Tablet Mania: Why The Tech Industry Thinks Their Time Has Finally Come

Here’s a story I wrote that gives some perspective on the long and mostly disappointing history of tablet computing.

The Next Big Thing, 20 Years Later
The tech industry thinks the time is right for tablets, thanks to lower prices and friendlier features

By Spencer E. Ante

If there was a land of misfit gadgets, the tablet computer would be one of its oldest residents. The tech industry, though, refuses to give up on these slate-like portable PCs. Tablets from Hewlett-Packard, Dell, and others were some of the stars at this month’s Consumer Electronics Show in Las Vegas, while the buzz around Apple’s long-awaited entry into the market, due out this spring, is already deafening. “The industry understands better how people can use tablets,” says Roger Kay, president of Endpoint Technologies Associates.

Yet PC makers have been trying to sell consumers on the utility of tablets for decades—with little success. In 2001, Microsoft Chairman Bill Gates predicted that tablets would be the most popular form of PC sold in the U.S. within five years; in 2009, they made up less than 1% of the market, according to estimates from research firm IDC.

The first generation was doomed by a combination of big price tags, short battery life, and clunky interfaces. Tablets’ capabilities have since evolved, as have the tastes of consumers. Portability is paramount, and the latest crop are lighter, boast longer battery life, and better screen technology. Software is more sophisticated, too, and Web connections have improved. “The timing is right for this,” says Philip McKinney, vice-president and chief technology officer of HP’s Personal Systems Group. “We wouldn’t go into a market that we felt wasn’t going to be widely adopted.”

Read the rest of the Bloomberg BusinessWeek story here.

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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.

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.

Windows Mobile 6.5: Not So Hot

Check out this review and video of Microsoft’s new mobile operating system from our gadget guru Stephen H. Wildstrom

Windows Mobile 6.5: Call It ‘Windows Immobile’
Microsoft’s upgraded smartphone software shows improvement, but doesn’t even come close to challenging Apple’s iPhone

By Stephen H. Wildstrom

The last time Microsoft delivered a major upgrade to its smartphone software, Windows Mobile 6, in early 2007, Apple’s iPhone was still five months out on the horizon. You can tell how radically Apple changed expectations about smartphones if you pick up any Windows Mobile handset today. The software seems positively quaint.

On Oct. 6, Microsoft released a significant upgrade, Windows Mobile 6.5, on HTC handsets from AT&T and Verizon Wireless. Unfortunately the results fall far short of what Microsoft requires to get back into the top tier of mobile communications. And it won’t get another shot until version 7.0, a complete overhaul that should appear in late 2010.

Windows Mobile 6.5 sports a new screen design that eliminates just about all vestiges of the Windows desktop interface. In its place is a home screen inspired by Microsoft’s latest Zune media player and an iPhone-like grid of applications.

These changes help, but they don’t go far enough. The biggest problem with the design is that it has to work on a broad range of handsets. There are WinMo phones with touchscreens and physical keyboards, such as the European version of the HTC Touch pro2, which I used to test the software. There are also handsets with keyboards and no touchscreens, and those with touchscreens and no keyboards.

Read the rest of the story here.

Mint.com: A Vindication of the Super-Angel VCs

Check out this follow-up story to the feature I wrote on super-angels back in May.

Mint.com: Nurtured by Super-Angel VCs
Intuit is acquiring a startup conceived by a “25-year-old kid” and funded by First Round Capital, a new breed of high-risk, early-stage venture capitalists

By Spencer E. Ante

Intuit’s purchase of Mint.com was a big win for Mint CEO Aaron Patzer and the rest of the 38-person staff he assembled to run the personal finance Web site. Yet the $170 million acquisition also vindicated a new breed of early-stage investor that is betting aggressively on startups while big-name venture capital firms conserve capital and shy away from risk. These so-called super angels are trying to reinvigorate venture capital by taking it back to its roots, when firms were smaller, nimbler, and more adept at helping to build companies from the ground up.

Mint.com owes much of its success to one such investor, First Round Capital, which opted to back the fledgling company at a time when other VCs demurred. Indeed, the Mint.com acquisition is First Round Capital’s largest exit, beating out the $100 million sale of portfolio company Powerset to Microsoft (MSFT). And although First Round Capital would not quantify the return on its investment, co-founder Josh Kopelman says the Mint.com deal generated the highest return of any deal the firm has done. Previously its best return came when eBay (EBAY) acquired StumbleUpon for $75 million, which generated more than 14 times First Round Capital’s original investment. “I don’t think this changes our strategy,” Kopelman says. “It is continued validation for our approach.”

Read the rest of my BusinessWeek story here.

New Sheriff in Town: Exclusive with Obama Trustbuster Christine Varney

Check out my BusinessWeek story, based on the first extensive interview with the Obama Administration’s new head of antitrust enforcement, Christine A. Varney. Techies haven’t quite come to grips with the fact that there are new sheriffs in town. Big changes are coming with the way this and other industries are regulated, as you can see with the reaction to the Microsoft-Yahoo search deal and the FCC action on Apple. Read on.

