5. MySpace acquired by News Corp

In the age before the rise of Facebook, MySpace was the new behemoth in the social network space. Earlier players (sixdegrees.com, friendster) had appeared and faded but MySpace seemed to be on a never-ending growth trend. When NewsCorp offered US$580 million for the company in 2005, it looked like an outrageous amount of money and a few people claimed that the founders could have received more money if they had held out.

It is possible that MySpace could have grown into something even bigger but, under NewsCorp’s umbrella, the company seems to have had a hard time keeping up with the competition. The rise and multi-billion dollar valuation of Facebook seems to illustrate what could have been, had MySpace remained independent but, on the other hand, the fall of friendster might also have served as a potential scenario.

Either way, the deal established the concept of social network sites as here to stay.

4. YouTube acquired by Google

It was a deal that brought back many fond memories of the bygone dotcom era: a small company with no revenue and no business plan in place getting acquired for US1.65 billion. Google’s acquisition of YouTube in 2006, the largest in its history, ended up being an outlier in terms of outsized deals in the Web 2.0 space.

But it did establish consumer-created content, and online videos as two important trend in the internet space. In one felt swoop, the deal put on a spark to the online video space and, while the company has had to contend with issues around illegal videos being posted to its site, forced video content producers to start thinking about online distribution strategies.

That deal can be seen as the grandfather of Hulu, iTunes and Amazon’s video offering, as well as Netflix on demand.

3. Apple and AT&T partnership

Sometimes, a partnership is more important than an acquisition. In the case of this deal, having AT&T, one of the most traditional telco vendors, agree to major concessions in order to get its hand on a coveted new phone was revolutionary: in a world where carriers traditionally decided what software was running on the phone and what sites could be accessed with it, AT&T let Apple make all the design decisions, open up the deck to external developers, under some levels of control, and provide access to any site on the internet.

From the moment the iPhone was announced, it looked like a winner. It helped move more people to GSM-based networks, allowing for more interesting phones to enter the market. The 2007 partnership heralded a new age of competition and innovation in the mobile space, delivering, for the first time, on some of the promises that had been made around that concept for well over a decade. It also forced carrier to rethink their own business models as the heavy loads of traffic generated by the 3rd and 4th generation of the device defied the predicted usage patterns and forced mobile providers to upgrade their network.

2. Time-Warner acquired by AOL

Whether a deal is good depends on the side of the table one sits on. The January 2000 acquisition of Time-Warner by AOL was great for AOL shareholders and turned disastrous for Time-Warner’s. Playing on the fear instilled in media companies by the success of dotcoms left and right, AOL managed to engineer a deal where most of the shares of a merger would go to its shareholders.

Ultimately, the deal became a disaster for all parties involved as the attempt at finding synergies between the two companies found themselves bumping against the cold reality of political warfare and corporate protectionism. With units fighting against each other for most of the decade, the only way to reclaim the piece was to spin-off AOL, 9 years later, for less than 1 percent of the combined value of the two companies in 2000.

If there is a bigger example of destruction of financial value by a deal, I’m not aware of it. Ultimately, the importance of this deal is two-fold: first, it was the last big deal of the dotcom era and can serve as the marker for the end of that era (some might quibble that the stock market didn’t fall apart until about 6 months later but that’s just a detail). The deal also showed that expertise in online and not online are not necessarily compatible. Both require different business models and experts who understand the particulars of each market.

1. Google acquires Applied Semantics

The number one tech deal of the decade is probably going to be a contentious choice as it is also one of the smallest deal on a financial basis. Google acquired Applied Semantics in 2003 for a bit over US$100 million, most of it in stock. What did Applied Semantics do? Well, to put it quite simply, it did contextual text-based advertising. The company’s work serves as the base for Google’s AdSense program, which delivers roughly half of Google’s ad revenue. I would argue that, without this acquisition, Google’s advertising reach would not have extended as far as it did and that this acquisition serves as one of the largest drivers of revenue to the company and its key differentiator against other online ad offerings.

Because AdSense has been such a substantial engine of revenue Growth for Google; because it was developed by an outside company most people haven’t heard off; because Google is now one of the most important players in the tech space, dictating and directing trends in our industry;  I would say that this is the single most important tech deal of the decade.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 10 Tech Deals that Defined the Decade — Part 2. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

iPhone: 3G OK but not everywhere

As expected, Apple did introduce a version of the iPhone that will run on third generation (3G) networks. Steve Jobs made a big deal about the wide availability of this new device globally, highlighting a large number of countries in which the product will soon be available.

Glossed over, however, is whether it makes much of a difference. Let’s take a look at 3G coverage offered by AT&T in the United States (I managed to get to this map from a list AT&T provides):

On this picture, the areas marked in blue are the areas where AT&T offers 3G services, as the following legend reminded me:

So while it is true that you will be able to buy a 3G iPhone in most of the US, it’s not necessarily a guarantee that you will be able to use 3G service in areas outside of major urban centers. It was not mentioned on Monday and I think I may have a good idea as to why: to say that you are offering a tool which will be available only to urbanites would have stolen some of the magic.

However, the truth of the matter is that most of the current iPhone buyers appear to live in the target areas. In my experience, while iPhone are fairly ubiquitous in the New York, Chicago, DC, and San Francisco circles I tend to run in, I haven’t seen as many of them when I go to other areas. It could be that the device is attractive to people who live in certain areas and may not be as attractive to others. I don’t know why it is but it’s just an observation.

Cost

A possible reason for the phone currently being more popular in large cities may have been price, an item that Steve Jobs also mentioned as something they needed to work on. When the iPhone was first introduced, its $599 price was seen as high compared to the rest of the market. Subsequent price cut brought the price of the phone to $399, a price that was more or less in line with what other smart phones were retailing for.

When it was first introduced, Apple dictated that customers would pay full price for the device and, on top of it, AT&T would pay Apple an extra $18 per month for every iPhone subscriber (or $432 over the 2 year contract that a subscriber would be locked in for).

