Kundra carried a bit of a reputation as a wunderkind. Born in New Delhi, reared in Tanzania before moving to the Washington, D.C., area, and fluent in Swahili, Hindi and English, he hit perfectly the ideal of the bright young minds marching into Washington after the 2008 election, seeking to cast out the crusty defenders of the seemingly incurable institutional inertia for which the nation’s capital is infamous and leave in its place a government whose parts looked shiny and new.

A big problem with the federal government, he said in the final days of the Bush-to-Obama transition, was that “process had trumped outcome.” Complying with the rules made it near impossible to spur innovation within the halls of government. His brief as he assumed office in early 2009 was to change that.

Today he announced plans to step down and take a position at Harvard University, where he will be a joint fellow at the John F. Kennedy School of Government and the Berkman Center for Internet and Society. (See Harvard’s statement here.) So what was the overall effect of his two years and change in office?

As the CTO of the government of the District of Columbia, he famously adopted Google Apps and did away with Microsoft Office as that body’s standard office suite for its 38,000 employees. A similar effort to bring Google Apps to federal agencies quickly got messy as it devolved into a squabble between Microsoft and Google.

On other fronts, Kundra sought to inject the kind of common sense to which official Washington has often been resistant. He loosened rules on government-issued wireless phones because federal employees hated the devices they were being given, approving iPhones and BlackBerrys and even the occasional iPad for use at federal agencies, provided they could be made secure.

Ostensibly in charge of some $80 billion in information technology spending — arguably the largest IT budget in the world — he aimed to make agencies more accountable for their spending. He launched an IT spending dashboard intended to allow people to see for themselves how money was being spent. The result was about what you’d expect: Many federal IT projects were over budget, behind schedule, not delivering the needed result or some combination of all three. He ordered some cut back, others killed.

Openness and transparency, constant bywords of the early Obama presidency, were made real by Data.gov, paymentaccuracy.gov and USASpending.gov. Citizens could, in theory, look in on the spending of their tax dollars with no more effort than that required for a Google search. In coming weeks, these and other sites like them will either freeze or go dark entirely, having lost their funding. Some of these included sites in Kundra’s portfolio.

A convert to the new religion of cloud computing, he announced last month plans to move 78 different government programs that today account for $20 billion in spending to cloud-based services in order to save $5 billion a year. He talked about the plan at length with AllThingsD on May 25.

The amount of savings at first seems impressive but it really isn’t. A $5 billion reduction in spending considered in the context of the $3.8 trillion budget amounts to less than one fifth of 1 percent of federal outlays. What’s not clear is whether the cloudward shift in government he has proposed yields a wider return on investment beyond mere financial savings.

The fundamental mission of IT is to enable people to get more work done faster, more efficiently and at a lower cost than before. Will federal workers become faster, more productive and more effectual if and when Kundra’s cloud is fully operational? Will government, as a result, become even slightly more responsive to the people in whose name it exists? Time will tell, but we can only hope. Making sure that happens will be the task of the next CIO of the United States — that is, if there is to be one at all.

But when you consider that the federal government collectively buys more information technology than any other organization on the planet, technology companies that hope to win some of that business sit up and take notice.

This year, the government will spend $80 billion on IT, at agencies as varied as the U.S. Department of Agriculture, the Department of Health and Human Services, and on non-classified sections of the US Department of Defense. As slices of government spending go, this is not huge, amounting to about 2 percent of the federal budget, but not trivial either. As has usually been the case, the government spends more (about $3.8 trillion in 2011) than it brings in via tax revenue (about $2.2 trillion in 2011). With Congress and the President wrestling over extending the debt ceiling, every dollar spent becomes a politically-charged particle of a wider debate over the appropriate role of government in our society.

The one thing that pretty much anyone–whether they’re a politician, a member of the Washington bureaucracy, or a humble taxpayer–can agree on is that when a dollar is spent, it should be done effectively and productively. Kundra’s job is to whip government agencies into shape around IT spending, and make them think more like private companies in planning that spending.

A keystone of his plan is to push federal agencies to embrace, where possible and appropriate, the cost-savings and efficiency that come from cloud computing. Today he’s released exclusively to AllThingsD a list of 78 different government projects and services that have been identified for a shift to the cloud. Requests for proposals–RFPs, the documents through which government agencies seek bids from the private sector–are either already written or soon to be released. The list is embedded below.

In it you can see the breadth of the federal commitment to the cloud. For example: The National Oceanic and Atmospheric Administration would like to move 25,000 email and calendar accounts to a cloud service. The Department of Homeland Security would like to move 100,000 email accounts and 90,000 collaboration accounts to a secure private cloud-based system. The Bureau of Alcohol, Tobacco, Firearms and Explosives wants to move 7,500 users based in 260 offices to a cloud-based system.

For a glance at the inner-workings of government, the list is enlightening reading, because the needs are so workaday. We often hear about the costs of multi-billion-dollar weapons systems that the Department of Defense wants for fighting wars both underway and imagined in the future. But even generals have to watch their travel budgets. What does the DOD want from the cloud? Among other things, a Web-based trip-cost estimator.

Kundra says the 78 items identified amount to the first batch of what, when combined with many more systems to be identified later, amount to a combined $20 billion worth of IT spending now. At minimum, he expects that the agencies involved will save a minimum of $5 billion in the next year by making these changes, but he really hopes they’ll save a lot more. And you might think that $5 billion saved is $5 billion that no longer has to be spent. It’s actually more complicated than that. Dollars saved from unproductive projects can be moved toward more productive ones. The demand for IT in government, as in every other aspect in life, is not going down anytime soon. We talked about this yesterday.

