Tech Beat - BusinessWeek

Giffgaff MVNO Taps Into Crowd-Sourcing

Olga Kharif — Wed, 25 Nov 2009 13:19:04 -0500

Launched on Nov. 25, British wireless service provider Giffgaff is focused on costs, and it plans to use its customers to slash them. The company, which uses O2's network, awards customers points for answering customer service calls, suggesting ways to grow revenues, and creating marketing materials. Currently, the MVNO is searching for people to impersonate Humphrey Bogart and to shoot and upload the video ads promoting the service to YouTube, for example. The points can be used toward calls.

It remains to be seen whether this approach works; it just might. Customers who are that involved in a service are likely to be very loyal, and that's an asset in any business, and especially in pay-as-you-go wireless services.

Telcos like T-Mobile already use the approach, called crowd-sourcing. GetSatisfaction.com, for example, lets telcos connect with their consumers that are having problems with the service, or to get the customers' take on how to solve a particular problem. It also supports direct customer-to-customer help. So Giffgaff isn't exactly reinventing the wheel, it's just pushing it forward.

TiVo: Glass Half-Full or Half-Empty?

Cliff Edwards — Wed, 25 Nov 2009 13:14:24 -0500

Digital video recording pioneer TiVo just can't seem to shake its good news, bad news reputation.

Investors have found a lot to like about TiVo this year, bidding its stock up more than 50% to more than $10 a share. It has struck deals to add its best-in-class software to DirecTV set-top boxes, Comcast and other providers. It's won important patent-infringement lawsuits against Echostar's Dish Network, and is pursuing similar relief from AT&T and Verizon.

On Nov. 24, there was more good news. TiVo will develop a converged television and broadband interactive interface to power Virgin Media's next-generation, high-definition set top boxes, including non-DVR units.And it announced it had struck a deal to provide audience research data to Google for use in its TV ads platform.

But it was tempered by a third-quarter earnings report the same day that revealed the company continues its money-losing ways. True, the net loss of $6.7 million was better than management’s guidance range of loss of $8 million to $10 million. But revenue of $47.1 million was below consensus forecasts of $49.7 million. The company also lost a whopping 314,000 subscribers.

It's clear that 2010 will be a pivotal year for TiVo. It will need to bolster its armor by finally getting the long-delayed DirecTV HD TiVo onto the market. It will need to extract more licensing deals with set-top box makers around the world.

More important,it will have to invest millions more in engineering resources to upgrade a user interface that hasn't changed substantially in 10 years. With other companies moving to widgets and other pictorial interfaces that offer simpler navigation and search, the one-time innovator risks getting lost in the shuffle.

Skype's Executive Shake-Up Begins

Olga Kharif — Wed, 25 Nov 2009 12:44:20 -0500

On Nov. 24, Skype's chief operating officer, Scott Durchslag, announced he'll be leaving the Web-calling company. Chances are, this announcement is just the first of many executive changes to come now that new owners have taken charge of Skype.

The new owners include Skype founder Niklas Zennstrom, who likely has his own ideas about how to run the company and who should do the running, believe analysts. Some industry insiders believe Zennstrom would like to get into the driver seat himself. In the past, other Skype investors have told me they are happy with work current CEO Josh Silverman is doing, however.

But as six-year-old Skype tries to make it on its own again, instead of growing as part of the eBay conglomerate, its staff will inevitably change as will its culture. Its execs have long prided themselves on running the Web-calling enterprise as a start-up; now, however, they will have to live that start-up life for real.

Google to Prompt Other Mobile Ads Networks Buys

Olga Kharif — Mon, 23 Nov 2009 15:51:04 -0500

Even post its recent acquisition of AdMob, Google is far from dominant in mobile ads, though it does control the largest, 24% slice of the market, according to a Nov. 23 report from consultant IDC. Google and AdMob should report $68 million in mobile ad revenue this year, IDC estimates. But Millennial Media, with its $51 million in sales, is nipping at Google's heels. And Yahoo and Microsoft are firing on all cylinders in mobile ads as well.

