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By Tony Fish, AMF Ventures and member of Gerbsman Partners Board Of Intellectual Partners.

The changing face of mobile

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Surprised at the latest Google deal to acquire Motorola Mobility for $12.5Bn, you should not be; Eric Schmidt was very clear back at MWC in FEB 2007 “Mobile Mobile Mobile” and since then Google has focussed both time and effort to deliver andriod (which was itself acquired).  When Schmidt stepped down in saying “ adult supervision no longer required” this left open the matured Larry Page to step up from being great at maths and a world leading entrepreneur, to take on the mantel of “world leading strategist and deal doer.”

This deal will be the discussion point for the next 3 months and already there are a lot of views circulating about what it means but there is no doubt that depending on your stance you can argue for change. However at Mobile 2 on 1st Sept in SFO – we get the first bite, why not join in

The Deal

Google purchased Motorola’s mobile business for $12.5 billion. In doing so, Google brought patents, hardware design, manufacturing and a seat at the patent table. However the context is… Oracle suing, Apple winning, eco-system struggling, Samsung annoyed and Microsoft attacking

Worthy of Note

Google has bought in cash and not shares.  This commitment will reduce their cash balance to $22bn from the mid thirties, but it is cash.  Given the issues that cash purchases delivered to telecoms in 2000/2001 this is an important fact as many ran into immediate issues and sold off key assets.  However, I expect the reason that this is cash is that Google are not expecting to hold the operational assets for long.  An equity purchase could have caused them problems from shareholders when they flip it assuming it completes in Q1 2012

Why now?

Porter 5 forces model is helpful here as it highlights the dynamic nature of the mobile market that Google faces.  Their power is low, their service fragmented and  they are being attacked.

Implications

This deal will be the discussion point for the next 3 months and already there are a lot of views circulating about what it means but there is no doubt that depending on your stance you can argue for change. However at Mobile 2 on 1st Sept in SFO – we get the first bite, why not join in.

Starting from the view of the world formed by ….

  • Operators – Deal does not change anything as we are the controllers of mobile – we keep all manufacturers below 30% market share and make sure it is a competitive supply market.  However, we are still worried about becoming bit pipe….
  • Oracle/ Sun/ Java – Defence needed as android has been beset with legal challenges from all sides, including a multibillion dollar lawsuit filed by Oracle, but Motorola patents are about wireless tech and unlikely to help.
  • Apple – By purchasing a manufacturer, Google has admitted it needs more than just a free operating system and loads of partners to compete with Apple: they need to duplicate Apple’s successes by totally controlling both the hardware and software of their devices.
  • OEM ‘s –  “Google has gone from partner to competitor.”
  • Media/ Content owners – According to Infonetics, Motorola Mobility was the leader in set-top box revenues last year, and was also tops in hybrid IP/QAM set-top boxes — that is, the boxes used by operators like Verizon that combine broadcast TV and over-the-top applications. By leveraging Motorola’s position with carriers, Google can better solidify its bid to expand Google TV and Android into the living room.”
  • Developers – At least there is one less system to deal with.

Scenarios and outcomes

  • The production shop – In this scenario Google keeps Motorola as is and starts to manufacture it owns handsets.  In reality this could provide short term stability to the fragmented andriod market place and show case devices and move into other screen based markets, but in the long run looks like a new Apple and being open is probably not a true option. Probability in long run 10% as this would not elevate Page to world class strategist who is just following Jobs view of the world.
  • The negotiator tactic –This is the company official line that the acquisition brings 17,000 patents (but are they relevant) to Google and enables them to robustly defend their mobile position and also expand.  It is a $12.5bn investment to get a seat at the table.  Strategically there is a lot of truth in this as mobile will dominate long term strategy and value. Probability in long run 25% as patents only last for a period….

Power to disrupt

Imagine Google takes the patents, yes they are useful to defend/ negotiate but also to empower others if free and open. This would reduce the power of others in the market and change the dynamics

Imagine Google keeps the patents and sells on production to Samsung to create a global partner across all screens

Imagine Google Wallet becomes the model – forget small transaction fees – lets go for user data in every model

Probability in long run 65% and Larry Page is now the best strategist in the world and did it without adult supervision.

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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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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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Here is a good article written by Chris O’Brien, San Jose Mercury News.

“Last week, I reviewed my predictions for 2009. And by grading myself generously, I got 3.5 out of 9. So now it’s on to 2010, when hopefully my foresight, and the valley’s economy, will improve.

It’s tempting to pick some easy targets to inflate my score. But instead, I’m going to make some daring picks, again, because when it comes to punditry, it’s always better to wrong than boring. Or something like that.