AllThingsD: So a lot of people don’t know that the U.S. has a CIO. What does the CIO of the United States do?

Kundra: One of the things President Obama did right after the election was set up a transition team that focused on technology information and government reform. He created the first CIO role which I’m honored to serve in. And I’m basically managing four big areas. One, I make sure we’re effectively managing the $80 billion we spend on IT every year, and that we’re going after wasteful spending. We were able to save $3 billion by terminating poorly performing projects and turning around those that weren’t working. Second is to run the operation efficiently. Here’s an interesting data point. The number of data centers the federal government runs grew from 432 in 1999 to 2,094 this year. I just announced two weeks ago that we’re shutting down 137 of them this year, and we’ll shut down 800 data centers by 2015, cutting the number by 40 percent. That’s going to fundamentally change how we deploy technology as we shift services to the cloud. My third big area is cybersecurity. I’m very focused on making sure we’re protecting federal systems, and in the context of a world with nation states that target federal systems and organized crime going after critical infrastructure that we have in place policies built around actively protecting our systems. Fourth, I’m focused on creating an open and transparent and participatory government.

So tell me about your goals and expectations by moving government IT projects to the cloud?

First let me give you a little context. On my first day on the job, I convened a CIO Council made up of the CIOs from all the federal agencies, from the Department of Defense to Health and Human Services to the Environmental Protection Agency and Department of Homeland Security. I stated as an administration priority to move away from an IT model based on owning the assets to a model that is focused on service provisioning. Later, in September of 2009, I flew out to the NASA Ames Research Center in California, and I challenged the private sector, by saying that we are looking to lower the cost of government operations and are interested in innovative technologies in cloud computing. I was trying to answer a simple question: I was seeing all these innovations in consumer technology and how low-cost it was compared to what was happening in the federal government, where for years we had been spending billions of dollars and had little to show in terms of productivity gains. The great thing about competitive markets was that companies like Google, Microsoft and IBM all came forth with .gov cloud products. And companies that had never competed for federal business before like Amazon and Salesforce.com all started coming in and disrupting the traditional IT model.

That must be ruffling feathers. I think pretty much everyone assumes that the federal government IT establishment is this big lumbering inefficient giant that’s slow to embrace change and innovation.

Absolutely, and unfortunately it has led to billions of dollars in wasteful and duplicative spending. And we haven’t benefited from the innovation that is taking place in the private sector, especially in the consumer space. Just to give you a data point, on something as simple as email: The General Services Administration, which is in the process of moving to Google Apps, and the U.S. Department of Agriculture which is in the process of moving to Microsoft Azure, just by moving email to those cloud services we were able to save $40 million. Imagine what we can do if we start moving billions of dollars worth of spending on other things like our financial systems. Imagine what we might save if we fundamentally re-think how we deploy IT across the federal government.

So you’ve selected some agencies that are moving various aspects of their operation to the cloud?

Yes. I required every department to pick three systems that they could move to the cloud within the next year. So what you’re seeing in this document is the list of 78 systems that these agencies are going to be moving. (Document below.) You can see the diversity of the projects, whether it’s capital planning software, to geospatial solutions to collaboration to human resource management solutions. This is a very exciting time in the public sector. We’re unleashing the cloud revolution and we’re backed by billions of dollars to do it.

So how much do you think you can save?

We’ve identified up to $20 billion worth of IT spending that can move to the cloud. That’s out of the total federal IT budget of about $80 billion. So out of that we’ve identified about $20 billion worth of spending that can move to the cloud. And we won’t know how much we’ll save until the procurements are done because you have to go through the competitive bidding process, but we think that out of that $20 billion we could easily save $5 billion or more. So that’s the minimum in savings we’re looking for.

Now I say this as the son of a retired career federal employee: Government projects, especially around IT, never quite go as planned. They always seem to be late, they always seem to go over budget. Is that a likely scenario here?

There’s lots of examples like that. There’s the Department of Defense’s enterprise human resources system that took 12 years and a billion dollars to build and it never worked. What we’re doing here is moving to a new model that adopts consumer technologies. If you go back to the 1960s, the government was the center of gravity when it came to innovation and technology. You would come to the federal government to get access to the most groundbreaking and innovative technologies. In the 1980s that leadership role moved to the private sector, where enterprises had the best technologies. In 2005 you started to see all the megatrends around storage and software converge in the consumer space, whether it was around mobile communications or search technology or financial systems. Part of what we’re trying to do is make sure the federal government isn’t frozen in time.

So in an age where everyone in government is concerned about cutting budgets right and left, you’ve got a big $80 billion piece of the federal budget in your portfolio. Where would you like that number to be ideally?

Here’s the biggest challenge. We spend $80 billion right now, and part of it is that we’re spending it in the wrong place. It’s not that we’re spending too much. If you look at the American people, how they interact with the federal government, it isn’t as convenient as buying a book on Amazon or booking a restaurant on Opentable or making a flight reservation on Expedia. And that’s because everyone is spending all these dollars from the departmental perspective on redundant and duplicative infrastructure. Part of what we’re doing is moving away from that and moving toward high value work. Second, if you look at the next five years, the federal governement and society in general is going to create more digital content and information than it has since the dawn of human history. So the demand for IT is growing exponentially. The demand is going up.

So how do you measure progress? The White House has always portrayed this administration as being very data-driven, and intent on pursuing work that shows productive results. What determines success?