Chances are, Google's acquisition will prompt additional purchases by its competitors, and they won't come cheap. "....both Yahoo! and Microsoft cannot afford to not also acquire either Millennial Media or Quattro Wireless, given that Google and AdMob's combined revenue will be more than twice that of Yahoo!'s and three times that of Microsoft's," writes analyst Karsten Weide. "The problem for both Yahoo! and Microsoft is that Google's valuation of AdMob of at least ten times 2009 worldwide revenue, more likely significantly more than that, will set Millennial's and Quattro's expectations: They could expect valuations of at least $550 million and $400 million, respectively."

Google Buys Teracent to Boost Display Ad Push

Rob Hof — Mon, 23 Nov 2009 14:03:23 -0500

If anyone doubted Google was serious about online display advertising, those doubts surely were quashed today. This morning, Google announced the acquisition of Teracent, a startup that helps advertisers format and more precisely target display ads to particular groups of people. In real time, Teracent can reformat ads based on geography, language, and other factors, so a single ad can be customized with thousands of variations.

Teracent, whose staff includes former executives of Yahoo and Google's DoubleClick, was widely seen as a likely acquisition by Google. Indeed, I talked with Teracent executives months ago and asked if an acquisition by Google was a possibility. Of course, their stock answer was that they're trying to build a company, yada yada, but they also made it clear that a takeout by Google was a distinct possibility. The company has raised about $5.8 million mainly from New Enterprise Associates.

The acquisition, small enough that Google isn't required to disclose its terms, is the latest in a series of moves the search advertising giant has made to become a power in display ads, the pictorial banners that support most Web sites. On Nov. 9, it announced plans to acquire mobile display ad firm AdMob for $750 million in stock. And in September, Google relaunched a long-awaited advertising exchange that grew out of its $3.2 billion purchase last year of the display ad firm DoubleClick.

Teracent probably won't be the last acquisition to bolster Google's display efforts. The moves come at a time when display ad leader Yahoo is struggling to right itself--and at a time when the recession has dealt display ads a heavy blow. Although Google recently has seen its search ad business improve after a slowdown for much of this year, display ads are seen as the next potential growth area for the company.

Here's the blog post from Neal Mohan, Google's vice president of product management, and engineering director Joerg Heilig:

Calix Files IPO. Will Cyan Be Mike Hatfield's Next Big Hit?

Peter Burrows — Sat, 21 Nov 2009 00:57:18 -0500

After years of rumors, Calix Inc. finally filed to go public today.

Here's the filing, which is sure to put CEO Carl Russo back in the spotlight. Besides being one of the funniest, most free-wheeling executives one is likely to meet, he's also famous for having sold start-up Cerent Inc. to Cisco Systems in 1999 for $7 billion. Cerent had already filed for its IPO before Cisco came calling, paying one of the frothiest valuations of the late 1990s.

But while Russo may have been the front-man for Cerent and now for Calix, the founder of both companies was Mike Hatfield (He actually had a few co-founders on Cyan). While less well-known, he's got a sterling record when it comes to knowing where the puck is going in networking. After stints at former high-fliers DSC and AFC during the formative days of the Information Superhighway, he created Cerent in 1997 to build optical networking gear used by phone companies to move massive amounts of voice and data traffic through the "core" of the Internet that connects major cities and regions.

Of course, demand for networking gear of all types crashed just a year later with the Net Bust, as it became clear that far too much capacity had been built. Nonetheless, Hatfield founded Calix just months later to take a crack at what had long been considered the least appealing part of the networking market: the so-called "access" gear that delivers traffic over "the last mile," from the phone companies' central offices located in towns and neighborhoods to each subscriber's home. Traditionally, companies competed hard to make a thin profit on this more commoditized gear. But Hatfield sensed that Calix could attract a lot of attention if its boxes helped phone companies deliver more than just phone service. After all, cable companies were trying to add phone service to their menu of offerings, and Calix' gear would let phone companies add TV and other services to their basic voice plans. According to its IPO filing, the company had $250 million in revenuees in 2008, though it lost $12.9 million on the year (so evidently Calix hasn't been as successful at figuring out how to fatten those margins on access gear.)

