Tech Beat - BusinessWeek

LinkedIn Boards the Twitter Train

Rob Hof — Mon, 09 Nov 2009 22:59:53 -0500

These days, it seems that everyone wants to be pals with Twitter, the microblogging phenom. On the morning of Oct. 21, Microsoft announced a deal for its Bing search engine to search for Twitter updates known as tweets. Just hours later, Google announced a similar deal.

Not to be left out, the professional online networking service LinkedIn on Nov. 10 is announcing its own integration with Twitter. Users of both services will be able to sync some or all of their tweets on Twitter and "network updates" on LinkedIn.

Specifically, users in LinkedIn will be able to check a "tweet this" box near their network update post to Twitter. And while on Twitter, they can add the hashtags "#in" or "#li" to their posts to appear on LinkedIn. Finally, a new app called Tweets will let users put their Twitter streams on their LinkedIn profiles.

Here's a video with LinkedIn Executive Chairman Reid Hoffman and Twitter cofounder Biz Stone:

And here are the details in a blog post from Allen Blue, a LinkedIn cofounder and vice-president of product strategy:

Google Buys AdMob in Bid to Boost Mobile Ads

Rob Hof — Mon, 09 Nov 2009 12:25:49 -0500

In its third-largest acquisition to date, Google announced it's buying AdMob, a provider of mobile ad technologies, for $750 million in stock. The purchase, announced this morning, could give the relatively small market for ads on mobile devices a big boost.

The move also gives Google, whose Android software is being used more widely in smartphones such as the Motorola's new Droid, a key set of technologies to expand its advertising footprint beyond its signature text search ads. "Google could have built this itself, but this gives them a head start," says mobile analyst Greg Sterling of Sterling Market Intelligence. "It will thrust Google into the forefront of mobile display ads."

In particular, AdMob provides Google with the ability to serve display ads, the pictorial banners that are the chief revenue source for most Web sites, to cell phones and other mobile devices. Google last June introduced AdSense for Mobile in a bid to provide Web sites with display ads akin to its multibillion-dollar AdSense program for conventional Web sites.

But Sterling said AdSense for Mobile was still "fairly undeveloped." By contrast, he says, AdMob has richer advertising formats, especially ads inside mobile apps. These mini-programs have become enormously popular on the iPhone, which has more than 100,000 apps. That has prompted Android, with 12,000 apps; Palm; Blackberry maker Research in Motion; and others to join the apps frenzy.

At least one analyst views the role of AdMob in mobile ads as similar to that of DoubleClick, which Google bought early last year for $3.2 billion, in Web display ads. "To us, AdMob looks in some ways to be a DoubleClick for the mobile web," Broadpoint.AmTech analyst Ben Schachter said in a note to clients. "It should help not only to provide more relationships with mobile ad publishers and buyers, but also to provide a tested technology platform for monetization of mobile inventory and the delivery, tracking, and reporting of mobile ad campaigns."

Google said acquiring the team at AdMob, which employs about 140 people, was as important as the technology in accelerating Google's mobile display ad efforts. "We got a chance to get an unbelievable engineering team," Vic Gundotra, a Google vice president of engineering, said in an interview. Susan Wojcicki, Google's vice president of product management, added that AdMob founder Omar Hamoui is "really a visionary in this space."

Google CEO Eric Schmidt said recently that the search giant planned to make about an acquisition a month, mostly small purchases, while making a large acquisition every year or two. AdMob is seen as one of the large acquisitions, though the money involved is small next to Google's $178 billion market capitalization. Besides DoubleClick, Google has paid more only for video sharing site YouTube, which it bought for $1.7 billion in 2006.

AdMob's growth has attracted attention, though the privately held company doesn't reveal revenues. BusinessWeek recently featured AdMob as one of 50 companies that could be the next Google. Even more recently, a BusinessWeek story mentioned AdMob as a possible acquisition for Google.

