Dark Side Arises for Phone Apps

Dark Side Arises for Phone Apps
Security Concerns Prompt Warnings

By SPENCER E. ANTE

As smartphones and the applications that run on them take off, businesses and consumers are beginning to confront a budding dark side of the wireless Web.

Online stores run by Apple Inc., Google Inc. and others now offer more than 250,000 applications such as games and financial tools. The apps have been a key selling point for devices like Apple’s iPhone. But concerns are growing among security researchers and government officials that efforts to keep out malicious software aren’t keeping up with the apps craze.

In one incident, Google pulled dozens of unauthorized mobile-banking apps from its Android Market in December. The apps, priced at $1.50, were made by a developer named “09Droid” and claimed to offer access to accounts at many of the world’s banks. Google said it pulled the apps because they violated its trademark policy.

The apps were more useless than malicious, but could have been updated to capture customers’ banking credentials, said John Hering, chief executive of Lookout, a mobile security provider. “It is becoming easier for the bad guys to use the app stores,” Mr. Hering said.

Unlike Apple or BlackBerry maker Research In Motion Ltd., Google doesn’t have employees dedicated to vetting applications submitted to its Android store. Google said it removes apps that violate its policies, but largely relies on users to alert it to bad software. “We check reactively,” said a Google spokesman. “There is no manual bottleneck.”

As more companies, governments and consumers use wireless gadgets to conduct commerce and share private information, computer bad guys are beginning to target them, according to government officials and security researchers.

Read the rest of the story here.

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Google Angels Spread Their Wings

Apologies for not posting that much lately. I’ve been swamped with work. However, I am coming up for air and have a really cool project to share with you all. It’s sort of an angel investing extravaganza.

The heart of the package is a feature story and a super-duper two-page info-graphic detailing the ascendance of the Google angel investors–all of the wealthy folks such as Aydin Senkut, Chris Sacca and Andrea Zurek who have come out of Google and are seeding the next wave of tech innovation. Silicon Valley has always been fueled by angel investors coming out of successful startups, but the Google alumni network is the most powerful network the Valley has ever seen, I believe. Check out the story here, written by myself and Kimberly Weisul.

We’ve also compiled a ranking of the most powerful angels in all of tech investing through a partnership with private company researcher YouNoodle. Angel investors are playing an increasingly important role in the economy so I am stoked we are first to market with this kind of list. In case you are wondering, the top three in our ranking our Chris Dixon, Ron Conway and Reid Hoffman.

Last but not least, we’ve got an email interview with Peter Thiel, the godfather of the other prominent Valley network, the PayPal Mafia.

Bloomberg BusinessWeek Exclusive: Content-Search Deals Make Twitter Profitable

Content-Search Deals Make Twitter Profitable
Data-mining deals signed in October will bring in $25 million in exchange for rendering Twitter’s tweets searchable on Google and Microsoft Bing

By Spencer E. Ante

Twitter is ending 2009 on a high note. The microblogging site has reached profitability after inking $25 million of deals that make its content searchable by Google (GOOG) and Microsoft (MSFT), Bloomberg BusinessWeek has learned.

In October, Twitter said it had struck multiyear arrangements that make users’ short blog postings available on Google.com and on Bing, which is run by Microsoft. Those agreements carry sufficient value to help Twitter achieve a small profit for 2009, say two people familiar with the company’s finances, who asked to remain anonymous because Twitter’s books are not a matter of public record.

Like many social media startups, three-year-old Twitter focused early on adding subscribers rather than generating revenue. That’s left many analysts and investors wondering how and whether the company—often cited as a candidate for an initial public offering or acquisition—would make money. Twitter co-founder Biz Stone declined to comment on the company’s finances, but wrote in an e-mail that the company is proud of the work it accomplished in 2009. “We’re thrilled about the partnerships we’ve formed this year and we’re looking forward to opening Twitter even more in the future,” Stone wrote.

In exchange for making short blogs, known as tweets, searchable on Google, Twitter will receive about $15 million, the two people say, adding that the Microsoft partnership is worth about $10 million. “The deals were huge,” says one. “With two scoops of the pen, a lot of revenue came in.”

Read the rest of the story here.

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.