So if Cerent was about the "core" and Calix was about the "edge," guess where Cyan is aiming? That's right--at "the middle mile." This is gear that connects the central offices to the core network. While most venture capitalists are still loath to invest in any networking start-ups (Hatfield figures they lost $2 billion on them during the Net Bust), he figures this section will be the next big chokepoint on the Internet. The reason: millions of people are now routinely consuming and sending high-definition video and other weighty digital fare, to a broader range of devices, such as the iPhone. But much of this middle mile still contains huge amounts of old copper lines rather than higher-capacity fiber-optics. Cyan's gear is designed to help carriers make the most of what they have, as they move to networks more capable of handling the load.

More than technology, Hatfield says Cyan is one of a new generation of networking companies with much lower-cost business models. That's critical, because carriers can't afford to just keep buying more of the same pricier gear as Net traffic continues to soar. While it has typically cost hundreds of millions of dollars to build a cutting-edge networking company in the past, he thinks Cyan will cost a tenth as much. It's not just that consumers are demanding so much more bandwidth, but that they're not willing to pay for it. "Today's bandwidth hogs are the consumers of the future," he says."Consumers aren't going to pay ten times the money for ten times the bandwidth," he says. See a video interview with Hatfield, with the site Light Reading, here.

He says Cyan's costs are so much lower because it relies on open source software and off-the-shelf communications chips--rather than proprietary code and chips (sounds like Arista, which I wrote about in the magazine a few weeks back). Evidently, Cyan is off to a promising start. Hatfield says the company already has more than 20 customers, and more are on the way thanks to the Federal broadband stimulus program.

DT to Seek U.S. Partners for T-Mobile USA

Olga Kharif — Fri, 20 Nov 2009 13:57:04 -0500

T-Mobile USA's parent Deutsche Telekom is looking for U.S. partners to help fund the U.S. wireless carrier's network build-out, according to a report from Reuters and a German newspaper. Potential partners may include Clearwire, MetroPCS or Leap, according to the report.

Neither of these partners may have the funds for such a deal, however. Clearwire has just raised more than $1.5 billion in funding; but that's less than half of what it needs for its own network build-out through 2013, according to analysts. MetroPCS and Leap are still small companies, struggling to keep growing amidst rising competition. MetroPCS's subscriber additions in the third quarter were less than a third of what they were a year ago.

Yes, it is possible that all these struggling, smaller competitors will decide to band together and to fund one network, to be used by all -- say, Clearwire's. Most of them address a different market segment, so they won't compete with each other too much: T-Mobile goes after the hip, young crowd (though it's also pursuing prepaid customers). Clearwire offers mobile broadband services for laptops. MetroPCS and Leap have made their names on prepaid wireless plans.

But I would argue that what T-Mobile USA needs is to be paired up with a cash-rich, well-to-do giant, instead. After all, you put a bunch of struggling companies together, and you often end up with a large struggling company.

It seems to me that DT should, instead, look in a different direction -- to AT&T, for example. AT&T is healthy and has the funds to help T-Mobile out. It also currently uses the same type of networking equipment as T-Mobile, and could help T-Mobile migrate to next-generation technology more smoothly. While such an alliance could, potentially, raise the anti-trust flag, a deal could, perhaps, be structured in such a way as to overcome such concerns.

Dell Disappoints on 3Q Sales and Profits

Aaron Ricadela — Thu, 19 Nov 2009 16:33:15 -0500

Dell missed even modest expectations for its fiscal third quarter ended Oct. 30, but CFO Brian Gladden pointed to a sequential rise in fourth-quarter sales helped by the launch of Windows 7.