The Antitrust Cop and the Tech Industry
Christine Varney aims to reinvigorate antitrust policy without stifling U.S. business, but Google and Intel could be among her targets

By Spencer E. Ante

Christine A. Varney, the nation’s top antitrust cop, is trying to pull off a delicate balancing act. She wants to reinvigorate antitrust policy after the laissez-faire years of the Bush Administration. Yet she also wants to avoid interfering with companies that compete vigorously but fairly. “This job is making sure the competitive marketplace is free from obstacles and barriers,” says Varney, whose official title is Assistant Attorney General at the Justice Dept. “We are thinking a lot about where bottlenecks might be in certain industries. If we can break through them it would be good for consumers.”

In her first extensive interview since taking office in April, Varney described an antitrust philosophy that is clearly more aggressive than in the recent past yet also less ideological than many businesspeople may expect. Varney says her goal is to bring antitrust law back to its historical center, not simply to go after giants because of their size. “We are not anti-big in any way, shape, or form,” says Varney, a former Federal Trade Commissioner who spent the past 12 years representing corporations as a partner at the Washington law firm Hogan & Hartson. “But with enormous success comes responsibility.”

Varney says the Justice Dept. will be taking a look at a range of industries including transportation and technology. Antitrust officials have also opened inquiries in agriculture, financial services, telecom, and health care, say sources familiar with the Justice Dept.’s activities.

Check out the rest of the story here.

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.

Google: A Healthy Respect Towards Microsoft

The latest news out of Sun Valley, reported by the Wall Street journal’s Julia Angwin, is that Google CEO Eric Schmidt was cool to the idea of building its Chrome Web browser. Schmidt, a veteran of several wars with Microsoft, resisted the project for six years before a demo of the browser changed his mind.

This minor revelation says a lot about Google, I believe, and reflects a new more healthy attitude towards Microsoft–and perhaps a sign of maturity for Silicon Valley. Ever since Microsoft took over the market for PC operating systems and business software, Silicon Valley companies have generally assumed one of two positions towards Microsoft: abject fear (as evidenced by any startup) or loathsome obsession with taking it down (best embodied by Sun Microsystems’s former CEO Scott McNealy).

Schmidt’s position on Chrome reflects a new attitude toward the Redmond giant that I would characterize as healthy respect. Schmidt did not want to rush into a fight with Microsoft over the browser because he knew, having lost many battles with Microsoft as an executive at Sun and Novell, that it was an unwise and potentially distracting move for the company.

“At the time, Google was a small company,” Mr. Schmidt said. “Having come through the bruising browser wars, I didn’t want to do that again.”

Since then, Google has gotten much much bigger and much more powerful. The Chrome project, both the browser and the operating system, has evolved to a point where it was good enough to fight for consumer’s attention in the marketplace. And Microsoft, though it remains arguably the most powerful tech company in terms of its financial heft, is no longer the pole star around which the entire technology universe revolves.

Even so, Schmidt is still wide enough to not pull a McNealy and stick a finger in Microsoft’s eye, antagonizing the giant and attracting more attention from regulators poking around its business. Schmidt and Google cofounder Page, says Angwin, were careful not to position Chrome as a competitor to Microsoft Windows. They argued that Chrome will expand the market for netbooks, rather than eating into Windows’ share of the netbook market.

I doubt they really believe that. But it’s a much smarter move to play down expectations of this effort.

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Can Oracle Make a Success of Sun?

I don’t know about you but I was pretty surprised when Oracle announced its intention to buy Sun Microsystems. It’s not just the thought that Sun’s business has been suffering from a slow and steady decline. It’s also the fact that Oracle has NEVER been in the hardware business. It’s a fairly radical move for a stand-alone software company to make a big bet on hardware. Most tech companies are moving in the opposite direction, dumping hardware assets and bulking up in software and services, a la IBM and Hewlett Packard.

But the more I think about it, the more this deal could actually make sense. For one, Sun is a software company, and many of its most valuable assets are in software. Namely, the Java programming language and the Solaris operating system. Moreover, by buying Sun, Oracle scoops up the number one rival in its core database business–open source database provider MySQL. This shrewd counter-attack alone may justify the price of the deal. Lastly, with Java under its wing, Oracle gets more leverage over IBM, which over the years has made a big investment in Java to counter Microsoft, and can offer more integrated technology solutions to its customers.

Still, Oracle has to overcome three main challenges to make this deal a success, as my colleague Aaron Ricadela noted in his story today. One, Oracle has got to find a way to wring more money out of Java without alienating its customer base. Two, Oracle needs to prove it can run a hardware business. Three, it has to do some pretty nifty financial engineering, including a massive layoff of more than 10,000 people, to make the numbers work over the long term.

As one top tech CEO told us recently, Sun will be an accretive deal for the first 18 to 24 months, thanks to the cost cuts that can be made. But the real challenge will come after when those gains run out, and the server business continues to decline.

Come See Me Speak at Stanford Next Friday

A quick speaking update: I have been invited to moderate a panel at the Stanford Global Technology Symposium on Friday March 27. The event will be held at the Arrillaga Alumi Center on the Stanford campus. This year’s theme couldn’t be more timely “Entrepreneurship and Investment in a Turbulent Economy.”

T. Boone Pickens, Facebook COO Sheryl Sandberg and venture capitalist Steve Jurvetson are giving keynote addresses or fireside chats.

We’ve got a great panel. The topic is corporate venture capital and we’ve lined up top executives from IBM (Claudia Fan Munce), Microsoft (Dan’l Lewin) and Google (David Lawee) to participate. My panel is from 3pm – 4pm.

Please come and say hello. I may be selling books afterwards.