So, onward:

1. Palm will be sold.

Sad to say, but it’s inevitable. This will be the year this valley icon ceases to be an independent company. The launch of the Palm Pre and Pixi were valiant efforts. They created an exciting mobile platform and should be valuable to someone else. But sales of the Pre are already stalling. And so is cash flow.

There are plenty of potential buyers out there, from other mobile companies like Motorola and Nokia to other tech biggies like Hewlett-Packard and Dell, which need to get deeper into the mobile space.

2. There will be at least four valley-based green-tech IPOs.

Everyone is predicting a big comeback for the IPO this year. I don’t think that will happen for Silicon Valley. But I think green-tech will be the exception. I had started writing this before Solyndra filed for its IPO. So I’ve only got three to go! Who are the other candidates? Tesla and Silver Springs Networks seem to be increasingly good bets. The fourth will be a dark horse.

3. Intel settles

everything.

The deal with AMD was the first step to putting Intel’s long-running legal feuds in the past. Yes, the legal thicket seem to be getting worse with the filing of the Federal Trade Commission’s case against Intel. But the economy is warming back up, and so are computer and chip sales. Intel will make the smart move by settling these cases so it can focus on reaping the benefits of an improving economy.

4. The mythical beasts will arrive: the Apple Tablet and the Google Phone.

My colleague, Troy Wolverton, says nay, the Google phone will remain a mirage. Indeed, the existence of these two products has been long rumored and much denied. But the increasing chatter about both leads me to believe we’ll see them in 2010.

The intriguing question is: How much will they cost? Apple has recently overcharged for new products like the iPhone, and then brought the price down. I wouldn’t be surprised if the same happens with the tablet.

For Google, there’s a radical notion making its way around the valley: What if Google gave away its phone for free, hoping to make money off mobile advertising? Now, that would be truly disruptive. It has the billions in the bank to underwrite such a plan for several years. But does it have the guts?

5. Facebook and LinkedIn won’t go public.

These social networking companies are in no hurry. Facebook is still tweaking its revenue model, as is LinkedIn. When their revenues pick up steam, they’ll eventually bump into some federal rules that require certain financial disclosures, just as Google did early last decade. But they’ve got at least another year before they have to worry about that. In the meantime, their founders are in no rush to give up the control they would lose by going public.

Indeed, I think that sentiment is widespread among many tech startups. Why rush into an IPO? And this is part of the reason why I don’t expect tech IPOs to come roaring back this year. Even Zynga, the social gaming company and long-rumored IPO candidate, recently took a big investment from a Russian firm so it could reduce pressures to go public. Don’t expect to party like it’s 1999.

6. Jobs will post a slight gain.

As a guide, let’s look at the last two recessions in Silicon Valley. The one in the early 1990s was relatively shallow. The number of jobs peaked in August 1990 and then declined for 18 months, before beginning a rebound that lasted the rest of the decade.

Following the dot-com bust, we hit a job peak in December 2000, and then hit bottom 37 months later, in January 2004.

This current downturn falls in between at the moment. Jobs in Silicon Valley peaked in December 2007, so we’ve been headed down for about 23 months. Though that’s complicated, because in recent months, the job numbers have bounced up and down. Still, this downturn feels less severe in the valley than the dot-com bust. So I expect that 2010 is the year we see a net gain in jobs for Santa Clara and San Mateo counties.

7. Twitter.

Can I do a predictions list and not say something about Twitter? Probably not, so here goes. Twitter’s traffic will decline this year. We’ve seen it stall already in the U.S. and it’s begun to flatten around the globe. I say this, though I remain completely obsessed with Twitter and consider it indispensable at this point.

Unfortunately for Twitter, I never actually visit its site. Rather, I use one of the many third-party applications to write, view and filter tweets. That’s good for me. Bad for Twitter, because it will make it harder for them to make money from me. There’s mumblings recently that not only is Twitter getting revenue, but it may be nearly profitable. But the upside may be limited if Twitter’s traffic is flattening.

8. Google gets hit with an antitrust suit.

The company narrowly skirted a federal anti-trust action in 2008 when it scuttled a search deal with Yahoo. But even though it’s doing its best to cozy up to the Obama administration, and trying to play up it’s “do no evil” motto, there’s some indication that federal antitrust regulators have Google in their cross hairs. Maybe it will be over the controversial Google Book settlement. Maybe it will be over its acquisition of mobile advertising leader AdMob. Or with Google going on an acquisition binge, it could be over some other deal on the horizon. But expect Google and the feds to lock horns in 2010.