In its Nov. 19 earnings report, Dell said sales fell 15% to $12.9 billion. Net income fell by 54% to $337 million, or 23 cents per share after excluding certain one-time items. Wall Street analysts had expected Dell to earn 28 cents a share on sales of $13.1 billion. A year ago, Dell reported earnings of $727 million, or 37 cents per share, on $15.2 billion in sales.

Shares of Dell fell by nearly 6% in extended trading after the report. At the end of regular trading Nov. 19, Dell’s stock closed down 19 cents, or 1.2%, at 15.87.

The weakness was spread across nearly all of Dell’s businesses. Sales to large businesses bore the brunt of the declines as information technology departments continue to keep a tight rein on costs. Nearly 80% of Dell’s sales are to businesses and government customers. “We are losing share in the aggregate” because of a heavy reliance on commercial sales, Gladden told reporters during a conference call after the results were announced.

Dell didn’t see much benefit from Microsoft’s launch of its new Windows 7 operating system on Oct. 22, since Dell’s quarter ended eight days later. In the two weeks leading up to the launch, customers put off PC purchases to avoid buying machines with older software running on them, Gladden said. “We built a little backlog as a result, and we’ll ship through that in the fourth quarter,” he said.

Dell’s gross profit margin came in at 17.3%, or 18.3% after excluding one-time expenses related to the closure of a plant in North Carolina. Shaw Wu, an analyst at Kaufman Bros., said he was expecting an 18.6% profit margin in a Nov. 19 research note.

Dell’s consumer sales fell by 10% during the quarter, but Gladden said Dell “walked away from some retail business during the quarter” that wasn’t acceptably profitable in order to preserve margins.

Turn back to BusinessWeek.com later tonight for a full report on Dell’s third quarter, and a look at what’s ahead for the company.

Salesforce Jumps Into Collaboration Software With Chatter

Aaron Ricadela — Wed, 18 Nov 2009 15:27:45 -0500

Salesforce.com Chief Executive Marc Benioff has never been shy about borrowing a bit of other companies’ mojo. On Nov, 18, he introduced the software company’s latest product, a business collaboration tool that takes pages from the playbooks of Facebook and Twitter.

Salesforce will begin selling the new software, called Chatter, next year at a price of $50 per user each month. The software works with Salesforce’s core customer management software to display “profiles” of employees and posts about projects they’re working on or customers they’ve visited. “I know more about these strangers on Facebook than I do about my own employees and what they’re working on,” Benioff said during a speech at the company’s Dreamforce conference in San Francisco. “I know when my friends went to the movies, but not when my VP of sales visited our top customer.”

Chatter pushes Salesforce, expected to reach $1.3 billion in revenues this year, into the crowded field for collaboration software. Salesforce is trying to expand beyond the customer management software that’s been its bread and butter. Microsoft’s SharePoint Server, an IBM product called Atlas that works with its Lotus e-mail software, and Google’s recently introduced Wave all offer business users the ability to share information and hold conversations on the Web.

Software developers will be able to use Chatter to build their own applications, Salesforce said. The move comes as some of the tech industry’s largest vendors are releasing tools that let programmers create cloud computing applications delivered over the Internet. Microsoft on Nov. 17 launched Windows Azure, software for letting Windows developers build cloud computing applications using familiar Microsoft technologies. Google and Amazon.com also offer tools for developers to build cloud applications.

Look for updated coverage on BusinessWeek.com, including excepts from an interview I’ll conduct with Benioff later today.

FCC to Speed Wireless Tower Approvals

Stephen Wildstrom — Wed, 18 Nov 2009 12:07:33 -0500

With network neutrality rules in the works and an investigation into handset exclusivity deals underway, the Federal Communications Commission has not been a great favorite of the wireless industry of late. But today the FCC threw carriers a badly wanted sop with new rules that require state and local governments to speed up action on applications for wireless tower locations.

The unanimous "declaratory ruling" made good on a promise FCC Chairman Julius Genachowski made in an otherwise coolly received speech at an industry conference in early October. Under the new rules, state and local governments must act within 90 days of receiving an application for a co-location, that is, a tower site to be shared with other operators, and 150 days for other applications. Carriers have complained that governments are frustrating their efforts to improve coverage by sitting on tower applications indefinitely.

