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Article from NYTimes.

MENLO PARK, Calif. — New York, London and Hong Kong are common addresses for blue-chip multinationals. Now Silicon Valley is, too.

From downtown San Francisco to Palo Alto, companies like American Express and Ford are opening offices and investing millions of dollars in local start-ups. This year, American Express opened a venture capital office in Facebook’s old headquarters in downtown Palo Alto. Less than three miles away, General Motors’ research lab houses full-time investment professionals, recent transplants from Detroit.

“American Express is a 162-year-old company, and this is a moment of transformation,” said Harshul Sanghi, a managing partner at American Express Ventures, the venture capital arm of the financial company. “We’re here to be a part of the fabric of innovation.”

The companies are raising their profiles in Silicon Valley at a shaky time for the broader venture capital industry. While top players like Andreessen Horowitz and Accel Partners have grown bigger, most venture capital firms are struggling with anemic returns.

The market for start-ups has also dimmed, in the wake of the sharp stock declines of Facebook, Zynga and Groupon, the once high-flying threesome that was supposed to lead the next Internet boom.

But unlike traditional venture capitalists, multinationals are less interested in profits. They are here to buy innovation — or at least get a peek at the next wave of emerging technologies.

In August, Starbucks invested $25 million in Square, the mobile payments company based in San Francisco, which will be used in the coffee chain’s stores. This year, Citi Ventures, a unit of Citigroup, invested in Plastic Jungle, an online exchange for gift cards, and Jumio, an online credit card scanner.

Banco Bilbao Vizcaya Argentaria, the large Spanish banking group, opened an office in San Francisco last year. The team, which has about $100 million to fund local start-ups, is looking for consumer applications that will help the bank create new businesses and better understand its customers.

“We are in one of the most regulated and risk-averse industries in the world, so innovation doesn’t come naturally to us,” said Jay Reinemann, the head of the BBVA office. “We want to avoid the video-rental model. We want to evolve alongside our consumers.”

The companies are hoping to tap into the entrepreneurial mind-set. Multinationals, with their huge payrolls and sprawling operations, are not as nimble as the younger upstarts. While they are rich in resources, big companies tend to be more gun-shy and usually require more time to bring a product to market.

“Companies cannot innovate as fast as start-ups; increasingly they realize they have to look outside,” said Gerald Brady, a managing director at Silicon Valley Bank, who previously led the early-stage venture arm of Siemens. “We think it’s happening a lot more than people recognize or acknowledge.”

Of the 750 corporate venture units, roughly 200 were established in the last two years, according to Global Corporate Venturing, a publication that tracks the market. In the last year, corporations participated in more than $20 billion of start-up investments.

Big business has played the role of venture capitalist before, with limited success. During the waning days of the dot-com boom, financial, media and telecommunications companies sank billions of dollars into start-ups.

The collapse was devastating. Although some managed to make money, far more burned through their cash. In 2002, Accenture, the consulting firm, scrapped its venture capital unit after taking more than $200 million in write-downs. The previous year, Wells Fargo reported $1.6 billion in losses on its venture capital investments. Dell, the computer maker, closed its venture arm in 2004 and sold its portfolio to an investment firm. (It resurrected the unit last year).

Companies say they are taking a different approach this time. Rather than making big bets across the Internet sector, investments are smaller and more selective.

“We invest with the idea that we’re a potential customer for a company,” Jon Lauckner, G.M.’s chief technology officer said. “We’re not looking to make several $5 million investments and make $10 million on each. That would be nice, but it’s not important.”

As they try to find the right start-ups, some are forging tight bonds with local firms. BBVA, for example, is an investor in 500 Startups, a venture firm that specializes in early-stage start-ups and is run by Dave McClure, a former PayPal executive.

Unilever and PepsiCo are limited partners in Physic Ventures, a venture capital firm designed to help corporate investors build commercial partnerships with portfolio companies. Both Unilever and PepsiCo have installed full-time employees in Physic’s downtown San Francisco offices.

American Express has stacked its investment team with technology veterans. Mr. Sanghi, the head of the office, has spent roughly three decades in Silicon Valley and formerly led Motorola Mobility’s venture arm. Through its network of relationships, the office has met with roughly 300 start-ups in the last six months.