Founded in January 2006, AdMob has some blue-chip customers such as Ford, Procter & Gamble, and Coca-Cola. It has raised $47.2 million in funding from Sequoia Capital, Accel Partners, DFJ Growth Fund, and Northgate Capital. AdMob claims on its Web site to have served more than 125 billion ad impressions.

Analyst Schachter said he was surprised Google decided to buy the technology rather than build it itself, given the nascent nature of mobile ads. He also said he would prefer Google pay cash from its $22 billion war chest to avoid share dilution. Google's share were rising 1.7% in midday trading, outpacing the Nasdaq's 1.4% increase.

For its part, Google clearly is seeking to blunt anticipated objections to the company's ever-growing power in online advertising, dedicating another Web page to the issue of competition. Google said AdMob is "just one of more than a dozen mobile ad networks in the U.S. that have proliferated in recent years." Google said it expects a regulatory review in the U.S., but not in Europe, because the mobile ad market is so small there.

Google then goes further to note how small the entire mobile ad market is to date. It notes that eMarketer estimates mobile ads brought in $416 million in 2009, compared with almost $24 billion for online advertising overall, $51 billion on television ads, and $38 billion on newspaper ads. That's an interesting point to make when it just spent three-quarters of a billion dollars on it.

Still, Google's entry not only will be seen as the biggest force in mobile advertising, but will signal that ads on cell phones could be the next big opportunity in online advertising.

RIM Teams With Adobe, Shows New Blackberry Features

Arik Hesseldahl — Mon, 09 Nov 2009 11:59:00 -0500

Blackberry maker Research In Motion is holding its Blackberry Developers Conference in San Francisco today, and is expected to announce some significant enhancements to its platform to give people building software for the device more features.

A few of the new features can be already be found in applications running on Apple's iPhone: In-application advertising, in-application purchasing, among others. But RIM has one key partnership that Apple doesn't: Adobe.

The companies will announce today that Adobe and RIM are expanding their existing collaboration, saying the software developers will be able to use Adobe's Flash -- the technology behind such sites as Google's YouTube and numerous other video sites on the Web -- in their applications.

Support for Flash is one of the most demanded features on the iPhone, but as Adobe's Adrian Ludwig explained in a recent post on a company blog, Apple has yet to allow support for Flash on the iPhone.

In a statement, Adobe said that developers will be able to use the forthcoming Adobe Creative Suite 5, which includes Photoshop, Illustrator and After Effects, to create graphic experiences for use on the Blackberry. Other Adobe tools, including Dreamweaver, Fireworks and Device Central, will support the creation of Blackberry widgets and content that's optimized for the Blackberry Web browser.

I spoke with RIM co-CEO Jim Balsillie on Friday, and he told me that other new features are coming to Blackberry App World, its application store. He said that the company will soon be adding device themes -- software and graphics that change the look and feel of its interface -- to the store, which will he said, "effectively double" the number of downloads available, right now numbering about 5,000. Additionally, he said that App World will allow developers to bill users for applications by way of the bill they get from their carrier.

Other features being announced today: New features for location based services. The Blackberry already has pretty good support for location by way of the GPS system of satellites. But GPS sometimes needs, help, especially indoors. To that end RIM is adding support in its applications that will allow developers to use other ways of getting location information into their apps. They can use a method called cell-site geolocation, which is a way to determine a position based on the nearest cell phone towers. Additionally, RIM is adding support for reverse geocoding, which takes GPS coordinates and then converts them into an address. So if the app knows your latitude and longitude, it can then tell you what the nearest address is. Another new feature: Travel time, effectively how long it will take you get where it is you want to go.

One developer taking advantage of the new features is Loopt, whose CEO Sam Altman was to be on stage to announce a new version of its application for the Blackberry that's designed to help you connect with friends and contacts who may be nearby. The app can update your location in real-time, even when its not directly running in the foreground. A screenshot is at the left.