When the iPhone was introduced, plans were ranging from $59.99 (for 450 minutes, 200 SMS, and 5000 night and weekend minutes) to $99.99 (for 1350 minutes, 200 SMS, and unlimited nights and weekends minutes) with no extra data charges for browsing, email etc…

So, assuming a low cost $59.99 individual plan, the 2 year outlay for an iphone user would be $1440 for subscriptio. Tack on the $399 price of the iphone and that’s $1840 over a two year period.

That’s a lot of money and Steve Jobs announced that they had heard complaints about the price, which have now resulted in this new device being available for prices ranging from $199 to $299.

The new plan, according to an AT&T press release, start at $39.99 was voice service only with an extra $30 for 3G. This means that the most basic plan is now $69.99. By the look of it, the extra $30 plan is similar to the existing PDA Personal plan they are offering (It’s unclear whether SMS is included in the plan but AT&T does not seem to provide any information as to SMS related charges).

So, over the two year life of the plan required by the contract, the cost would be $1680 for subscription. Tack on the $199 to that price and you end up with a total of $1879 over a two year period, roughly $40 more than the outlay for first generation devices.

The interesting thing here is that the price is roughly the same even though the entry point is lowered by a third. This plays to the perception that the price has been drastically lowered but the truth of the matter is that it hasn’t changed much.

Revolutionary Model?

What has changed, it seems, is the relationship between Apple and AT&T. A year and a half ago, when Steve Jobs introduced the iPhone, it looked like AT&T had bent over backwards to ensure they would get the device. Apple was receiving kick-backs; Apple was dictating the price of the device; Apple was controlling the interface; Apple was controlling the activation (which could be done from home); You could buy an iPhone at the Apple store, go home, use iTunes to activate your phone and, apart from receiving a bill from them every months for the following two years, you didn’t really have to deal with AT&T.

Fast forward to today.

The device is heavily subsidized; AT&T keeps all the revenue from subscription; Apple still controls what’s on the phone deck; AT&T requires in-store activation.

Suddenly, the business model doesn’t seem so revolutionary. In fact, it seems that Apple is now falling in line with every other phone device manufacturer. Yes, it still has control of the interface but it seems that wireless providers are more lenient when it comes to that these days.

What I suspect is that reality has largely set in. While lofty goals of selling 10 million iPhones were mentioned, 6 million units have shipped. 6 million is a very respectable number. In fact, it’s an impressive number when you consider the price the device sold at.

The problem is that 6 million is still a long way from ensuring 10 million devices sold by then end of December. So AT&T must have mentioned that fact to Apple and told them that while it was all very nice and they still wanted exclusivity, they would have to renegotiate terms. And the negotiation brought Apple “back in the fold.”

A funny thing is that while AT&T executives were high-fiving themselves over that success, Jobs was probably looking at another portion of the market they had not discussed: software.

See, hardware is all great and fun but ultimately, it’s a sucker’s bet: there’s only so much money you can wring out of a device and margins never really increase. The previous iPhone was costing about $220 to build. This one, with a 3G chip and a GPS will probably cost a little more. Of course, it’s subsidized by AT&T (i’d suspect that AT&T pays between $100–200 per iphone) so Apple still makes some money but that’s pretty consistent. Increasing margins on such a device would be hard as it requires heavy negotiations with suppliers to get better costs for parts and reconfiguration of production lines to improve efficiencies. Those are not easy areas and investments need to be pretty heavy in order to see returns.

But then, there’s software.

Software is almost diametrically opposed in its scalability of cost (for a good understanding of the advantage, see dictionary under Microsoft ). Yet software, in itself is still pretty expensive to produce (the same is true of music or any other creative endeavor where the product can be digitized). However, imagine being able to build a marketplace where one would sell software produced by someone else. It would look like the type of marketplace one would use to sell things like music, or maybe movies, or TV shows.

Oh wait, I know, it would look like the leading marketplace for selling music. You know, the one by Amazon… uh, no, not that one. Who makes that leading marketplace? Oh yeah, Apple with the iTunes store.

Control

In the fourth quarter of fiscal 2007, Apple reportedly made $808 million in the category that includes the iTunes online store. This, largely by providing infrastructure to sell other people’s product to users of its iPod.

Now comes the iPhone as, essentially, the next generation of the iPod… and it seems that, as Apple initially strong-armed the music industry into giving it a portion of revenue it didn’t need too, Apple is now working on ensuring that it will get control over what goes on their own next generation iPhone.

Last year, when they first introduced the device, it was locked down and fully under Apple’s control. But over the year, tools appeared to break that stronghold and people started developing applications that enhanced the device for anyone who was basically willing to void warranty.

Apple saw what was happening and initially tried to fight it but the company eventually realized that attempting to fight such a trend was essentially like a game of wack-a-mole. Fun for sure, but hardly profitable and/or potentially successful. So Apple relented by providing a software development kit, a move that it hopes would bring developers back into the fold.

This plugged the issue of non-standard development and, thanks to the requirement to agree to certain terms and conditions, Apple can now dictate what applications can and can’t be created for the iPhone and it’s not the first time that Apple uses its SDK agreement to limit what applications can and can’t be built using it.

At this point, though, it still OK as Apple gives its developers ways to fill gaps that exist on the device by providing software that Apple did not provide.

And that’s where Apple’s Push Notification Service comes in. At first blush, it looks like a nice idea: instead of running all applications in the background, you just have your current application talk to that service and that service then relays information to the Apple server before passing it on to you. It “simplifies” things and saves battery juice. That’s all great, until you start thinking about the implication: Apple now knows what works and what doesn’t in terms of applications.

The company will not only know which applications are being downloaded to iPhones, since the only way to load an application legally is through the iPhone store provided by Apple, but it will now know whether the applications are actually used and what kind of usage pattern they have.