There’s the $3 billion saved from terminated projects that we talked about, and then the $5 billion or more from cloud projects. Then more savings from shutting down and consolidating our data centers. And we’re going to sell off the assets and real estate that we’re not using. We’ve also committed that we’re going to either turn around or terminate one third of the IT portfolio that is under-performing. These are projects that are millions of dollars over budget or years behind schedule. There’s no time to continue projects that aren’t yielding dividends that the American people have a right to expect.

IT Reform Agency Cloud Migrations

With few quality core apps, a fragmented app platform (QNX, Adobe Air, HTML5 and Android) and important features that require pairing with a BlackBerry to access, the device would seem to be a non-starter in the consumer market. Which is bad news when consumer preferences are playing an increasingly larger role in enterprise purchasing decisions.

Sure, RIM has well-established relationships in the corporate market. And those certainly count for a lot. But as a massive new report from Goldman Sachs notes today, the “consumerization of IT” is eroding them–perhaps more quickly than you’d think.

“Despite RIM’s enterprise-friendly architecture, including running its own secure network and only allowing email access on the PlayBook by tethering it to a BlackBerry smartphone over Bluetooth, early indications are that CIOs significantly prefer the iPad and Android tablets over the PlayBook,” Goldman’s analysts explain. “We believe this is largely due to CIOs following the individual consumer preferences of their employees, similar to the dynamic that has unfolded in the smartphone market.”

In other words, the consumer market is beginning to determine IT purchasing decisions. Broad consumer interest in the iPad, for example, has accelerated corporate adoption of the device. Employees are buying iPads–and other mobile devices as well–and enterprise is increasingly supporting them on the back end or subsidizing them outright.

Which is great if you’re winning in the consumer market, as the iPad is. But lousy if you’re not.

And while it’s far too early to tell how the PlayBook will fare with consumers, early reviews suggest it may have a tough time winning them over.

And that’s unfortunate for RIM, particularly if a loss in the consumer market translates into a loss in enterprise as well.

[Image credit: Illustration by Joy of Tech, tables by Goldman Sachs]

In addition to Kara Swisher’s BoomTown report that Zynga has hired Taylor Barada, Yahoo’s recently appointed head of M&A, for an unspecified role, Zynga has now hired former Cisco exec Debra Chrapaty as CIO.

Chrapaty previously was the SVP of Cisco’s Collaboration Software Group, where she worked on enterprise collaboration software services and cloud infrastructure.

Zynga said her experience working on one of the world’s largest networks will help support Zynga’s infrastructure and internal collaboration as it develops games for millions of players around the world.

Chrapaty will report to Zynga’s CTO, Cadir Lee.

In previous roles, Chrapaty worked at Microsoft and was also president and COO of eTrade. She left Microsoft in late 2009 for Cisco, as BoomTown reported then.

Through Zynga’s network of social games online, it gathers a ton of information and data that is useful to improve games. The better the games, the better they will monetize as players are compelled to play more.

In a statement, Chrapaty said: “Through its focus on leading technology, Zynga is redefining how we look at play. My job will be to make it easier for our employees to design and build for play. I am looking forward to tackling Zynga’s unique technology challenges and helping develop infrastructure systems to ensure that we have the most scalable, secure, and reliable systems in place.”

Zynga has been hiring aggressively, mostly though small studio acquisitions. It has been acquiring one every month for the past 11 months. Last year, it hired more than 800 people and today has more than 1,500 full-time employees in 13 offices, spanning six countries.

On Monday, Zynga beefed up its board of directors by adding Jeffrey Katzenberg, the CEO and co-founder of DreamWorks Animation.

His name is Michael Wolfe. He’s 52 and has worked for HP for five years, most recently as VP for Information Technology. This will be his second go as a CIO. Before his stint at HP, he spent 24 years at Motorola’s Semiconductor Unit and was CIO during the period it was spun out to become Freescale Semiconductor.

His new boss, AMD’s interim CEO Thomas Seifert, had high praise. “Mike has effectively led IT transformations constantly focusing on reducing operating costs and significantly improving business innovation,” he said in a statement. “His considerable talent and experience will help AMD to continue strengthening our IT infrastructure and streamline our business based on our own products and platforms.”

This hiring is taking place against the backdrop of the complicated, difficult search for a new CEO at AMD following the surprise resignation of Dirk Meyer in January. COO Robert Rivet soon followed.

AMD shares haven’t moved much since then, and it has been the subject of recurring problematic buyout rumors. Today the shares closed at $8.55, unchanged from the prior session, and that’s up only a nickel from where it was at the start of the year. Shares fell five cents in after-hours trading. Investors seem to consider AMD a company in a holding pattern until there’s some resolution in the corner office.

Morgan Stanley recently surveyed 50 enterprise CIOs about current and future tablet deployments and came back with some pretty astonishing findings: 21 percent of them are already purchasing tablets for employees and 51 percent expect to begin doing so in the coming year. In total, 67 percent of the CIOs surveyed said they’re either planning to deploy tablets or provide support for employee-owned ones this year. Now the scope of these deployments remains to be seen, but the fact that so many are being budgeted suggests the tablet is gaining meaningful traction in enterprise.

And if you’re dubious of that claim, consider this: Pads accounted for 29 percent of new enterprise activations of Good Technology software in December 2010, up from 25 percent the month prior. Clearly, there’s growing corporate interest in the tablet, which means there are growing opportunities for companies that provide enterprise software solutions for it–mobile security vendors like Check Point, desktop virtualization companies like VMware and cloud-based applications outfits like Salesforce.com.