Finally, I talked with Jeff Bonforte, CEO of Xobni, on Friday, a terrific plug-in for Microsoft Outlook that not only makes your mail highly searchable, but turns every bit of contact information that appears in your email into a super address book. Xobni will today demonstrate the first fruits of the investment it received from RIM's Blackberry Partners Fund. The Xobni team isn't making a formal announcement today but was expected to demonstrate its forthcoming Blackberry application. He was kind enough to provide me with a screen shot of what they're working on. It certainly looks interesting. Among other features Bonforte promises for the Blackberry app is integration of social media contact data from your contacts, meaning that when the app finds a contact information for someone, say in an email signature, it will also go out and find their LinkedIn, Facebook and Twitter information. He expects the app to see its official release early next year. Xobni on the desktop added Twitter support in September. Seeing as how I've struggled to clean up my address book, this just might be an application I would use.

Droid: The New Android Marketing Brand

Olga Kharif — Thu, 05 Nov 2009 09:58:00 -0500

This morning, Verizon Wireless announced Droid Eris, a new phone from HTC. The announcement comes on the heels of another, of Motorola Droid, another smartphone device based on Android software developed by Google and its partners. So Verizon Wireless has decided to develop a single brand for all Android-based phones it puts out: Droid, a company spokesperson confirms.

This strategy is a smart one: Currently, very few consumers are even aware of Android, or know what it is. With the Droid brand, Verizon Wireless is likely hoping to change that, and to make Droid phones stand out in the consumers' minds in the same way the Apple iPhone does. Indeed, Android-based phones are highly differentiated products: They are the only phones that can connect to and download apps from the Android Market, an app store for mobile games, calendar and productivity applications. They also can access services such as Google Maps Navigation, which offers voice turn-by-turn directions. It's important to point out these differences to consumers, and a single Droid brand can help achieve just that.

Google Dashboard: Control Panel for Your Data

Rob Hof — Thu, 05 Nov 2009 05:00:00 -0500

Early this morning, Google is launching a new feature that lets you view what data is being stored on a range of Google services. Google Dashboard also will let you control at least some of that data and how it's used by Google and even delete it.

Dashboard provides a summary of the data in Google products you use while signed in (if you're not signed in, that data isn't associated with you). For now, Dashboard aggregates Gmail, the photo service Picasa, Calendar, Google Docs, Alerts, YouTube, Web history, and some others. As early as next week, Google will start adding more services, such as Checkout, Google Groups, and SideWiki.

Google says Dashboard wasn't prompted by rising concerns about corporate use of people's data. But I don't doubt that Dashboard is intended to blunt complaints that Google collects so much data. In fact, Shuman Ghosemajumder, Google's business product manager for trust and safety, made a point of telling me that the company had briefed some regulators around the world on Dashboard.

Conficker a Year Later--Help Stamp It Out

Stephen Wildstrom — Wed, 04 Nov 2009 21:39:40 -0500

It's been a year since the Conficker worm first started turning up on Windows PCs and the Conficker Working Group estimates that there are still millions of computers infected with it. These systems are still a potential threat to their owners and to the health of the Internet as a whole, but there's a really easy way to find out if a computer is infected: the Conficker Eye Chart.

On a clean system, all of the images on this page will show up. If it's infected, some will be missing. The site includes simple instructions on how to interpret the results and how to remediate an infected system. Run it on your PC. Better yet, run it on your mother's PC and your kids' PCs.

Conficker still remains something of a mystery. Experts have no real idea of who is behind it or what it was intended to do, says Tom Cross, manager of X-Force Research at IBM Internet Security Systems who has worked closely with the Conficker Working Group. Despite the fears of security experts, the bots infected with the worm were never used to mount any sort of serious attack. What remains unknown is whether the infection was some sort of elaborate rehearsal for a future attack or if the vigilance of the computer security community prevented something worse from happening.