Of course, one would assume that since Apple is such a great company and so developers friendly, it will share this information in almost real time with the application developers.

Except it won’t.

The other thing this does is that it provides Apple with a central system that knows what users are doing with their iPhone. This is basically focus groups on a global scale and it’s very impressive.

Apple has essentially created for itself a device that will keep information on what applications are being used on it, how much they’re being used, and by how many users. From there, I suspect it won’t be too hard to build an interesting roadmap that seems to magically mirror the best applications.

And the developers of applications that were filling the gap created by Apple at the time? Well, it will be a problem for them to try to compete with Apple but I’m sure the company will be happy to have them develop other applications after it plundered their previous successful one.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title iPhone 2: More than meets the eye. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

The potential merger has long been rumored and there are many reasons for which it could actually make a lot of sense for both companies. A question, though, remains as to who the winners and losers are in that deal. Topline, it’s clear that Microsoft and Yahoo benefit from this and clear that it doesn’t benefit Google. But who else?

Let’s look at the deal and try to figure it outs

Winners

OpenID: Only a few days ago, Yahoo announced support for OpenID, a system that allows users to use their yahoo credentials as a way to login to other services. Surprisingly, this was the goal of Microsoft Passport (now knows as Windows Live ID), almost a decade ago. A pairing between Microsoft and Yahoo could represent a major win for OpenID, especially if the partnership extends Yahoo’s commitment to Windows. One could see OpenID being incorporated with Active Directory in the future, leaving any non-openID provider in a lurch.

AT&T: Yahoo has a partnership with AT&T for IPTV. Combine that with the recent acquisition of Maven Networks, the IPTV efforts Microsoft has taken, and its relationship with MSNBC and there’s added strength provided to AT&T’s foray into the television space.

AOL: Many people would put AOL in the loser category but I think this partnership makes it a potential acquisition target for Google now, which means that Time-Warner could try to get a premium and spin-off a property they’ve had a hard time managing.

Losers

Advertising Agencies: It was only a few weeks ago that I joined GroupM. At the time, my feeling was that someone needed to build a counter-balance to Google’s power in the online space and, since any online pairing seemed unlikely, large ad buyers were the only ones that could provide that counter-balance. Now that Microsoft and Yahoo are providing that counter-balance, advertisers are going to be squeezed not by one but two giants. With two players representing more than 75 percent of all possible ad buys, the online companies will dictate terms to ad agencies and not the other way around. That window of opportunity appears to be closing for ad agencies.

However, a large enough online ad buyer could, if they standardized their platform and streamlined it to make single aggregated buys (for example, tell Google or Microsoft/Yahoo! that you will buy XX% percent of their ad inventory next quarter if they discount the rates by YY% compared to the competition) but ad agencies do not yet have enough streamlined data to be able to build risk models around such large scale purchases.

Ask.com:  Unfortunately, IAC does not have any major partnership with the larger players in the market. It’s fight to stay in the search game appears to be an uphill struggle from now on. There doesn’t seem to be that many strategic options relating to the changing dynamics of their portion of the market.

News Corp.: A combined Yahoo/Microsoft partnership would own roughly 40 percent of the overall market for finance-related online news (according to Hitwise, Yahoo finance is just shy of 30% of the market and MSN money represents a bit over 10% ). This will have an impact on the likes of MarketWatch and the Wall Street Journal online. Furthermore, the coupling of Microsoft’s desktop money client with Yahoo’s strength in the online finance news space will be hard to defeat.

Any email provider: Microsoft/Yahoo will have almost 80 percent of the webmail market (Gmail comes in second with 6 percent). This means that any company that is trying to provide this as a standalone service will have to follow whatever direction the new entity takes.

Web 2.0 companies: With one less buyer in the market, that makes it more difficult to sell at a rick premium.

I’m sure there are many others I’m missing. Feel free to comment in the discussion thread.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Non-obvious winners and losers in Microsoft Yahoo Deal. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

As was the case for the previous part, I have only edited the content for formatting sake.

Q: Let’s switch gear to the unit replacement program: The Palm website seems to have difficulties recognizing existing accounts. Part of the frustration of my own experience was that, having bought a device from the Palm website in early 2007, I was unable to get to the information online because the site did not recognize the email address I used to register (even though I have some emails sent by palm to that email address). This resulted in my being unable to get the exact date of my purchase. When I talked to the customer service representative, I was told that we could not move forward with any replacement without that information. Considering the device hadn’t been in the marketplace for a year, I thought that it would be considered under warranty no matter what. Why is it that customers still need to provide a purchase date for devices that are less than a year old?

A: They shouldn’t have to, you are right. Unfortunately, since we primarily sell through the carrier channel, determination of an in-warranty vs. out-of-warranty device is not a perfect science. Our practice is to systematically derive the purchase date from the manufacture date, based on the serial number.

We have very reliable data on how long a product takes to move through distribution and sales channels that helps us ensure we offer all of our customers a minimum of 12 month warranty, as stated in our contract with the customer (i.e. the warranty). If an agent believes the product may fall outside of the 12 month period, we request proof-of-purchase (POP), which is not unusual in the consumer electronics industry. That being said, an agent must use their best judgment and always handle these discussions in a professional and courteous manner with the customer.

To better serve our customers, we’re currently exploring instituting a policy that will not require agents to check purchase dates for products that have been newly released (i.e. less than a year old). This should help eliminate unnecessary questioning and allow our agents to proceed directly to getting a customer’s issue resolved.

Q: If customers are not able to supply a date, why is it that there is no way for a call center operator to look up information for devices bought from Palm’s online store?