The connections have started to pay off. Vinod Khosla, the head of Khosla Ventures and a co-founder of Sun Microsystems, introduced the American Express team to the executives at Ness Computing, a mobile start-up. In August, American Express partnered with Singtel, the Singapore wireless company, to invest $15 million in Ness.

Mr. Sanghi says Ness is a logical investment and a potential partner. The start-up’s application connects users to local businesses through customized search results.

“It’s trying to bring consumers and merchants together in meaningful ways,” he said. “And we’re always trying to find new ways to build value for our merchant and consumer network.”

For start-ups, a big corporate benefactor can bring resources and an established platform to promote and distribute products. Envia Systems, an electric car battery maker, picked General Motors to lead its last financing round because it wanted to have a close relationship with a major automaker, its “absolute end customer,” said Atul Kapadia, Envia’s chief executive.

Although the company received higher offers from other potential corporate investors, Envia wanted G.M.’s advice on how to build the battery so that one day it could be a standard in the company’s electric cars. After the investment, G.M. offered the start-up access to its experts and facilities in Detroit, which Envia is using.

“You want to listen to your end customer because they will help you figure out what specifications you need to get into the final product,” said Mr. Kapadia.

A marriage with corporate investors can be complicated. Besides G.M., Asahi Kasei and Asahi Glass, the Japanese auto-part makers, are also investors in Envia. They both build rival battery products for Japanese car companies.

Mr. Kapadia, who prizes their insights into Japan’s market, says his company is careful about what intellectual property information it shares with its investors. At board meetings, confidential data about Envia’s customers is discussed only at the end, so that conflicted corporate investors can easily excuse themselves.

“In our marriage, there has not been a single ethics concern, because all the expectations were hashed out in the beginning,” Mr. Kapadia said. “But I can see how this could be a land mine.”

For the big corporations, start-up investing is fraught with the same risk as traditional venture investing. Their bets might be modest, but blowups can be embarrassing and can rankle shareholders, who may see venture investing as a distraction from the core business.

OnLive, an online gaming service, offers a recent reminder.

The company was once a darling of corporate investors, with financing from the likes of Time Warner, AutoDesk, HTC and AT&T. At one point, it was valued north of $1 billion.

Despite its early promise, the start-up crashed in August, taking many in Silicon Valley by surprise. The company laid off its employees, announced a reorganization and in the process slashed the value of the shares to zero.

“It can be painful when a deal goes sour,” James Mawson, the founder of Global Corporate Venturing, said.

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Article from GigaOm.

“Google’s Android operating system solidified its place at the top of the charts in the U.S. with 44 percent of the market, according to a pair of reports out today.

While Android’s momentum shows no sign of let-up and Apple continues to hold its own, both are applying pressure to Research in Motion, which is hemorrhaging OS market share and was overtaken in handset sales by Apple in the third quarter.

According to NPD, which measures consumer purchases, Android’s share of the U.S. smartphone market in the third quarter increased 11 percentage points from the previous quarter while Apple’s share grew by 1 percentage point to 23 percent. Research In Motion’s share continued to tumble, dropping from 28 percent to 22 percent.

U.K. research firm Canalys, which arrived at similar U.S. numbers for the OS market, said that Nokia remained the top smartphone manufacturer worldwide with a 33 percent share, down from 38 percent in the second quarter. Apple took second with 17 percent, up from 13 percent last quarter, while RIM followed with 15 percent, a slide from 18 percent in the second quarter.

The Canalys numbers reflect the latest quarterly sales numbers from Apple and RIM, showing Apple eclipsing RIM for the first time. Apple also moved into fourth place in global handset sales, passing over RIM in the process. RIM is still the top vendor in Latin America with about 40 percent of the market but its prospects are looking tough with pressure from Apple and particularly Android, which appears to be eating into its sales. NPD reported that the iPhone 4 was the top-selling phone in the U.S., followed by the BlackBerry Curve, LG Cosmos, Motorola Droid X � and HTC Evo 4G.