Why Dell Chose Google Over Microsoft for its New Cell Phone

Today, I appeared on CNBC’s Power Lunch to discuss the news reports that Dell is teaming up with Google’s Android mobile operating system to release a smart phone in early 2010.

Check out the video segment here where I mix it up with host Dennis Kneale.

Will Google’s Wave Replace E-Mail—and Facebook?

I am back from Cali. Here’s a great story on Google wave from my colleague Olga Kharif.

Will Google’s Wave Replace E-Mail—and Facebook?
That’s how big Google’s vision is for its Wave social-networking/search service, which will have apps created by independent developers who sell them at a Google app store
By Olga Kharif

Google has big plans for Google Wave, its new online communication service—and they won’t all come from Google.

The Web search giant is hoping that software developers far and wide will create tools that work in conjunction with Wave, making an already multifaceted service even more useful. Google (GOOG) is even likely to let programmers sell their applications through an online bazaar akin to Apple’s App Store, the online marketplace for games and other applications designed for the iPhone. “We’ll almost certainly build a store,” Lars Rasmussen, the Google software engineering manager who directs the 60-person team in Sydney, Australia, that created Wave, told BusinessWeek.com. “So many developers have asked us to build a marketplace—and we might do a revenue-sharing arrangement.”

Combining instant messaging, e-mail, and real-time collaboration, Wave is an early form of so-called real-time communication designed to make it easier for people to work together or interact socially over the Internet. Google started letting developers tinker with Wave at midyear and then introduced the tool on a trial basis to about 100,000 invited users starting on Sept. 30. Invitations were such a hot commodity that they were being sold on eBay (EBAY). For Google the hope is that Wave, once it’s more widely available, will replace competing communications services such as e-mail, instant messaging, and possibly even social networks such as Facebook.

Read the rest of the story here.

Correction to Mint.com Story; Shout-out to Felicis Ventures

I made a boo-boo on the recent Mint.com I wrote for BW. Turns out that Baseline Ventures did not invest in Mint.com. Ron Conway personally invested in the company as he was forming Baseline. However, Conway is no longer part of Baseline, Conway tells me via email. Over the summer, he started a sister investment firm called SV Angel LLC.

Credit to Aydin Senkut of Felicis Ventures for pointing out the error. Senkut says the organizer of STIRR, the networking event for entrepreneurs where Mint.com founder Aaron Patzer met First Round Capital co-founder Josh Kopelman, also referred Senkut to the deal after Senkut introduced Patzer to Conway and Paul Buchheit.

Buchheit is a rising star in the Valley, having coded Gmail as the 23rd employee of Google, coining Google’s “Don’t be evil” motto, and then co-founding social network aggregator FriendFeed, along with three other former Google employees. In August, Facebook acquired FriendFeed.

In other news, Senkut tells me that things are also going swimmingly well for this new firm. “Mint is my fifth exit in less than 4 years, allowing me to have a positive annualized IRR that’s right below the second highest in Cambridge Associates venture return study in 2008 (my firm was not included but it’s comparable),” writes Senkut. Way to go Aydin!

Opening the Wireless Internet: The Importance of Carterfone

Federal Communications Commission chairman Julius Genachowski has come out swinging. You have to applaud his boldness. In the FCC’s first major inquiry since Genachowski took over the agency on June 29, the FCC has launched an inquiry into AT&T Inc. and Apple Inc. over the rejection of Google’s voice application for the Apple iPhone and App store.

On Friday, the FCC sent letters to executives at Apple, Google and AT&T, which is the exclusive carrier for the iPhone in the United States, saying it was “interested in a more complete understanding of this situation.”

The future of the wireless Web may be at stake. As Erick Schonfeld noted in a good TechCrunch post, there are two different Internets: the open landline Internet and the controlled wireless Internet. In the letter, the FCC’s acting Chief of its Wireless Telecommunications Bureau said that the inquiry was being made in conjunction with the FCC’s “ongoing proceedings regarding wireless open access and handset exclusivity.” In those inquiries, companies, including Skype, have asked the FCC to issue a declaratory ruling that the FCC’s so-called Carterfone rules apply to the wireless Internet.