A: We do aspire to have all of our customers’ transactional information available to our service agents. However, this is not the case for a variety of reasons. First, there is some information that will never be available or kept; carrier sales information and information protected by privacy laws, for instance. But, for the rest, specifically any transactional information Palm is exposed to and legally able to maintain, we are making huge investments in a CRM program that is bringing this information all together in a master customer database. Just this past year, we integrated most of our direct sales transactions (e.g. from our online store) into our service application, loading both customers and assets. As for Tristan’s case, unfortunately the purchase last winter was prior to this integration going into effect, so the purchase record was not there.

Q: Forced to supply a date, I gave a date at random in order to push the call further. I was then told that it was the exact date of my purchase (a dubious claim at best since the date happened to be, after I checked, before the date of the press release announcing the release of the Treo 680). When I contested the possibility of this being the date at a later time, I was told that you are tracking devices dates by serial numbers. If that’s the case, why is that information not being used initially? (It’s generally easier to find a device’s serial number than its purchase date since the serial number (and incidentally, IMEI) is on the device)

A: I suspect that in this case, and what is probably routine behavior by agents, is to request the date of purchase from the customer, and to take their word for it — which is the proper thing to do. Now when a customer is not confident about the purchase date or does not have any recollection, then an agent is going to check out the serial number to get a good idea of the purchase timing — it’s only then that we are going to call into question the warranty, and perhaps seek proof of purchase.

Q: Vendors like Apple and RIM track their device purchase date by IMEI. Why isn’t Palm doing the same? And if it is, why isn’t that information available to call center personnel?

A: IMEI and ESN are two industry relevant codes for mobile devices. The serial number is a Palm-specific number generated at time of manufacture. Because it is consistent across all Palm products — where it is not for IMEI and ESN — we tend to rely on serial numbers as our default tracking method.

Q: The retail price for an unlocked Treo 680 is $379, the street price for an unlocked Treo 680 is around $250. In either of those cases, the device would come with a one year warranty. The replacement price for a Treo 680 is $199. Why is the replacement price so high?

A: The primary drivers of repair and replacement cost are parts and labor, and hence can’t be directly compared to the product. The wireless industry subsidizes phone purchase prices, making the total cost much lower than the actual cost of hardware and labor.

Q: Looking at the prices listed on your site, it appears that all your phones have the same replacement price ($169 by web, $199 by phone) However, prices for the unlocked devices listed in the Palm store range from $379 (for an unlocked Treo 680) to $669 (for an Alltel Treo 700p). Does that mean that the repair cost for all units is the same? Why isn’t there variable pricing on the repair costs?

A: The actual cost of repair may vary across units, but this variance is much less than you’d think. The process steps that all units go through for diagnostics, component replacement, cosmetic refurbishment, and logistics are identical. The only real difference is the value of the parts required for a given repair.

While variable pricing seems like the best thing for the customer, we actually provide fixed pricing to deliver a better customer experience. This is because we want to quote a price upfront and quickly process the replacement without having to come back to the customer and explain that their fix was different or more costly than what was expected at the outset. This would create unnecessary tension and delays when a customer needs their phone back to them in working order as soon as possible. We don’t really know what parts will be required until we open the device, and a call center agent would not be able to accurately estimate the costs.

Q: A year ago, the replacement cost for a Palm 600 was $100 (I unfortunately broke 4 screens on Palm 600s through the years so I’m familiar with that price). Today, such a replacement would cost $169. Why the price increase?

A: As products get older, our cost to service that product normally increases. It reflects the growing cost of acquiring parts, maintaining inventory, expertise and training for repair events that become more and more infrequent.

Q: Apple has made it a practice to sell special contracts (called AppleCare) on their devices that provide extended warranty. This includes selling AppleCare for iPhones (for $69). The program includes replacement of defective units at no extra charge and extends warranty from 1 year to 2 years. Why isn’t Palm offering a similar program?

A: With the first line of smartphone product support at multiple carriers, including warranty processing, an extended warranty program has been a challenge for Palm to offer — mostly because of channel complexities. We are presently working through the challenges that have made this difficult, and hope to offer this service feature to our smartphone consumers in the future.

Apple has a unique relationship with AT&T that may make these programs a bit easier to provide.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Palm responds, Part 2. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

It’s a very smart move on the part of Apple, which highlighted the change in the way the company is operating by changing its name from Apple Computer, Inc. to Apple, Inc. , reflecting the fact that they are no longer just a computer company.There were a few interesting items of interest, though.

For starters, no mention of how the phone will sync up with a computer. Are we to assume that it’s Mac Only or will it synchronize with computers running Windows too? If so, does that mean that a new set of applications will be available to Windows users to sync their address book, calendar and email with systems like Outlook or will the device require to manage those things specifically using Apple applications on Windows?

The other thing that was interesting is the announcement that the phone will run on quad-band GSM and will be using EDGE network. This means that the phone will get decent but not great data service. Perfect for email and light web browsing but not quite fast enough for video streaming. However, the introduction of WiFi in the device, which many other companies have avoided for fear of losing battery capacity, could take care of that.

The other interesting thing is that the operating system on this device is OSX. This seems to point out to two possible issues: First, what does that mean for PortalPlayer, which has traditionally provided Apple with the operating system (embedded on a chip) for the iPod? The second question is what does it mean in general: What Apple has introduced is basically a mac in a small form factor, which could easily compete with the UMPC specifications introduced by Microsoft. It’s pretty clear that Apple has a lot of plans in the future for that device but they didn’t say much about the significance of OSX, providing it almost as an aside (and what does it mean for the next version of OSX, which was not mentioned during this keynote at all, a surprising omission in itself.)

Who loses?

Judging from the reaction on the stock market, it’s pretty obvious to see who loses: Palm (makers of the Treo), RIM (makers of the Blackberry), and Motorola and Nokia will obviously not be thrilled with the entrance of Apple in this market. The exclusive deal with AT&T (ooops, sorry, Cingular) will also have a negative impact on Verizon, Sprint, and T-mobile as Verizon will see a number of users switching to them in order to get their hands on this device (in informal discussion with a number of fellow geeks, the disadvantages of moving to Cingular were far outweighted by the coolness of this device).