The FCC also ruled that state or local governments may not use the fact that wireless service is available from another carrier as ground for rejecting an application. And they may not require a zoning variance for every cell site.

In-Stat: Carriers to Sell 1/3 of All Notebooks by 2013

Olga Kharif — Wed, 18 Nov 2009 11:32:37 -0500

By 2013, carriers will sell 31% of all notebooks, according to a Nov. 18 report from consultant In-Stat. What this means is, in three years, nearly a third of new laptop buyers will be paying carriers like Verizon Wireless and AT&T a monthly laptop service fee, which stands at around $60 in the U.S. today. That fee would come in addition to what consumers pay for their mobile phone service.

For carriers, this additional fee spells a revenue bonanza. An average American pays $50 in wireless service fees today, according to industry association CTIA. As consumers tuck on additional data services, such as those for their new laptops, netbooks and smartphones, that amount could begin to climb, even if voice minute charges keep on shrinking. Average monthly bill amount has been essentially flat since 2003.

Money Transfer: The Top Mobile App of 2012?

Olga Kharif — Wed, 18 Nov 2009 10:13:53 -0500

Money transfer will be the No. 1 consumer application in year 2012, according to Nov. 18 report from consultant Gartner. The app is expected to have more revenue potential than mobile search and browsing, mobile health monitoring and mobile music. In fact, mobile transfers are expected to be an even bigger business than various types of mobile payments, such as using cell phones to pay for produce at grocery stores.

Money transfers' popularity shouldn't come as a surprise. This is a huge business in the U.S. and around the world already. Today, most consumers have to come into, say, a Western Union location or use their PC to complete a transaction. It can be problematic and time-consuming for many people to get to either one; but most everyone carries a phone. Another consultant, Juniper Research, expects international mobile money transfers to top $65 billion by 2014.

For the top 10 features Gartner expects to be present on smartphones in 2012, check out this list.

In Factery Labs' Search Engine, Facts Trump Links

Rob Hof — Tue, 17 Nov 2009 07:00:00 -0500

Despite Google's inexorable gains in Internet search market share, search startups (and behemoths) keep trying to improve upon the search giant's results.

Factery Labs, debuting early Nov. 17, aims to pick up where Google leaves off. Instead of providing the usual list of Web pages, the Menlo Park (Calif.)-based startup reads all those pages first and then extracts facts from them by zeroing in on sentences--strings with a subject, then a verb--and assuming they represent facts of some kind. Then it creates an index of those facts and ranks them. The technology is called FactRank, in a nod to Google's patented PageRank.

"People want facts" out of their searches, says Factery Labs cofounder and President Paul Pedersen, a veteran of search engines such as Infoseek, Google, and Powerset and founder of data management firm Mark Logic. "They want to know right here and right now."

Moto Droid Off To A Good Start. But Is It Good Enough?

Peter Burrows — Mon, 16 Nov 2009 12:28:55 -0500

Market research firm Flurry, which tracks smart phone market share by monitoring usage of thousands of mobile apps, says Motorola sold 250,000 of its Droid smart phones in the device's first week on the market. That's not bad. HTC's MyTouch sold just 60,000 in its first week. And analysts believe Palm sold between 90,000 and 100,000 of its Pre smart phone when it came on the market earlier this year.

But the question is what happens to Droid sales in week two, three and those that follow--as dozens of other Android phones are expected to hit the market, as Olga Kharif points out in her story in the magazine. As of now, the device--which has gotten mostly good reviews--is benefiting from a huge marketing push from Verizon, estimated to total around $100 million. No doubt, you've seen the "I Don't" ads, which clearly position Droid as a superior alternative to Apple's iPhone.