It was a complaint that Sunny Gupta heard often around the time that the company he was working for, Opsware, was being acquired by Hewlett-Packard. “CIOs kept pulling me aside and telling me their jobs were changing,” he said. “A job that used to be about managing technology was quickly becoming one of managing costs.”

It was a rare opportunity to launch a service that numerous big companies were clamoring for. His response is Apptio, a cloud-based service that tracks IT costs and other metrics for CIOs who are constantly under pressure to justify their budgets to CEOs. Backed by $41 million in venture capital funding from Greylock Partners, Madrona Venture Group, Shasta Ventures and Andreessen Horowitz–the venture firm run buy Gupta’s former Opsware colleagues Marc Andreessen and Ben Horowitz. It’s growing like crazy, and customers include Cisco Systems, Starbucks, Facebook and J.P. Morgan Chase. Cisco liked it so much it joined with the venture firms in a $16.5 $20 million Series C round of funding that closed last November, and it also resells Apptio to its customers.

I caught up with Gupta by phone while he was on a trip to London to talk about Apptio’s business and how it’s shaping up.

NewEnterprise: Sunny, let’s start at the top. What does Apptio do?

Sunny Gupta: IT has a lot of raw materials like labor, hardware and software. A lot of these things are tracked at the company level. But the CIO’s job is managing the IT products. We aim to help the CIO really understand the cost structure of all their IT assets. We do this by producing what we call a Bill of IT. It captures the supply and demand of IT resources to the business. It helps the CIO show what the levels of demand and spending really are. We also help them with planning and budgeting and forecasting. And then we help them make cost-reduction decisions and benchmark their performance against other companies in their industry.

How many customers do you have?

We have about 60 customers, and we are managing more than $50 billion in IT spending.

So every company does a return-on-investment analysis on its IT spending. This sounds like it’s a lot more detailed than that.

You can think about it as a detailed ROI, but the way our customers think about it is as an ongoing management system that tracks the fully loaded cost structure of the products and services they provide to their businesses on a month-to-month basis. It tracks costs, but also utilization, so you can see how the resources are being used, and whether or not it makes sense to, say, consolidate a data center.

You said Facebook is a customer. Can you tell me a little about how it’s used there?

The CIO there uses Apptio to track monthly telecom expenses, and to help understand costs and to make decisions around getting the most out of what they spend.

A lot of companies are struggling with decisions about moving their IT to the cloud or keeping it on-premise, or some mix of the two. How does Apptio fit in a situation like that?

We’re seeing a lot of hybrids. At the large companies, the biggest portion of their costs are still in-house. Without naming names, some of our largest customers have 50,000 or 100,000 servers. These are systems that have been in use for a long time and they’re critical to the business. But we also see large enterprises adopting external cloud services. It may be Amazon Web Services or something from Rackspace, or they may be using a software-as-service like Salesforce.com. The trick is to get a handle on what the costs are and if you think it might be time to move something to an external provider so you can make an objective decision.

A lot of the time a CIO has to decide between something that’s really good and really expensive or something that’s good enough and less expensive. Can you help in cases like that?

That’s one of our prime use cases. If you talk to Rebecca Jacoby, the CIO at Cisco, she says she’s stopped asking “Why not IT?” and started asking “Why IT?” If what you have is good enough based on the cost structure and utilization, you get the granular visibility into all those metrics so you can make decisions. For example, it may be that you don’t need as much storage as you think you do, and so the best move isn’t to switch to the cloud but to stop paying for some of the storage that you’re not using. For the first time, executives are able to make business decisions around technology based on true business metrics. We find on average that customers are able to save 5 to 6 percent of their spend, and over 12 to 18 months they can reduce it by 10 to 15 percent.

What’s involved? If it’s a cloud based service, I presume there’s nothing to install at the customer site.

It’s fully cloud-based, so there’s nothing to install. It takes the financial data from enterprise resource planning software, like SAP or Oracle, and it also takes IT operational data, support tickets and other data. It combines them with the financial data. Once you have all that data you can start working on what-if scenarios and make decisions about what to do–or not do–next. If you want to control or reduce costs, having that detailed visibility is the first step.

Earlier on Thursday, RIM reported earnings that topped estimates along with sales that were just about what many analysts were expecting. The company said it expects revenue for the current quarter to be around $5.5 billion to $5.7 billion with per-share earnings in the range of $1.74 to $1.80.

It said that it shipped 14.2 million BlackBerrys, up 40 percent from a year earlier, and added 5.1 million new subscribers net in the quarter. However the company is expected not to forecast those figures for the coming quarter, nor does it plan to continue reporting those numbers in future quarters.

Among the things investors are likely to be interested in is what the company forecasts as far as shipments to Verizon in a quarter during which many expect the carrier to start selling the iPhone. Motorola has already warned that it expects its shipments to Verizon to take a hit.

Mobilized will have live coverage of the conference call starting at 2 pm PT.

1:55 pm: RIM shares, which had been trading lower in after-hours trading are now up around 3 percent.

2:02 pm: Call just getting underway with the usual warnings, caveats, etc.

2:06 pm: BlackBerry Torch now in 75 markets, just rolling out in Latin America.

2:06 pm: BlackBerry Style is one-third of BlackBerry sales at Sprint.

2:08 pm: Our relationship with Verizon remains strong, RIM says. A number of new products coming for Verizon including adding the BlackBerry 6 OS to the curve and Bold lines early in the new year.

2:08 pm: Recap of recent developer announcements, including payment service, launch of WebWorks, etc.