Let’s take a quick look at specs and see how the difference devices fare against this new entrant:

So looking at it, this phone is pretty expensive (you pay for the Apple premium) but packs a lot more features than other phones in the same category. It’s got a better camera, more memory and a larger screen as well as WiFi. It’s talk time (for the category) is actually pretty good (only bested by Nokia’s E-62) and it is a little heavier than the competition. For a first entry in the market, I’d say that Apple has a winner on its hands.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The iPhone is here. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Apple

Scored well on the introduction of the Apple mini, which represents Apple’s entry into the lower end market. However, no video iPod this year, only a photo one, leaving Apple far, far, away from the movie downloading world.

On the computer end, Apple did not introduce a G5 portable. Wishful thinking on my part, true, and still a wish I hope to see fulfilled in 2005.

Convergence: Music Stores

As expected, Apple has solidified its relationship with AOL, offering the iTunes store under an AOL login. However, the store is not fully integrated within the AOL service.

As predicted, the world of online music is now divided into two camps: AAC and Windows Media. However, the surprising move was from Real Networks, which was the first company beyond Apple to adopt the AAC format.

Convergence: Voice Over IP

As predicted, voice over IP has had tremendous growth in 2004. AT&T’s exit from the consumer market can be seen as a move to reorganize around land-line offerings. Also of significance this year was the introduction of VoIP services from most of the big telco player.

Regulatory discussions are now exploding, with telcos pushing for deregulation as “a way to compete” against the new players in the field. At the same time, the same traditional companies are pushing for regulation of VoIP businesses.

Wireless: Wi-Fi phones

Dead wrong on that one. Maybe next year!

While WiFi continues to progress at high speed, the introduction of phone services using such service is limited.

Business: Revenge of the Internet companies

Google did its IPO as expected and that went very well. Other Internet companies also went public this year but one can hardly talk of coattail effect.

On the bright side for investors, my predictions about the decline in stock prices for the big players did not pan out. However, I still maintain that the stock prices of companies like Ebay, yahoo, and amazon are too high.

Business; Sun in Trouble

As expected, SUN continues to have trouble financially but I have to admit I was wrong in terms of what I expected them to do. They are still in the SPARC business and are still pushing Solaris as their main OS.

Development: Standards at the forefront

This one was an easy one. As sites like ESPN and Wired moved to new standard formats, more and more people and companies are getting interested in more standard compliant code. Not a headline grabber but definitely a strong move.

Society: Social Networks at the core

Wrong, wrong, wrong. Social networks were slowly moving but not really getting more important this year. Their integration with search could, however, yield great potentials.

Politics: Internet comes of age

The Internet did come of age in this election cycle but Howard Dean did not win the democratic candidacy. However he, and other groups, managed to use the Internet to mobilize millions of people. The Republicans, on the other side, used the power of conservative bloggers to attack candidates (for example, the Swiftboat veterans for truth) and then take on the establishment (Dan Rather and Memogate).

Coming Soon: My predictions for 2005!

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 2004 predictions: Recap. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Traditionally, telephone service was offered on a land line and was divided into local service, long distance, and extra features like caller ID, call forwarding, etc… The model was predicated on the concept of one device (the phone) receiving a package of services.

The mobile phone business started having an impact by untying the phone lines from the wall, making the concept of localization a relatively moot point. Once localization was broken, the differentiation between local and long distance disappeared which left a division only between connectivity and extra features. Since most of the signals going over the air became digital, the cost of delivering extra services dropped to almost nothing, destroying the competitive value of such offerings.

While mobile phone service made headway against traditional land lines, a new set of telephone offerings appeared on the Internet: Voice over IP. With VoIP, telephone just becomes a software issue, unbundling telephone from the concept of a telephone network and dropping the connectivity issue altogether. While mobile phones were tied to a particular phone network, VoIP phones are not tied to any network: they can run anywhere as long as they are running on an Internet infrastructure.

It is due to this realization that AT&T abandoned the consumer market. Since services like Vonage are redefining the concept of telephony by moving the phone away from the lines and away from the device. Vonage service runs on a number of platform including telephones, computers and will soon run on PDAs equipped with a wireless card. This means that companies which were once relying on the bundling of a line, a device, and a set of features can no longer do so. It also means that the concept of overseas long distance will eventually disappear since one could easily run a telephone service on their computer with a local number in a foreign country.

For example, I can envision a time when I will have a phone number in France that will relay my calls to my computer, phone or PDA wherever I am, making it impossible to guess whether I am in the United States, Europe or Asia at any given times. However, I may sound sleepy in the middle of the caller’s daytime because I could be in a time zone where it is the middle of the night.

With this model now in place, the challenge of telephony is no longer a local one but a global one. Telephone companies will have to fight against companies all over the globe in order to retain their customers and since the delivery of those services does not rely on the introduction of expensive networks in order to provision service, it will soon be possible for small companies to provision phone services. One can expect countries like China and India to be the recipients of such outsourcing and your telephone company could well be located in one of those countries in the future.

How does one solve this issue? By providing cheaper products, emphasizing customer service, generally doing right by the customer or getting out of the competitive space. The power base has shifted to the consumers and the only way to fight it is to serve them better than a competitor could.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Modular by Design — Telephony. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

In the United States, cable television has what is called a tiered structure. That means that channels are grouped in packages that are then sold as a whole. The most basic service includes the regular “free” networks (for people who have low or no reception), the next package above that generally offers an extended set that includes CNN, ESPN and a bunch of other channels. Then, on the third tier, you can buy more expensive channels like HBO or Showtime, which are not supported by advertising.