That's an effective advertising campaign, especially when combined with Verizon's "there's a map for that" ads that bust on AT&T's reputation for spotty 3G coverage. Former Motorola CEO Ed Zander, for one, thinks Moto "has a good shot to sell a ton of Droids" if the device emerges as the gotta-have phone on the Verizon network. Indeed, if Motorola can maintain this 250,000-a-week clip for a quarter, it would move 3.25 million Droids. That would make it a blockbuster and the iPhone's nearest rival. Apple sold 7.4 million of its iPhone 3Gs in the company's just announced fiscal quarter. And Flurry's Peter Farago says the firm's data shows that Apple sold 600,000 iPhones during Droid's debut week.

But Droid's main competition isn't really the iPhone: it's fragmentation of the Android market. Clearly, Apple will have no problem keeping consumers focused on its device. The iPhone is the only smart phone Apple sells, and the company spends beaucoup bucks reinforcing a clear, powerful message: buy an iPhone, and get the benefit of Apple quality as well as those 100,000 apps in the App Store.

Now consider Motorola's challenge. Within weeks, consumers who go into a Verizon store will have many of different phones to choose from. Many of these devices will have a different "skin", a layer of software interface to make it stand out. That may make strategic sense on paper, but all these different interfaces is bound to confuse consumers. Also, it's not clear to me whether all of those 12,000-plus Android apps will run on all Android devices, further muddling the message.

And Zander wonders if consumers will be put off by the complexity of the Android model. It's bad enough with the iPhone, where Apple is responsible for the device and AT&T for the network. With Android, "are you buying from Verizon, or Google or Motorola?" While Zander thinks current Motorola CEO Sanjay Jha has done "a helluva job," he also thinks "there are a lot of competitors in this space. It's going to be an interesting Christmas."

Startups: Job Creation Engines (Are You Listening Obama?)

Spencer Ante — Mon, 16 Nov 2009 12:28:07 -0500

In this week's issue of BusinessWeek, we published the inaugural list of "The World's Most Intriguing New Companies." I am thrilled that we launched the package right as Global Entrepreneurship Week kicks off, taking place Nov. 16-22, in 85 nations.

In my lead story for the package, "Fertile Ground for Startups," I made two big points:
1. Startups are playing an increasingly important role in American business
2. Startups may play a central role in any recovery.

There was one startling new study, based on 2007 Census data, I was unable to work into the story that I want to highlight now, which provides some empirical evidence supporting the second point.

According to a new study by the Ewing Marion Kauffman Foundation, which was co-written by the respected economist Robert Litan, companies less than five years old generated nearly two-third of the net new jobs created in the U.S. in 2007. Without these startups, "net job creation for the American economy would be negative in all but a handful of years."

The upshot: It is clear more than ever that new companies and the entrepreneurs that lead them are the engines of job creation and economic recovery.

It is well known within economic circles that new companies produce the majority of new jobs in the U.S. economy. What this reports reveals for the first time is extent of that trend, and the fact that startups play a particularly important role in growing jobs out of a recession. New companies have produced all of the net new jobs in the U.S. from 2001-2007, and also from 1980-1983, the last big American downturn, according to the study.

This has huge implications for the Obama Administration as it tries to get the economy growing again. It also suggests a shift in focus and policy. Instead of focusing on saving large and dying industries (i.e. automakers and banks), the Obama Admin. should "begin paying more attention to removing roadblocks to entrepreneurs who will lead us out our current (well-founded) pessimism about jobs and sustain economic expansion over the long run," wrote the authors of the report.

One idea the authors float: granting a payroll tax holiday for new companies. This is a great and timely idea, especially since the expected health care reform law is supposed to increase the cost of doing business for new companies. Such a targeted tax cut could help offset the pain of health care reform and give new employers more of a reason to ramp up hiring.

This isn't to discount the role that big companies play in job creation. Large companies with 10,000 or more employees account for more than 10% of net job creation. But even then the authors note that those new net jobs may stem from the process of big companies acquiring young ones. "One of the only ways for big companies to add net jobs is to acquire younger companies that are not only generating jobs, but also are responsible for a good number of innovations that will keep the bigger company's revenue from diminishing," write the authors.

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

Where Will the Jobs Come From? Startups!