2:10 pm: Now more than 16,000 applications in BlackBerry App World, RIM’s App Store.

2:11 pm: PlayBook tablet expected to ship in first quarter in U.S. and will be Wi-Fi only. Other markets and models with cellphone radios will follow.

2:14 pm: Review of Q3 results. Average selling price for BlackBerry was approximately $315, with half of shipments coming in last month of the quarter as resellers prepared for the holidays.

2:16 pm: Company says it is comfortable with inventory levels.

2:19 pm: On to outlook. No plans for PlayBook revenues, with first revenues not expected until following quarter. Sounds like the availability of PlayBook won’t be until at least March. (RIM’s current quarter goes through Feb. 26)

2:24 pm: On to Q&A.

BB6 will eventually work on QNX operating system, but the company says it hasn’t given any sense of timing.

As for what QNX can deliver, co-CEO Jim Balsillie says “You’ll see more at CES.”

2:25 pm: Sorry, some technical problems here at Mobilized. We got disconnected a couple of times, but have switched to the Webcast and are back on.

Seems like the talk is on average selling prices.

2:32 pm: North America is still performing very, very well but dynamics here are different.

Balsillie says he expects stronger year here next year based on product plans in place.

“I feel very, very good,” he says.

“I feel great about where we are sitting in North America for 2011,” Balsillie says, and the company has “knocked the cover off the ball” in a lot of other markets.

2:37 pm: Question on China market. “I think you should have very positive expectations in China,” Balsillie says.

“China does well,” he says. “You’d always want them to do better….All you can do is keep doing the right things and investing in these places. The market is just so big.” Sometimes markets come faster than you expect, sometimes they come slower, he says. But, he says, “I’ve never seen a market not take off.”

Demand strong, he says, for PlayBook in China and Japan.

2:41 pm: Question on payments. Balsillie says one wouldn’t be going out on a limb to predict Near Field Communications integration.

2:44 pm: A lot of talk on why PlayBook is a good bet for businesses with Balsillie talking about its enterprise strength. Not much new information there.

2:46 pm: Will there be a media strategy to promote the tablet’s media abilities to consumers?

“Oh yeah, yeah,” Balsillie says–again, without giving any new details. Lots of game and media partnerships.

2:50 pm: Everything is fine. Things are great. (That pretty much sums up Balsillie’s statements the last few minutes–Just insert a different question or topic).

2:56 pm: “I think the PlayBook redefines what a tablet should be,” Balsillie says, adding that the fact one can create apps without needing to learn a new language are strengths that RIM’s approach s bringing to the table. “We’re way ahead on that and CIO friendliness, we’re way ahead on that too.”

3:02 pm: Call’s done.

“In the short run, people gotta want these phones. I think they’re going to look pretty good. That’s the most important thing. If we start the popularity chain, and start kind of the buzz around these things, we’ll be able to make some money off of them.”

– Microsoft CEO Steve Ballmer

With the launch of Windows Phone 7 today, Microsoft is taking another shot at a market even its CEO, Steve Ballmer, concedes it stumbled in. “We were ahead of this game and now we find ourselves No. 5 in the market,” he said during our D8 conference in June. “We missed a whole cycle.”

Badly, too–as this exchange at the company’s 2009 Public Sector CIO Summit painfully illustrates.

Questioner: With platforms like the Google phone and iPhone coming out, it’s really tough to continue to stand behind Windows Mobile when our employees are bringing these consumer devices into our environments,” the questioner explained. And in your presentation you put Windows Mobile right in the center there, but it was a phone that doesn’t work in America and an operating system that you haven’t released. I’m wondering what your commitment is to continuing to get newer versions of the operating system in our hands so that we don’t have to fight this battle on the ground.”

Steve Ballmer: We have a significant release coming this year. Not the full release we wanted to have this year but we have a significant release coming this year with Windows Mobile 6.5….We still don’t get some of the things that people want on the highest-end phones. Those will come on Windows Mobile 7 next year. Certainly I’m not, um–there’s opportunities for us to accelerate our execution in this area, and we’ve done a lot of work to really make sure we have a team that’s going to be able to accelerate. With that said, we did sell more Windows Mobile devices last year than Apple did iPhones–just an important factoid to have. Blackberry was a little bit ahead, and Google was nowhere to be seen, except in Silicon Valley, I’m sure. But we’ll do our best to help you with that challenge.”

But Microsoft’s “best” at that point wasn’t nearly enough.

Intended as a stopgap, Windows Mobile 6.5 ended up being another damning monument to Microsoft’s failure to innovate in mobile and the ugly strategic misstep that made it an afterthought in a market that had already lapped it once and was well on its way to lapping it a second time. Just last week Verizon (VZ) President and COO Lowell McAdam dismissed Microsoft as a player in the mobile market. “We like our relationship with Microsoft,” he told News.com. “But clearly in the U.S. there are three major mobile operating systems: RIM, Google, and Apple….Microsoft is not at the forefront of our mind.”

If Windows Phone 7 doesn’t put it there, Microsoft (MSFT) might as well hand its fast-diminishing portion of the smartphone market to Apple (AAPL), Google (GOOG) and RIM (RIMM), because they’ll take it soon enough.

But that’s not likely to happen. Because from what I’ve seen, Windows Phone 7 is as slick an OS as has ever come out of Microsoft–easily enough to keep the company in the mobile game, assuming it hasn’t lost it already.

