finish line, but in a better place than many expected at this point,” Heesen wrote me in an email. “There is still no House or Senate bill, but House Chairman Frank’s comments certainly are encouraging.”

Financial reform hinges on, you guessed it, the passage of health care reform. “Many Senators sit on both Committees of jurisdiction so can’t focus of financial reform until they see how health care proceeds,” added Heesen.

To make sure VC regulation does not reappear in future versions of financial reform legislation, Heesen says the NVCA is continuing to work with the Administration and members of the House and Senate “to make certain Venture capitalists do not have to register under the 40 Act while giving the government the assurances they need to understand we do not pose a systemic risk to the economy.”

Discussion Draft of the Private Fund Investment Advisors Registration Act

Take This Microsoft! Apple Upgrades Mac Computers

Check out the Apple scoop from my colleague Arik Hesseldahl, who received an early briefing on their slew of new products.

Preemptive Strike? Apple Upgrades Mac Computers
The Mac laptop and desktop lineups receive a significant upgrade from Apple as Microsoft prepares to introduce Windows 7

By Arik Hesseldahl

Days before archrival Microsoft is set to release the next major version of its flagship computer operating system Windows, Apple unveiled a significant upgrade to its consumer personal computer lines, including a redesigned entry-level laptop and a desktop machine sporting a huge display. The product announcement comes a day after Apple’s earnings report.

Chief among the new releases Oct. 20 is the MacBook, Apple’s $999 entry-level laptop usually aimed at students and first-time Mac buyers. The new machine still sports a polycarbonate shell but now it’s cut from a single piece of material and has rounded edges. And like the higher-end MacBook Pro, the new MacBook also boasts a long-life battery that lasts seven hours and a light-emitting-diode (LED) display.

Apple also updated its consumer desktop lines, including the iMac and the Mac Mini, and added an entry-level server built into a body similar to that of the Mac Mini. The server, for running computer networks and corporate Web sites, is aimed at small businesses and certain high-end consumers.

See the full story and video here.

New Amazon Review: “Creative Capital is a Must Read If You’re In Business Today”

Check out a new customer review of Creative Capital, just published on Amazon.com.

Creative Capital is a Must Read If You’re In Business Today
By Carole Gunst “loves to read” (Boston, MA)

Spencer Ante has done a wonderful job writing the life story of General Georges Doriot, respected Harvard Business School professor, military general, and the father of venture capital. I had the good fortune to hear Spencer, who also writes on business for Business Week magazine, speak about Doriot’s story at the French Library in Boston before I started reading the book. His stories about the man who was so influential for U.S. business were fascinating. Here are a few of Doriot’s quotes that he pulled from the book to share with us:

* “A real courageous man is a man who does something when no one is watching him.”
* “If information is to be exchanged over whiskey, let us get rather than give it.”
* “You will get no where if you do not inspire people.”
* “Always remember that someone somewhere is making a product that wil make your product obsolete.”

From the stories about Doriot’s early introduction to entrepreneurship as the son of a Peugot engineer, to Doriot’s entry into Harvard Business School, to the importance he played with R&D during World War II which taught him how to become a venture capitalist to the part he played in the starting up of Digital Equipment Corporation, this book remains fascinating.

If you are in business today or would like to be, this is a must read from a great writer about a visionary business thinker. I think you’ll agree that Doriot really pioneered the transition of U.S. business to an economy built on entrepreneurship an innovation.