"Recovery Is Well Under Way," says Cisco's Chambers

Peter Burrows — Wed, 04 Nov 2009 16:27:23 -0500

Cisco just announced earnings for its first fiscal quarter that beat Wall Street's expectations by a wide margin, as well as its own expectations. The company posted revenue growth of 5%, far higher than the 1% to 3% it forecast three months ago. Operating margins of 29% and gross margins, at 66%, were also well above expectations. Those gross margins were the best in four years, CEO John Chambers told analysts on the conference call now underway.

He said that he expects we'll look back and see this as "a major inflection point." He believes the economy bottomed out in the first calendar quarter of 2009, began to recover in the second quarter and gained real momentum in the third. "The recovery is well under way," said Chambers.

Among many highlights, the company saw flat order growth in the US for the quarter ended on Oct. 30--a massive improvement from the 20% year-on-year declines of the last two quarters. While small businesses and phone carriers were much improved, the highlight was spending by US corporations. "We've seen a much faster recovery in their business than we had expected. The company seems to be well on the road to recovery," says Pacific Crest analyst Brent Bracelin. Indeed, Chambers forecast positive revenue growth in the current quarter, and even said it would begin limited hiring--though he warned any employees listening to the call that it would be "very targeted" on jobs that drive productivity growth or help grow into new markets.

The company warned shareholders not to assume the second half of the year would remain strong, and advised analysts not to update their models for the second half of the year given uncertainties about job growth and the sustainability of the recovery. "I just don't want us to get ahead of ourselves," said Chambers.

Still, the company did give a forecast for the current quarter, saying that it expects year over year growth of between 1% and 4%. That's in line with recent years, when the company averaged 3% growth in its second quarter--and much rosier than Wall Street analysts, who expected a revenue declilne. Gross margins could fall, due to product mix and some less expensive new products.

Given Cisco's huge size, product breadth and importance as a proxy for the health of the Internet, this is great news for tech in general. Bracelin notes that this marks the tenth out of twelve companies that sell primarily sell to corporations that has exceeded Wall Street expectations.

Some in the press have been raising questions about Chambers' long-term strategy, particularly the amount it has spent on acquisitions and on moving into dozens of "market adjacencies"--from Flip video cameras to heavy duty servers. Bracelin isn't one of them. With so many companies moving to virtualized data centers, "Cisco's goal is to be there as companies go through the biggest transition in many years," he says. "I think Cisco is doing all the right things, and it's way too premature to judge Cisco's strategy, when we're just coming out of the worst downturn since the Great Depression."

Certainly, Cisco seems as confident as I've ever seen it--and maybe more confident than any company I've ever seen. As Chambers pointed out, it did four large acquisitions in the last month, including $3 billion acquisitions of wireless services infrastructure company Starent and videoconferencing specialist Tandberg (although the bill for that deal may go up, given protests by Tandberg shareholders). What's more, the company is clearly ignoring critics who doubt that strategy. The evidence: the company okayed a $10 billion stock buyback. As Chambers told analysts, "There are some CEOs that are stepping on the gas pedal, but very few are doing what we're doing and pushing the gas pedal down all the way."

myTouch's Users Tap Into Android Market

Olga Kharif — Wed, 04 Nov 2009 13:29:40 -0500

Half of T-Mobile myTouch 3G users visit Android Market at least once a day, according to a Nov. 4 report from T-Mobile USA. As you'll recall, the carrier released the T-Mobile myTouch 3G device in August.

Here's why this is huge news: Until now, Android Market has not been as good at attracting smartphone users as the legendary Apple App Store, which now offers more than 100,000 apps to Android Market's 12,000. Most developers I've talked to say their Android Market sales have been tiny. The best apps have only sold thousands of copies in the Android Market vs. millions in the App Store. But all that well may be the thing of the past.

Devices that can tap into the Android Market have improved, and become easier to use: myTouch 3G represents only one of a bunch of new, compelling gadgets based on Android software developed by Google and its partners that are coming out en mass. What's more, Android Market's functionality has improved, and should evolve further in the next few months, making the store easier to use for both developers and consumers. Perhaps the Android Market will prove to be a Cinderella story yet.