9. The number of public companies in Silicon Valley continues to fall.

It’s been falling since 2000. And I see no reason that it will stop this year. That means that acquisitions will rise and consolidation will continue. And while IPOs will reappear, they won’t be enough to make up for the number of public companies that are acquired or go bankrupt.

10. And finally, I’ll end by going way out on a limb: Cisco Systems will buy Dell.

Think about it. Hewlett Packard has been gearing up in recent years to invade Cisco’s turf by moving into the networking space. This is Cisco’s greatest challenge in almost a decade. Cisco will need to respond by buying a PC company both to achieve greater scale and to match the range of products it can offer customers. Cisco has about five times as much market value as Dell, which has been struggling for years to regain its leadership in the PC business, which it lost to HP.

Put Cisco’s line of networking equipment and annual revenue of $36 billion with Dell’s PCs and $61 billion in annual revenue, and you still have a company a bit smaller than HP and its $118 million in annual revenue. But it gets them close.

Cisco’s Chambers has also recently ruled out launching or buying a mobile computing device. But, never say never in the tech world. This an area where both HP, Cisco and Dell need to be in the coming decade.”

This article was posted originally in American Chronicle.

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Here is a good piece from FierceMobileContent

Social networking is now the most popular web activity, surpassing even email, according to a new study issued by information and media firm Nielsen. Active reach in what Nielsen defines as “member communities” now exceeds email participation by 67 percent to 65 percent, the firm reports–among all Internet users worldwide, two thirds visited a social networking site in 2008. Facebook now leads the pack: Three out of every 10 web users visit the site at least once a month, and in all, Facebook experienced a 168 percent increase in users in 2008, galvanized by growth among the 35-to-49 demographic.

Mobile social networking is most popular in the U.K., where 23 percent of mobile web users (about 2 million subscribers) now visit social networks via handsets–the U.S. follows at 19 percent, or 10.6 million subscribers. Mobile social networking usage increased 249 percent in the U.K. in 2008, and grew 156 percent in the U.S. Nielsen notes that the most popular social networks via PCs and laptops mirror the most popular services on the mobile web–Facebook is the most popular in five of the six countries where Nielsen measures mobile activity, with Xing proving most popular in Germany. In addition to the mobile web and dedicated mobile social networking applications, users are also interacting with their social networks via SMS–according to Nielsen, at the end of 2008 almost 3 million U.S. users were texting Facebook on a regular basis. For more on social networking’s growth: – read this Nielsen report

Related articles: Social networking tops mobile search queries, Facebook in mobile social networking talks with Nokia

Other blog  comments: techblips, USA Today

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Conventional Valley wisdom have been that free is good. In terms of Android, this is the case – free is good! But, once you start to compare it to iPhone, some essential questions come up.

I recently finished a iPhone project with a company out of Sweden, Resolution Interactive. My task was to reshape the business model from traditional PC- online to something fruitful. Coming into to the company early last spring, the finances was well below bad, the team was in dissaray, and the revenues where nill. When iPhone developer program then came available in mid april, we saw the chance and made a jump for it. Although pretty messy to begin with, Apple continued to publish supporting materials, reached out with a network of visionaries and helped us go through the ups and downs of discovering a new market, new business model and new way of marketing.

When we in mid October release the first game – Clusterball Arcade – we received som good reviews and quickly went for title nr. two – AquaMoto Racing. Succesful in my mission, I was able to create a new businessmodel and find a new market for a struggling game company – this with the help of Apple and iPhone.

So, the release of Android from Google, the OVI initiatives from Nokia etc. are all good, but I wonder if they really will be able to provide the multitude of support that Apple was able to provide to me. Also, the unified developer environment (Xcode), the one device, clean business model and pre-existing audience to market too makes it very hard to understand how anyone will be able to compete with Apple on this market segment.

Mark Sigal just posted a excellent article at GigaOm. His analysis below summed this up very clear to me:

“The reality is that openness is just an attribute -– it’s not an outcome, and customers buy outcomes. They want the entire solution and they want it to work predictability. Only a tiny minority actually cares about how or why it works. It’s little wonder, then, that the two device families that have won the hearts, minds and pocketbooks of consumers, developers and service providers alike (i.e., BlackBerry and iPhone) are the most deeply integrated from a hardware, software and service layer perspective.”

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Nokia said today that it will buy up the part of Symbian it doesn’t already own and create the Symbian Foundation, which will unite all of its flavors into a single, common software platform that will go open source in two years. The move is a clear response to the realities of today’s mobile market — but will it work?

Click here for a excellent analysis from GigaOm

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