In November of 2007, I wrote about Carterfone and the law professor, Columbia’s Tim Wu, who is trying to get the FCC to follow its landmark precedent requiring that communications networks remain open to any device or application. Wu is the professor who helped inspire Google to form its wireless strategy and petition the FCC to get it to force new wireless spectrum to follow rules of openness.

In February 2007, Wu published a paper in the International Journal of Communication proposing that the FCC apply the industry’s “Carterfone” rules to wireless.

It’s a fascinating case that carries huge implications for today. For decades, AT&T had prohibited consumers from attaching anything but its own phones to its network. In 1968, AT&T tried to bar the use of a “Carterfone”, which linked a mobile radio to a telephone.

But the FCC labeled AT&T’s move “unduly discriminatory” and allowed consumers the right to install devices of their choice. That decision enabled the creation of the fax machine and the Internet modem. Wu wrote: “The same rule for the wireless networks could…stimulate the development of new applications and free equipment designers to make the best phones possible.”

Now it looks AT&T could be getting embroiled in another historic shift. And history, and perhaps popular opinion, do not seem to be on their side once again. Decades ago Carterfone changed the future of communications. Today, Google Voice could stand for another watershed moment.

Microsoft-Yahoo: Antitrust Hurdles Loom

The Microsoft-Yahoo search deal is no slam dunk, when it comes to antitrust matters. Check out my BusinessWeek story, out this morning.

Microsoft-Yahoo: Antitrust Hurdles Loom
The weak Web search-ad companies want to team up against No. 1 Google, but regulatory tradition and practice have long blocked such deals
By Spencer E. Ante

Don’t expect the Microsoft-Yahoo search deal to sail through a regulatory review. Sure, it’s tempting to think Justice Dept. officials won’t quibble much over a deal aimed at helping two struggling companies get a leg up against a market-leading competitor. That’s essentially the line taken by executives at Microsoft (MSFT) and Yahoo! (YHOO) to explain why their 10-year pact shouldn’t be held up by an antitrust review.

But legal experts say the deal is no slam dunk—especially with a new team of regulators in Washington eager to flex their antitrust muscles. Some lawyers and former regulators say the deal may even be quashed, or at least be subjected to revisions, before getting a green light. “Microsoft and Yahoo have a tough battle on their hands with the antitrust regulators,” says David Balto, former policy director of the Bureau of Competition at the Federal Trade Commission under the Clinton Administration. “We don’t want markets to become concentrated. It is like prescribing ice cream for someone who is overweight.”

The agreement is also likely to draw attention from European Union regulators who in recent years have been more aggressive than their U.S. counterparts in scrutinizing mergers and joint ventures. Google (GOOG) is the largest player in the search-ad market, with a 65% share. Together, Yahoo and Microsoft have about 28% of the market.

Under the pact outlined on July 29, Microsoft will provide the underlying search technology on Yahoo’s Web sites while Yahoo will take exclusive charge of search-related ads for both companies.

WALL STREET SEES “MATERIAL RISK”
Some legislators didn’t wait long before threatening to examine the deal closely. Senator Herbert Kohl (D-Wis.), who chairs the Senate antitrust subcommittee, said that the deal “warrants our careful scrutiny,” in a July 29 statement. “Our subcommittee is concerned about competition issues in these markets because of the potentially far-reaching consequences for consumers and advertisers and our concern about dampening the innovation we have come to expect from a competitive high-tech industry.”

Some Wall Street analysts are also sounding alarm bells. “We believe government approval is doable, but we continue to believe there is a material risk that the deal would be blocked or conditioned,” wrote Rebecca Arbogast, analyst with Stifel, Nicolaus (SF).

Microsoft and Yahoo are up against decades of antitrust policy and law that have rarely if ever allowed combinations of the No. 2 and No. 3 players in a given market. To win approval the companies will need to prove that eliminating one top player in the search-ad market will enhance competition and thereby benefit consumers and innovation. “The obvious fear of the antitrust guys is that instead of strengthening the runner-up, it reduces competition between No. 2 and No. 3, and that lessens competition,” says Lawrence J. White, a professor of economics at New York University who served as director of the Economic Policy Office of the Justice Dept.’s Antitrust Div.

Read the rest of the BusinessWeek story here, along with a video of me discussing the story with Peter Elstrom.