BlackBerry's Big Advantage over Apple iPhone

Olga Kharif — Wed, 04 Nov 2009 13:03:14 -0500

BlackBerry devices enjoy at least one considerable advantage over rivals including the Apple iPhone: They use up much less wireless network capacity to complete the same tasks. That could prove to be an increasingly important advantage in the coming months.

A BlackBerry user can send 11 times the number of e-mails using up 50 Megabytes of network capacity than an iPhone user can, according to a recent report from Conaccord Adams analyst Peter Misek. A BlackBerry user can view 5,000 Web pages using the same amount of bandwidth as an iPhone would need to view 3,000 pages, according to the report. It's all the result of BlackBerry maker Research In Motion's global network of servers that efficiently pass the data to and from the device. Such a network would cost $50 billion to replicate, Misek figures.

Here's why this is a big deal: As more wireless networks and bandwidth-thirsty smartphones come online, wireless carriers' networks will be increasingly straining at the seams. Misek projects that network traffic is going to start exceeding capacity starting in 2010. To deal with this barrage of traffic, he expects carriers to start charging per Megabyte of data used. That means that iPhone users may have to pay 11 times more for the same number of e-mails as BlackBerry users. Those higher fees could make the iPhone much less appealing to consumers.

One solution: Apple and other smartphone makers may need to contract with RIM for the use of its back-end servers network, Misek says. Or, perhaps, its back-end infrastructure would prove valuable enough for some rival to buy RIM altogether.

Screen Shots of The New MSN

Peter Burrows — Wed, 04 Nov 2009 12:50:45 -0500

Microsoft unveiled a redesigned MSN.com homepage last night, as I wrote about in this story. Most of you probably aren't seeing it on your PCs, as Microsoft is rolling it out to only 10% of the US as of now. The roll-out is expected to be finished by January, says a Microsoft spokeswoman. Here's a preview link, and a couple of screen shots sent by the company.

NY AG Cuomo Files Antitrust Lawsuit Against Intel

Arik Hesseldahl — Wed, 04 Nov 2009 11:52:11 -0500

New York Attorney General Andrew Cuomo, has filed an antitrust lawsuit against the computer chip manufacturing giant Intel, accusing the company of engaging in a "systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power," in the market for computer chips starting in 2001.

The complaint alleges that Intel paid hundreds of millions and in some cases billions of dollars in rebates to PC manufacturers in an attempt to limit their use of chips from rival Advanced Micro Devices. When PC companies appeared to be getting too close to AMD, Intel would, the complaint says, threaten them with retribution by withholding payments they were receiving from Intel.

These payments, which Intel called "rebates," amounted to what Cuomo called "payoffs with no legitimate business purpose that Intel invented to disguise their anticompetitive nature."

"Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market," Cuomo said in a statement. "Intel's actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices. These illegal tactics must stop and competition must be restored to this vital marketplace."

The complaint paints a picture of PC makers struggling to maintain their slim profit margins, fearing that Intel's payments might dry up if they used AMD chips in their computers. The complaint accuses Intel of threatening PC makers with retaliation if they did business with AMD. During the period from 2001 to 2006, the complaint alleges, Dell sold no computers with AMD chips in exchange for billions in payments from Intel.

In cases where PC makers did business with AMD against its wishes, the complaint says that Intel made efforts to limit how much business AMD could get. In 2002, the complaint says, Intel reached an agreement with Hewlett-Packard under which HP would cap the amount of AMD-based computers it would offer at 5%, effectively giving Intel a guaranteed 95% share of HP's computer business.

The complaint also covers the server business, a space where AMD made some serious competitive gains against Intel during 2005 through 2007. In instance, the complaint alleges that IBM agreed to cancel a server that was to use AMD chips after being offered a $130 million payment from Intel and various threats. Another server that used AMD chips was marketed only on an "unbranded" basis, the complaint says.