If you were to draw a parallel to the online world, you would have Internet access being the basic package, then a pre-paid package which would offer access to a certain number of sites (similar to what AOL is starting to do by pulling Time and Entertainment Weekly behind its own service), and then would pay extra for a few one-off sites that may warrant it.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Paid Content on a tiered structure. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

What I came to realize is that what works for a computer does not necessarily work in a wireless environment. The main issue is input and output. A wireless Palm is great to get information but somewhat difficult to use to send out email (typing in graffiti being the biggest challenge so far) and WAP works well to get little bits and pieces of information but is limited to a set number of characters (depending on which version of WAP you’re using, you will get an allocation of between 1500 and 2000 characters). As a result, sending out something like this newsletter over WAP does not seem to make sense.

However, a new breed of services is now popping up and it could be the next big thing: connecting to the Internet by just dialing into a phone number. In order to test this out, I checked out several services: Tellme Networks, which launched last month to a barrage of publicity, and Quack, which has been quieter but is also launched. Other contender for the space (and all of those are launching “soon”) are Internet Speech, BeVocal, and 888TelSurf.

Tellme Networks

Mike McCue is no stranger to bleeding edge technology. I met Mike back in 1995, when he was running a company called Paper Software. Paper did VRML browser, at a time when VRML was not only cool but also seen as the potential future of the net. Netscape acquired his company and Mike ended up as VP of technology there. While there, he looked at the future of the Internet.

However, as many other Netscapees, Mike ended up leaving Netscape and founded a new company: Tellme Networks.

Their goal: to make the web as easily accessible as using a phone. Pulling talent from both sides of the browser war (Netscape and Microsoft), Tellme was a very secretive operations until a couple of months ago, when it announced its offering: a phone service that gives you access to news, weather, sports, stocks, movies and restaurant info.

An interesting concept but how well did it hold up? Would I be stuck in one of those horrible menus (press 1 to access news, press 2 to access stocks…) or would it be better, I wondered as I registered for the service. To my surprise, it worked very well.

There are a number of interesting features in this service. First of all is the text to speech engine, which is one of the best ones I’ve heard so far. It takes bits of information and relays them in a clear and understandable way, which I found quite amazing. The voice recognition algorithm also held up very well, clearly understanding what I was saying (for those of you who’ve heard me speak, you know I have a fairly strong French accent, which makes this all the more amazing).

But what about the selection? Well it is, in one word, adequate. Not great but not bad either. I was able to get stock quotes (an interesting feature allows you to use the touchpad to spell out a stock symbol if the service does not recognize the name of the company you gave it), grab the latest news from CNN (the only general news provider tellme offers), pick up the weather in New York, check out a movie schedule, get some restaurant info and be connected to the restaurant for reservations. Also interesting was the phonebooth, a feature that allows you to make 2 minutes phone calls anywhere in the US for free (brought to you by AT&T). All and all, I was impressed enough to save the number into my cell phone memory.

Quack

Quack offers basically the same things as tellme (with the exception of the phone booth) but requires you to set up personalization largely through the web. As a result, the service may seem a little kludgier. On the plus side, however, the voice recognition algorithm gets some points. For example, I requested stock price on Internet.com on both services. Tellme was unable to find Internet.com and asked me to enter in the stock symbol using the keypad. Quack immediately recognized the stock, gave me its symbol and, while playing ads, went on to retrieve the information. What was disappointing, however, was that their text to speech engine is not as advanced as tellme’s. The voice on the other end of the line was unmistakingly a computer when it came to particular bits of information (weather reports, stock quotes) compared to the syntax used by tellme.

Another plus for Quack is their caller-ID system: The service also recognized that my call was coming from New York and immediately gave me the weather report for that city (I had to request New York on tellme’s service).

All and all, I found very little difference between the two services, with the possible exception of Quack carrying traffic reports (which tellme did not offer when I tried it). However, since I am one of those New Yorkers without a car, traffic reports held little value for me. If I were outside of New York, I am sure that this service could be a godsend.

Looking at the future: the other contenders

Internetspeech and bevocal seem to be aimed at the same market. They both plan to offer similar services. InternetSpeech seems to go a step farther by trying to capture an audience that will be able to say a URL and get what’s on that page read to them. This could be interesting but can get kludgey as the example on their site shows. Going to Yahoo means that their service will read the links but also shows that it doesn’t know how to stop on a particular link.

However, a somewhat more promising concept is that of 888Telsurf, which plans to not only offer information but also access to an online calendar and address book as well as over the phone reading of emails. Advertising revenues will finance their service, like the others. Unfortunately, none of those services are available now nor do they have announced launch dates.

Where is it all going?

Obviously, those services do not plan to stand still. Each of them is trying to establish a beachfront as the new “portal” to the Internet. I personally believe that a lot of those will end up either being acquired or striking significant relationships with the current group of already existing portals. Ultimately, all of them will have to follow the lead of 888telsurf by offering email, address book and calendars as part of their standard package.

While they are all squarely aimed at the consumer market, I think that at least one of them will break away and start offering the technology as a software offering, allowing corporations to set up private intranets with dial in interfaces. For example, one could be able to call into the main office to get part numbers on something they are selling, or check the latest sales statistics for a particular region.

Another potential use for the technology developed here is in the Ecommerce arena. Why not use that technology to offer a call-in service for ordering. Wanna get that new book from Amazon.com? Why not call 1–800-AMAZON (or whatever their number will be) and order it via phone. This could go over the scare hurdle that some people still have about online commerce.Or at least, it will give it a new dimension.

The other thing that could help those offerings become more popular would be the integration of comparative shopping features. I can see myself in a store, looking at prices on a particular item I want to buy, then pulling out my phone to check if someone will offer the same item for less.

Either way they play it, I think that this group of companies will present the first serious challenge to WAP, unless more content providers start offering WAP-enabled content (at current time, the selection is fairly weak).

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Challenging WAP?. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Last week, while on a business trip in California, I bumped into what may be the largest barrier to a wireless Internet: lack of connectivity.