For one thing, WP7 is not simply a rejiggering of Windows Mobile 6.5, it’s an entirely new OS. For another, its interface is unique enough to differentiate it in an already crowded market. It’s smart, too–perhaps even smart enough to give it a leg up on some rivals. Its hubs and tiles GUI, which aggregates applications and content according to subject and delivers real-time information to the home screen without the need for user involvement, is elegant and intuitive.

Add to this a media experience basically identical to Zune HD, very smart social media management, seamless Xbox live and SharePoint/Office integration and high minimum hardware requirements for OEMs and you’ve got a pretty compelling OS–even if it doesn’t yet support cut-and-paste and true multitasking (the company tells me those are coming). The challenge for Microsoft will be to convince a market that saw Windows Mobile made a laughing stock by iOS, Android and webOS, that Windows Phone 7 isn’t just more of the same.

That shouldn’t be too hard given the nearly half-billion dollars in marketing the company is rumored to be throwing at it (check out one of the first ads below) and the quality of the OS itself.

My colleague Peter Kafka will be covering the New York City launch of Windows Phone 7 later this morning. Join him here at 6:30 am PT/9:30 am ET for live coverage.

“Five hundred dollars?…That is the most expensive phone in the world. And it doesn’t appeal to business because it doesn’t have a keyboard.”

– Microsoft CEO Steve Ballmer on the iPhone, January 2007

Who was it, again, who said Apple’s iPhone “doesn’t appeal to business because it doesn’t have a keyboard”?

Because the device clearly does appeal to business. In fact, quite a few of the iPhones sold today are purchased by business users, according to Ron Spears, chief of AT&T’s (T) Business Solutions unit.

“Four out of 10 sales of the iPhone are made to enterprise users,” Spears said at an investor conference Thursday (via ZDnet’s Larry Dignan). “When the iPhone came out, what most people heard in the first year from ’07 to ’08 was ‘oh my God, it’s not BlackBerry secure. This is not going to work on the enterprise space.’ At the end of the day, it’s just software. That’s all it is.”

Elaborating on the history of adoption of the iPhone by business users, Spears notes, “And by the time the 3G came out in ’08 [Apple] had solved about 80 percent of the security issues. By the time the 3GS came out last summer, most CIOs will tell you today they have very few issues around the security that they need provided as they have come to know that RIM can do it because of the way RIM provides their solution. So enterprises today view the iPhone as a mobile computer.”

Evidently, Apple (AAPL) has succeeded in overcoming enterprise’s early misgivings about the iPhone’s security and business-readiness. Recall that last fall, the device scored highest in both the consumer and business categories of JD Power’s Smartphone Satisfaction Study. The iPhone scored 803 points out of a possible 1,000. That’s 79 points more than Research in Motion’s (RIMM) BlackBerry, which took second place with a score of 724 points, the industry average.

This quarter was no different. Reporting earnings after the bell Monday, Apple (AAPL) posted a fiscal first-quarter profit of $3.38 billion on revenue that rose 32 percent to $15.68 billion. That far exceeded analysts’ forecasts of $12.1 billion.

It was the company’s all-time highest revenue and profit.

Apple sold 3.36 million Macs during the quarter–33 percent more than it sold a year ago. And the company sold 8.7 million iPhones. That’s 100 percent unit growth over the year-ago quarter, but a bit fewer than the 9.1 million The Street had been expecting. IPod sales topped out at 21 million, an eight percent unit decline from last year.

“We are very pleased to have generated $5.8 billion in cash during the quarter,” Apple COO Peter Oppenheimer said in a press release issued with the results. “Looking ahead to the second fiscal quarter of 2010, we expect revenue in the range of about $11.0 billion to $11.4 billion and we expect diluted earnings per share in the range of about $2.06 to $2.18.”

And in a nod to the company’s special event this Wednesday, Apple CEO Steve Jobs said, “The new products we are planning to release this year are very strong, starting this week with a major new product that we’re really excited about.”

NOTES FROM THE EARNINGS CALL

• Apple saw killer Mac sales this quarter, beating its previous record set in the September quarter by “over 300,000,” Oppenheimer reported.
• The company sold almost 21 million “traditional” iPods, compared with sales of 22.7 million a year ago. Oppenheimer said that decline was expected and was offset by the 55 percent year-over-year growth in sales of the iPod touch, which increased ASP and revenue.
• Apple now has iPhone distribution in 86 countries.
• The company expects to open 45 to 50 stores in fiscal 2010. Half will be in international locations.
• Enterprise demand for the iPhone is increasing. “Business customers have ranked iPhone the number 1 smartphone in the J.D. Power customer satisfaction survey for the second year in a row,” Oppenheimer reported. “And we have continued to see a rapidly growing number of CIOs who have added iPhone to their approved device list.”
• As a result of the new accounting standards Apple has adopted, financial results of each quarter from fiscal 2007 through fiscal 2009 have been revised.
• COO Tim Cook on issues with AT&T’s (T) network and how its bad press affects Apple: AT&T is a great partner. You know, we’ve been working with them since before the first iPhone. In the vast majority of locations, they provide a great experience. But there have been issues in some cities. They have acknowledged this and developed a plan to make things better and we have personally reviewed them. Cook added that he has “very high confidence” AT&T will resolve the issues to which he referred.
• Cook on the “major new product” Jobs hinted at in the company’s earnings release: “We have nothing to share today. Please stay tuned.”
• Apple expects to see a sequential decline in Mac sales next quarter, which is “typical.” The company expects traditional iPod sales to decrease, potentially even more than in the past.
• Earlier this month, Apple passed 200,000 for the number of iPhones activated in China. Cook: “We’re happy with China Unicom.”
• Tim Cook to an analyst digging for details about the company’s upcoming product announcement: “I wouldn’t want to take away your joy and surprise on Wednesday when you see our latest creation.”