Intel didn't immediately return a call seeking comment, but I'll update this post as soon as I hear from someone there.

The entire 87-page complaint is embedded below. There's a lot more information after the jump.

Cuomo v Intel Complaint Final

This is What Verizon's Largest Marketing Campaign Buys

Spencer Ante — Wed, 04 Nov 2009 10:54:42 -0500

Last Thursday, I went down to Union Square in downtown New York City and ran into Verizon's marketing juggernaut for its new Droid phone.

The new Motorola device, which was released today to the general public, is being supported by the single largest marketing campaign that Verizon has ever launched for a single device.

So what does all that money buy? Well, lots of glitzy TV commercials but also some cheesy live marketing events. As I got off the train at Union Square, I noticed a long line of about 75 people. The people were waiting to get the chance to play a game in which you could scoop up a Droid phone in one of those boardwalk games with the little hand-operated cranes. All that was missing was a carnival barker shouting into a megaphone with a monkey perched on his shoulder.

Verizon is clearly pulling out all the stops to turn the Droid into a hit. And so far, it seems to be working.

-- Spencer Ante also publishes the Creative Capital blog. Click here to read more.

Apple iPhone's China Problem

Olga Kharif — Tue, 03 Nov 2009 17:32:15 -0500

Apparently, China is impervious to Apple iPhone's charm. Apple's local partner, China Unicom, has only sold 5,000 units since the iPhone debuted in the country last week, according to reports. What's going on? Some observers blame the iPhone's high price. But consultant iSuppli points fingers at a different culprit: The Chinese gray market for the iPhone.

Tiny only a few years ago, China's gray market is now huge, it now accounts for nearly 13% of all legitimate global cell phone-sales. And total gray-market handset shipments are growing fast, expected to reach 145 million units in 2009, up 43.6% from 2008, according to a Nov. 3 iSuppli report. In contrast, worldwide unit shipments of legitimate cell phones will drop 8% this year, according to iSuppli. "Chinese gray-market handset suppliers have become so successful that they are grabbing share from major international handset [manufacturers]," says Kevin Wang, director, China Research, for iSuppli. And Apple is one of the manufacturers suffering as a result. While Apple waited to introduce the iPhone into the Chinese market, Chinese gray market vendors have filled in the gap with cheaper iPhone-like devices. So now, the locals see no need to rush out and buy the real thing.

Fury over California's Proposed TV Rules

Cliff Edwards — Tue, 03 Nov 2009 16:49:01 -0500

With the California Energy Commission seemingly on the verge of outlawing flat-screen TV models that guzzle energy, the consumer electronics industry is taking issue with what it says are blatantly false accusations about their products.

In a blistering op-ed piece published in the San Francisco Chronicle on Nov. 3, Gary Shapiro, president of the Consumer Electronics Association, suggests televisions have become an easy scapegoat for regulators who are afraid to tackle thorny issues about the nation's aging electricity grid, including the notion of building expensive new electricity plants and citing power lines in California communities.

Groups representing TV makers say that instead California regulators are being deceptive by promoting old energy-consumption figures for televisions when in fact many newer models burn no more energy than two 75-watt household light bulbs (which also are being banned).

The Plasma Display Coalition says it has asked the Energy Commission to update energy-use information widely accessible on the state web site, to no avail.

California's proposed regulations actually would be less strict than new Energy Star guidelines adopted in September. The difference is that the Energy Star 4.0 and 5.0 specifications, which won't take effect for a couple of years, are voluntary. There's no penalty if manufacturers don't meet them.

But the state's energy-consumption rules would force some manufacturers to remove some models from one of the largest retail markets in the country.

In the end, the griping may mean nothing. The commission, with the endorsement of Gov. Arnold Schwarzenegger, looks set to impose energy usage limits on sets in short order. Late Nov. 3, it delayed a potential vote until an Nov. 18 meeting to go over industry and consumer submissions and comments on the proposal.