Nokia continues to hold the top spot in the five so-called BRIIC countries, Brazil, Russia, India, Indonesia and China, which bodes well for Nokia as those markets are growing 111 percent year-over-year, faster than the market overall which grew by 95 percent to 80.9 million shipped units. However Android, as my colleague Kevin has noted, could eat into Nokia’s share in places like India as it moves down market into cheaper smartphones.

That’s going to be a ongoing theme as smartphones work their way into more hands. The manufacturers and OS makers who can manage the growth in lower tier smartphones should enjoy a significant volume advantage. Nokia is already losing out on the lucrative high end of the market to Apple and is now facing the threat of Android outpacing sales in mid and lower-tier smartphones. Android shipments grew 1,309 percent year-over-year from 1.4 million units in the third quarter of 2009, according to Canalys, to more than 20 million units in the third quarter of this year, good enough for a quarter of the worldwide OS market.

Meanwhile, phones running a Windows operating system account for just 3 percent of the worldwide market, according to Canalysis. With Windows Phone 7 shipping this month, Microsoft will have to claw its way back to relevance. Microsoft’s tight control on handset interface customization and its high-end specifications could limit how vendors differentiate Windows Phone 7 devices and how well they sell down market, said Canalys.”

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Article from SF Gate.

“Pinger Inc., a San Jose developer of mobile applications, can get twice as much in sales from programs for Apple devices than for phones powered by Android software. That’s not stopping it from creating its first Android app.

“Even if the revenue generation might be less, we think it’s still going to be significant,” said Joe Sipher, chief product and marketing officer at Pinger, which makes text-messaging and other programs. “Our users are saying, ‘Gosh, I switched to an Android phone. Can you put your Textfree app on Android?’ ”

Pinger and other programmers don’t want to miss out on the $40 billion that Booz & Co. estimates will come from sales of apps by 2014, much of it from Google Inc.‘s Android platform. Android unseated Research In Motion Ltd.‘s mobile operating system as the top U.S. smart phone software last quarter, making developers more willing to put up with its drawbacks, including higher app-creation costs and an online marketplace some users consider harder to navigate than Apple’s App Store.

PopCap Games Inc., maker of the Bejeweled and Plants vs. Zombies games, doesn’t have any titles in the Android Market. But by mid-2011, the Seattle company expects to release games simultaneously for iPhone and Android handsets.

“Even though we are not making any money on Android right now, we have pretty high hopes for it,” said Andrew Stein, PopCap’s director of mobile business development. “There’s really no reason why users shouldn’t consume and buy content to the same extent on an Android phone as they are on an iPhone.”

Android phones like Motorola Inc.’s Droid X and HTC Corp.’s Droid Incredible are gaining devotees. Stein expects the revenue generated from Android games to approach that of PopCap’s iPhone versions by the end of 2011.

Apple way ahead

A wide variety of apps – as well as the availability of the most popular ones for games, location, texting and content – is critical to luring phone buyers. Android lags behind Apple by that measure. Apple has more than 250,000 apps available, compared with about 70,000 for Android.

Like Apple, Google takes a 30 percent cut of revenue from apps sold in its marketplace.

“We want to reduce friction and remove the barriers that make it difficult for developers to make great apps available to users – across as many devices, geographies and carriers as possible,” said Randall Sarafa, a Google spokesman.

Google may be taking steps to remedy some of the problems that make Android apps less lucrative to developers.

Apple iTunes users can do one-click shopping because iTunes saves their information. While Android buyers can do the same if they sign up for Google Checkout, that service doesn’t have as many users.

Android Market also lacks features for in-app purchases, which some developers of Apple apps use to sell new game levels or virtual products, said Tim Chang, a venture capitalist at Norwest Venture Partners, whose investments includes Ngmoco of San Francisco, which makes games for the iPhone.

Google is in talks with eBay’s PayPal to add its payment service, three people familiar with the matter said last month. That may ease the process. Google may also offer tools that let developers sell subscriptions and virtual goods from within apps, Andy Rubin, Google’s vice president of engineering, said in June.