So what does that mean?

At this point, Plastic Logic, which has raised more than $200 million from investors, is well behind Amazon (AMZN), Sony (SNE) and even Barnes & Noble (BKS). So the company is trying to distinguish the Que by positioning it as a “business” device. Which also means expensive: Plastic Logic is asking consumers to pay up to $800 for the initial versions.

The big idea: Not only can you read your books and newspapers on the device, which features a touchscreen and e-ink display, but you can work on Microsoft (MSFT) Word, Excel, etc., documents. Plastic Logic also promises “interoperability” with Research In Motion’s (RIM) BlackBerry, though it is a little vague about how this will work.

That is, the company is positioning the Que as something akin to a netbook that happens not to have a keyboard (this sounds familiar).

In CEO Richard Archuleta’s words: “The e-readers that you see today are great reading devices. They’re great for reading ebooks. They’re great for casual reading. But what about folks who need to read”–that is, grownups who need to get some work done?

The device is neither thinner nor lighter than competing e-readers, which for Plastic Logic was a conscious choice. It is, however, much more expensive: A four-gigabyte version will go for $649 and an 8GB version will cost $799.

Amazon’s Kindle goes for $259, as does Barnes & Noble’s Nook; Amazon’s larger DX device costs $489. Sony’s “Daily Edition” reader sells for $399.

As previously announced, the Que will connect to an electronic bookstore run by Barnes and Noble. The more expensive version will feature a wireless connection provided by AT&T (T). Plastic Logic says the devices will ship in mid-April.

Notably absent from a long list of publications that have agreed to provide versions for the reader: The New York Times (NYT). Also missing, at least right now: Condé Nast and Time Warner’s (TWX) Time Inc. News Corp.’s (NWS) Dow Jones unit is offering both Barron’s and The Wall Street Journal (Dow Jones owns this Web site).

More on Plastic Logic here. Press release here and below:

Introducing the QUE™ proReader
More than an eReader, QUE is uniquely designed as an essential tool to lighten the workload of mobile professionals.

Sleek industrial design, intuitive user interface, powerful applications and QUE Store define a premium business reading experience. | 7 January 2010
CONSUMER ELECTRONICS SHOW, LAS VEGAS, NV – JANUARY 7, 2010 – Plastic Logic today unveiled QUE™ (pronounced “Q”), the world’s first proReader. More than an eReader, QUE is designed specifically to provide a premium reading experience and access to content anywhere anytime, while simplifying the multi-faceted lifestyle of business professionals–and to literally lighten their workload.

With its sleek 8.5 x 11 inch form factor, crisp large touchscreen display, intuitive user interface and powerful tools, QUE stands out in the crowd. QUE is currently on display at the Consumer Electronics Show in Las Vegas (Central Hall of Las Vegas Convention Center at Booth 11840 anchoring the e-Book Techzone).

“Today we are introducing two major advancements: the birth of a new market category, the proReader, and a milestone in the evolution of plastic electronics,” said Richard Archuleta, CEO of Plastic Logic. “The QUE proReader was built from the ground up for people who need to read. Starting today, mobile professionals can look forward to a paperless briefcase, a lighter load, and a better way to work.”

Like paper, only better?: The inspiration for QUE was an age-old but perfect business tool: a simple sheet of paper. QUE was designed to have the benefits of paper, but without the weight and clutter. Just like paper, QUE is easy to hold and feels good in your hands. But it’s easier to search and find exactly what you’re looking for.

The size of a pad of paper, about 1/3 inch thick, and weighing less than many periodicals (about a pound), QUE features a 10.7-inch shatterproof plastic display–the largest display in the market.

Exclusive plastic display technology: ?The patented plastic display technology in QUE has been 10 years in development, since Plastic Logic’s founding by researchers from the renowned University of Cambridge (UK) Cavendish Labs. The unique plastic displays are produced in Plastic Logic’s world-first commercial scale plastic electronics manufacturing facility in Dresden, Germany. Combined with E Ink Vizplex® technology, they produce an outstanding reading experience that looks and reads just like paper even in direct sunlight.

QUE Design: A celebration of black and white print. ?Designed through a unique collaboration between Plastic Logic and IDEO, the QUE design was inspired by black and white print—a communications standard that is both classic and timeless. In addition to being the easiest to read, black and white is often the most visually striking combination.

“We wanted to highlight the optical qualities of plastic,” said IDEO’s Caroline Fagiello, who serves as Plastic Logic’s acting creative director. “Think of pools of black ink captured in a glass ink well against a crisp sheet of white linen paper.”

Plastic Logic created QUE to feel as natural in your hand as a pad of paper, while conveying the level of premium quality craftsmanship of a fine pen. Its proprietary user interface is as intuitive and easy as paper and ink.

The simple, but powerful QUE user interface is uniquely designed for functionality in the day-to-day world of the business professional. Its signature home view provides your appointments for the day and all of the information you need, including a customized view of your content–your daily newspaper, magazines, and other essential materials–as well as immediate access to the QUE Store to get what you need whenever you need it.

All your content, all the time?Designed for more than good looks, QUE provides instant access to the content busy professionals need at their fingertips all day long–all their content anywhere any time: Read a newspaper over morning coffee. Review your appointments imported from Outlook. Have every document you need when you need it. And at the end of the day, relax with a good book.