One big question is whether any of the industry groups is considering whether to file suit against the state to stop the first phase from taking effect in 2011. So far they have been reluctant to reveal plans on that front.

Can Cisco Prove It's The Most Open Of Them All?

Peter Burrows — Tue, 03 Nov 2009 12:10:02 -0500

Cisco announced another major initiative today, called the Virtual Computing Environment coalition. It's designed to make it a power in the data center and the emerging world of cloud computing. The networking giant is partnering with storage king EMC and virtualization software leader VMWare. Their goal: to meld the companies' products into more integrated, efficient offerings, to decrease the headaches for customers that now have to cobble together their own servers, software, storage and networking gear...or pay big premiums to IT services providers to do it for them.

The focus is on selling pre-configured, pre-tested "v-blocks," for customers that want to use standardized data center building blocks (otherwise, they can choose from the three companies' existing product lines). The companies say they are also melding their sales and support teams, and have even created a joint venture that will work with big customers to design customized data centers to solve their particular problems. The emphasis, according to the coompanies, is on freeing corporate buyers and carriers from being locked-in to any one supplier or technology. "This brings together three companies that have a record of being open," Cisco CEO John T. Chambers said. "We're not going to try to lock you in."

But for an announcement that's supposed to be all about openness, CEO's John Chambers, Joe Tucci and Paul Maritz looked a bit lonely up there, from my perspective. Just last March, Chambers attracted a who's who of luminaries to help Cisco launch the first part of its data center assault: it's entry into the server market back in March. On hand for that event were top execs froom Microsoft, Intel, Accenture and BMC, and the press release listed companies such as Oracle, Red Hat and NetApp as partners as well.

Indeed, the backdrop behind this smallish coalition is not about more industry cooperation, but more division. It's another sign that the battle lines are being solidified in the epic battle for cloud computing relevance. While Microsoft and Cisco have long claimed to be in existing in contented co-opetition with each other, the coalition is not good news for Redmond's ambitions in virtualization software. Cisco is expected to announce new collaboration technologies on Nov. 9, which should turn up the heat on the rivalry in this important market. More broadly speaking, don't look for the coalition to push Azure, the data center operating system at the hear of Microsoft's own cloud strategy.

Even more interesting is the impact on Cisco's all-out war with HP, and its weakening partnership with IBM. Both of those companies used to resell billions of Cisco gear, but are increasingly pushing other brands (HP has its own line, and Big Blue has a partnership with Juniper). Could the coalition put Cisco in any favored position with VMWare and EMC--both key partners for these big computer makers? And Chambers suggests that the coalition's approach will drive plenty of services business for its partners--potentially taking some from IBM and HP, who make a huge part of their money in this market.

That's not an empty threat. Many times in the past, Cisco has helped pioneer new markets--not only through new products (usually acquired from some hot start-up), but by creating the necessary services to help customers take advantage of them. That's how Cisco went from nowhere to No. 1 in the corporate phone market, for example. But rather than maintain long-term consulting and outsourcing deals for itself, over time it seeks to build up an ecosystem of service providers to develop the market themselves. That way, Cisco expands the market for its products, as well as its sky-high margins.

Then again, this coalition is a new kind of animal. As Chambers pointed out in the call, Cisco has an excellent record at making acquisitions work, and it has a long heritage of successful partnerships. But this deal takes partnering to a new, deeper level. "We'll behave as one company," says Chambers, who says the coalition will reinvent "how companies work together to serve their customers." Holding it together will be a great personal trust between the CEOs, they say. Tucci notes that he has known Chambers for 20 years, and was once his boss. "I'd trust Joe with my life," said Chambers. And it was Tucci that put Maritz, a former Microsoft executive, in the top job at VMWare.

My hunch is that Chambers would have rather done a deal based on equity, rather than solely trust. With more than $30 billion burning a hole in his pocket, it's likely Cisco sought to increase its 1.63% ownership of VMWare. He even admitted during the call that he envied EMC's majority stake (the storage maker owns 82% of VMWare).