San Francisco had OK coverage but the Silicon Valley, supposedly ground zero for the Internet revolution, seemed to lack the proper infrastructure. At any moment, your connectivity is jeopardized and a move of a few feet can make all the difference in the world between connection and lack thereof. All and all, a sad state of affairs.

However, it was perfectly understandable, considering all the hills and valleys covering the area. What is more worrisome is that I have yet to find someone else addressing this issue. In the last week, I have talked with several people in that area and most of them looked at wireless internet access as somewhat of an oddity. All the people I talked to are actively involved in the Internet industry, either as I-builders, content developers, or software manufacturers. All of them took it for granted that bad cellular coverage and lack of reception was a fact of life. A lot of them were involved in wireless development.

What does all this mean? It means that we are dealing with people developing applications without really using them. Is that good? I doubt it. From my point of view, one can only make truly revolutionary advances in a field if he or she lives within that environment.

So the progress will have to come from somewhere else. Last year, I warned of Europe potentially becoming centerstage to the Internet revolution; This year, I am starting to see proof of that.

In Finland, Nokia has already connected most of the country with a very impressive WAP network. 65% of the people have cell phones and most of those are WAP enabled. Want to check a movie time or restaurant reviews, you can do so, using WAPit, one of the largest portals in the world for WAP applications (unfortunately, most of the content is in Finnish so if you dot know the language, is pretty difficult to use).

Most people over there send short e-mail like messages over the SMS protocol. At 160 characters per message, you cannot say much but is enough for “Meet you at the movie theater at 7pm” or “Lunch?”

In Spain, Motorola and Packet Video recently demonstrated wireless video over a GPRS ( the next generation of high speed GSM) network. For the Barcelona exhibition, both streaming and live video content are being provided from the Internet and a selection of web cameras, and transported across the Motorola end-to-end GPRS solution to the end-user device. The web cameras are situated at PacketVideo’s headquarters in San Diego, at the Barcelona congress centre itself, and at the Invisix centre of excellence in London, a Motorola/Cisco joint venture says the press release.

In Japan, the revolution is in color. A recent survey by Nikkei Market Access showed that over half of the Japanese phones produced this year will have color LCD screens. Those will be use to not only surf the web (in full color) but also potentially to do videoconferencing over GPRS.

Why is progress happening outside to the US? Quite simply put, because they have agreed on a standard (GSM) and are now all working on building its next generation. In the US, we are crippled by a number of different proposals from each of the providers, which has crippled progress as each company goes its own way developing its own proprietary network and technology.

What is needed now is for the American wireless service providers to sit down and agree on implementing GSM. Once that first step is accomplished, they will then need to figure out a system to charge each others back for carrying a competitors traffic on their network. Here’s how it would work. At some set times, the wireless service providers would sit down and agree on a standard and a rollout schedule. Once that is accomplished, they would jointly rollout GSM networks all over the country and work on building a system that would allow anyone to use anyone else’s wireless network. The companies would then charge each others back at the end of the month for all the minutes that non-subscribers have spent on their network. The result would be increase coverage for everyone, but may be a little more expensive than the service we have nowadays.

Where phone companies would innovate is on package of new services they could offer and still on the discounting schemes they already offer.

The customers might have to pay a little more for service from their provider but they will not have to worry whether they are running on AT&T, Sprint, or someone else’s network.

Crazy concept? I dot think so. Do you worry about whose network you’re running on when you are making a long distance call on your landline? No, you do not and the kind of agreement I am talking about already exists among telcos in that space. Why should it be different in the wireless world?

You’re probably wondering why any company would agree to something like this? How about to regain a leadership position in the world market and allow to use your phone anywhere. If such a plan were to be put in place, you could technically have the same phone whether you are in the US or in another country and the wireless provider could expand into overseas markets more easily. Foreigners are already starting to get onto the American market (British company Vodafone, for example, merged its American wireless operations with Bell Atlantic). If American companies want to continue their growth, thell have to expand overseas.

Last but not least, the Internet industry will have to eventually push for something along those lines if it truly wants the wireless revolution to happen. Otherwise, the US will still remain one of the most disconnected country in the world.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title It’s Connectivity, Stupid!. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

I regret to announce the end of my efforts to mediate the Microsoft antitrust case

said Judge Posner in a statement released on Saturday, April 1st.

But it wasn’t.

After 4 months of discussions, any chance for a settlement between Microsoft and the US government seems to have ended fruitlessly. Many magazines, newspapers and web sites have been pointing out the fact that Judge Posner did not thank the states for their work in his brief statement. As a result, many believe that the states’ demands were largely responsible for the breakdown of the talks.

But the question remains as to what was the content of those talks. While most of the 20 drafts that were put together by the DOJ and Microsoft were kept a secret, word has leaked out regarding the content of some of those drafts. It includes:

• Uniform pricing structures that would disable Microsoft from offering preferential rebates and creating bundles for some partners.
• A provision forbidding Microsoft from striking exclusive contracts with other companies (for example, as it did with AOL, giving it an icon in Windows in exchange for packaging IE)
• Full disclosure of all the API to all Microsoft software, giving away what has long been believed to be a Microsoft advantage as it was supposedly allowing Microsoft internal programmers to develop software that better integrated with the Windows OS.
• Box manufacturers would be given source code to Windows and allowed to modify it at their will. They would be able to add and remove new features to it, such as, for example, changing the web browser. Microsoft would not be responsible for supporting those modified versions of windows.

Meanwhile, the 19 states involved in the negotiations would not go for anything less that a full break-up of Microsoft into several Baby Bills.

However, when you look at it closely, the proposal of the 19 states may be a bit shortsighted.

By creating a set of Baby Bills, we might end up with not one but several monopolies: One in the OS space (Windows has over 90% penetration in the consumer market), one in the application space (Office has more than 90% market share in the office suite market on both the PC and the Mac), and potentially in the Internet space (Internet Explorer has now supplanted Netscape Navigator as the browser with the largest market share).