For now, producing programs for Android isn’t as lucrative. Loopt Inc., the maker of an app for locating your friends on a map, and Zecter Inc., which offers the ZumoDrive file storage service, said they make less from the sales of their Android apps than they do from their iPhone versions. Neither of the Mountain View companies would specify the difference.

Developers hesitant

“There’s no question Android has a lot more phones out than six months ago, but that’s very different from saying Android is a more appealing platform for developers,” said Sam Altman, chief executive officer at Loopt.

ZumoDrive makes money by getting people to download the free program and then upgrade to a paid version. Thirty percent more iPhone customers do that, said CEO David Zhao.

Besides generating fewer downloads of paid apps, fewer people click on ads in Android programs, according to data from Smaato Inc., a Redwood City mobile-ad firm. In July, the iPhone had a click-through score of 140 in the United States, compared with 103 for Android, Smaato said.

Plus, the market share Gartner Inc. measures for Android – 34 percent in the United States last quarter – doesn’t mean there are that many customers for apps, said Pinger’s Sipher. Some Android phones don’t have the ability to access Google’s app store and the proliferation of models means some programs won’t work on some phones.

App creators have to contend with various versions of Android and differences in screen resolution and keyboards. That makes it more expensive to test programs and can force developers to design for the lowest common denominator, said Bill Predmore, president of POP, which builds mobile applications and ads for such clients as Google, Microsoft Corp. and Target Corp.”

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/09/01/BU381F6GOA.DTL&type=tech#ixzz0yLeTxmEa

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Here is a article from SFgate.com.

“Apple’s patent lawsuit last week against Taiwanese smart phone manufacturer HTC was just one complaint aimed at a rival trying to outdo the iPhone.

But the case shines a new light on the growing use of technology patents to mark turf and battle competitors in the fast-growing field of mobile.

Experts are unclear on Apple’s ultimate intent in suing HTC, whether it’s to explicitly stamp out what it calls theft by HTC or to sound a warning to the entire smart phone industry – including newfound rival Google – that it could be coming for them next. But analysts and observers agree that intellectual property litigation in this arena is heating up, and consumers could eventually be affected by the growing friction.

“I’m seeing more, larger patent cases in the last couple years,” said Paul Andre, a partner with law firm King & Spaulding. “It does appear that companies that were more hesitant to file lawsuits in the past are filing today.”

For years, patents have been a way of life for technology companies, which amassed them as a defense against competitors. There have been eras of heavy litigation such as during the early personal computer years and occasional clashes of behemoths such as Intel vs. AMD.

But in most cases, corporations have been content to avoid using their patents in draining battles that can stretch for years. Apple, for example, hasn’t filed a major patent suit in many years.

But the rise of smart phones has touched off a new land rush as companies jockey for position. Before Apple sued HTC, Nokia sued Apple in October, prompting a countersuit from Apple. Apple was also sued last year for its multitouch technology by a Taiwanese firm. Kodak sued Apple and BlackBerry-maker Research in Motion in January for camera phone patents.

“It’s economics. There’s a ton of money flowing into the mobile space; it’s the new platform,” said Jason Schultz, director of the Samuelson Law, Technology & Public Policy Clinic at UC Berkeley. “Laptops, many think, are a thing of the past. Anytime you have a platform shift, you’re going to have a lot of lawsuits over who owns the platform.”

Schultz said previous cell phone patent suits have focused largely on hardware. But with smart phones evolving with sophisticated operating systems, companies are finding a whole new set of patents to tap.

In Apple’s case against HTC, 14 of the patents deal with user interface and six are concerned with the lower-level operating system.

Protecting their turf

Clement Roberts, a founding law partner at Durie Tangri, said companies seem to be turning to patents to protect their territory and keep competitors on their toes. In the case of Apple, he said the company is probably singling out HTC to eliminate a more vulnerable competitor but also give the industry pause as it tries to follow in Apple’s footsteps.

“If you just cause everyone in the industry to become aware of eight to 10 patents and everyone has to design around them, you lengthen the product (development) time frame for everyone else,” Roberts said. “That can have an enormous indirect benefit to Apple and you can earn back the cost of the litigation tenfold.”

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