However, while this case has become the computer equivalent of afternoon soap operas, with people tracking its every move, whatever happens this week when Judge Jackson presents a ruling that will most probably be unfavorable to Microsoft, may have little influence on the computer industry.

First of all, Microsoft will most probably appeal the ruling, going all the way to the supreme court and thus delaying its final impact for at least another year.

For starters, a lot of the battle is around Microsoft Windows and its larger implications in terms of helping Microsoft control the Internet. However, the landscape has dramatically changed since the DOJ and 20 states filed their case against Microsoft. The case was originally kicked off by Netscape as a salvo against Microsoft in the browser battle. Since then, Netscape has become a unit of the new behemoth in the Internet industry: America Online. AOL, which recently announced it would acquire Time-Warner, was playing both side of the fence. On the one hand, they are Netscape’s owners, and on the other, they are bundling IE as part of their client (of course, this allows them to also have an icon in Microsoft Windows, which has been in large part responsible for their success in customer growth).

At the time, Microsoft did have an inferior browser and was loosing in the marketplace. However, with the release of IE 4.0, and subsequent release of their 5.0 client, they started to gain market shares. Netscape was not happy about that. On the one hand, Microsoft was going faster than they were in terms of releasing new products. And, on the other hand, Microsoft was working on developing a version that would run better on four platforms: Windows, Macintosh, Solaris and HPUX. Meanwhile, Netscape was trying to support their browser on no less than 18 different platforms.

The interesting thing was that Netscape was complaining that Microsoft was going to compete with them. Yet, they were making it clear that they were out to:

replace Windows

and when they lost went to the DOJ to complain about Microsoft making their browser available for free even though they had adopted the same tactic long before Microsoft did.

Netscape’s failure was in the marketplace but since resentment of Microsoft’s success has always been a good thing to bet on, it played the legal card and got the proceeding started.

Meanwhile, Microsoft pushed more and more products out but failed to capture significant market shares in some critical Internet areas.

First, it attacked the online service business. AOL became the top online service, beating out Microsoft’s own MSN, even though MSN was bundled with Windows (this interesting little fact seems to show that bundling software with Windows is no guarantee that it will win out in the end.)

Realizing that it was loosing on that end, Microsoft decided to recast MSN as a portal but that decision was made too late and Yahoo! became the top search engine, followed by AOL’s own site.

On the server end, Microsoft is still trailing the free Apache server for the top position by a very large margin (Apache has a 60% market share, while Microsoft’s IIS has a 20% one). It’s efforts to cast its back-office suite of tools as the Internet suite of choice seems to have gone about as badly, with Microsoft trailing Oracle in the database space. Furthermore, some of Microsoft’s efforts to capitalize on their windows platform (remember ActiveX anyone?) have been received with less than enthusiasm by the development community… and let’s not forget Linux. While Microsoft was trying to make a big push against Solaris on the server end, the Linux crowd started going after the mid-size server market. As a result, Microsoft has not participated in the growth that other server-end operating systems have seen in the past few years. Linux has taken most of that growth away from Microsoft, representing a major threat to Windows NT. Linux has now become such a threat to Microsoft that the company is now breaking its own rule of never mentioning some other company’s software in presentations.

In new markets, Microsoft has also seen some very strong competition. While it has been moderately successful in the convergence space with WebTV (a company it bought for $420 million), the battle is just starting and AOL will soon be able to bring the power of its 22 million strong user base to the party, giving Microsoft’s some new headaches (WebTV has about 1 million users).

On the wireless end, Microsoft’s attempt to push Windows-CE against the PalmOS has been rebuffed and Palm computing has been very smart in licensing its operating system to cell phone vendors and other partners, creating a new platform Microsoft has to battle.

Last but not least, Microsoft is now trying to enter the gaming console market (with their X-box, promised for a Christmas 2001 release) and is thus entering another market in which it has little or no market shares.

When you look at this, you may say, well, why would anyone care about Microsoft’s dominance. It seems to be waning, right?

Well, yes and no. While the market is currently showing a company that’s fighting a war on multiple fronts, it’s also a company that has successfully managed to buy itself a seat at the telecom table (Microsoft now has investments in AT&T, Comcast, Nextel, and Qwest), as well as some other infrastructure plays (Akamai, Concetric Networks, Tut Systems).

What’s happened really, over the last few years, is that Microsoft stopped being a pure software company. Sure, it still sells software but its main business over the past few years has been as an investment firm. When you look at it this way, its dominance may somewhat make sense, much like Kleiner Perkins’ does.

As a result, I’m afraid a breakup could represent a major problem for our industry. For starters, look at the suggestion that’s been the most often floated: one company doing windows, another doing applications, and another doing Internet stuff. If you go with that breakup, you still have a dominant player in the OS market, a dominant player in the applications market (remember, this group would get MS Office) and a weak Internet company.

Most of Microsoft’s problems have stemmed from the fact that it has grown too big for its own good. For starters, it is now in so many markets that it is hard to figure out whether it really does wield as much power as it used to. Second, it is such a big organization that I seriously doubt programmers talk to each others as much as they should. However, if you were to break it up as more than three companies, you could get somewhere.

Let’s say we were to follow the logic of Microsoft as a VC firm. If we do so, it’s market cap is really not so huge, considering the number of companies it holds. It is, after all, a VC with over 200 companies in its portfolio.

Either way, the battle will go on and sometimes this week, a ruling will be issued but in the long run, I seriously doubt that anything that happens this week will have any lasting effect on the computer industry. Microsoft will win out or loose out in the marketplace, regardless of the outcome of this trial.

We’re living in too dynamic a marketplace for it all to make sense. In the end, however, we will all regret that case ever happening because it will set a precedent as to whether the government can get involved into IT affairs. It may be the only lasting effect we will all be forced to feel.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title MS-DOJ Talks Falter: So What?. You can follow him on twitter here or receive his weekly newsletter by subscribing here.