In addition to highly valued business and professional newspapers, periodicals and eBooks, QUE supports reading and annotating document formats business users need (including PDF, Microsoft Office, ePub documents and more). With the QUE software, it’s easy to quickly convert and transfer content from your PC, Mac™ computer, or BlackBerry® smartphone to your QUE.

The standard 4GB QUE model can hold up to 35,000 documents or the equivalent of up to 35 filing cabinets worth of documents. If your paper-laden briefcase and file cabinets are bulging at the seams, the 8GB model holds up to 75,000 documents or the equivalent of the contents of up to 75 filing cabinets¹.

Powerful tools for interacting with your content?. Storage means nothing if you can’t easily access your documents. Thanks to its proprietary touchscreen interface, QUE makes it simple to find reports, spreadsheets and presentations with just a few taps of a finger. And QUE is always on when you need it: its battery can last days, instead of hours.

QUE has integrated reviewing tools and features that maximize efficiency. Add a note and use the virtual keyboard to include your comments, highlight text, scribble free form, and even add a stamp to emphasize a point. No stylus needed. And if that massive spreadsheet with the tiny font is too small, just zoom in for a close-up view. With QUE, it’s easy to instantly go back and forth between documents.

Wireless access to leading publications, professional content on the QUE Store?The QUE Store offers a rich collection of reading material especially geared to the business professional. QUE users will be able to connect to fresh content on-the-go, on the QUE Store: to search, purchase and download wirelessly via Wi-Fi and AT&T’s 3G network².

Powered by Barnes & Noble, the QUE Store offers instant access to the world’s largest eBookstore, in addition to many business and professional newspapers, books, and periodicals. Additionally, Plastic Logic is partnering with Olive Software and premier publishers to give QUE users a richer content and reading experience that is optimized for QUE.

Today, Plastic Logic is announcing new partnerships with some of the leading business publishers and publications, including the Down Jones company and the Wall Street Journal, Barron’s, and All Things Digital, as well as Forbes and Fast Company. Rounding out new partnerships are the Sporting News and major regional newspapers, including the Sacramento Bee, Miami Herald, and San Jose Mercury News.

These publications join previously announced strategic partnerships with Financial Times, USA Today, the Detroit Free Press and Detroit News, MIT Technology Review, Popular Science, and IDG publication titles including CIO, Network World, and Computerworld. A full list of content partners can be found at PlasticLogic.com.

Publications on the QUE Store are available ranging from one-time use to ongoing subscriptions.

EXCLUSIVE: QUE truVue–Setting the standard for eNewspapers?The QUE proReader enables newspapers, magazines, and other types of content to have a richer reading experience that is symbolic of their print editions, complete with photos and formatting. The QUE truVue standard, enabled by the Adobe Reader Mobile SDK, provides the familiar look and feel of print publications, and makes eReading easier and more enjoyable.

“Since our inception 27 years ago, USA TODAY has offered a reading experience that millions of people rely on and enjoy, so it’s really exciting that there is an eReader platform that delivers our content the way it’s supposed to look and feel,” said Dave Hunke, president and publisher of USA TODAY.

“Forbes has always been at the forefront of embracing and adopting new media and new platforms; eReaders represent that next generation platform to deliver our content,” said Nina La France, Vice President Consumer Marketing for Forbes. “The QUE proReader caters to our audience: people who are busy, active, mobile, time-starved, and consume content at a great clip. The proReader gives them the full content experience and new capabilities to stay ahead.”

The QUE starts here?Beginning today, preorders for the QUE proReader may be placed at the QUE Store. Beginning in mid-April 2010, QUE will be available for shipping. Later in 2010, QUE will be available through the Barnes & Noble stores nationwide and online at Barnes & Noble.com QUE.com.

The price for QUE will range from $649.00 for the 4GB QUE model with WiFi that holds up to 35,000 documents, to $799.00 for the 8GB QUE model with WiFi and 3G that holds up to 75,000 documents.

To complement its iconic look and profile, Plastic Logic has also designed an entire line of QUE premium accessories, including three carrying cases to match any busy lifestyle. In addition to their classic elegance, the cases protect your QUE from dust, scratches and everyday wear and tear. QUE accessories are available on the QUE store at QUE.com.

Additional information, including high resolution images, are available at PlasticLogic.com.

At Hewlett-Packard.

Quite a coup for HP (HPQ), which clearly hopes Seidl brings a bunch of Sun (JAVA) resellers and customers along with him. And quite a blow for Sun, which is seeing customer loyalty tested to the extreme thanks to the company’s planned takeover by Oracle (ORCL).

“Customers and partners alike, especially those grappling with the uncertainty of Sun’s future, need a technology partner that can eliminate barriers to business growth quickly,” Dave Donatelli, executive vice president of enterprise servers and networking at HP, said in a gloating statement. “We anticipate that Randy’s knowledge of the real business issues faced by today’s CIOs, coupled with his high level of energy, passion for technology and a strong network of channel relationships, will expand HP’s success.”

At Hewlett-Packard.

Quite a coup for HP (HPQ), which clearly hopes Seidl brings a bunch of Sun (JAVA) resellers and customers along with him. And quite a blow for Sun, which is seeing customer loyalty tested to the extreme thanks to the company’s planned takeover by Oracle (ORCL).

“Customers and partners alike, especially those grappling with the uncertainty of Sun’s future, need a technology partner that can eliminate barriers to business growth quickly,” Dave Donatelli, executive vice president of enterprise servers and networking at HP, said in a gloating statement. “We anticipate that Randy’s knowledge of the real business issues faced by today’s CIOs, coupled with his high level of energy, passion for technology and a strong network of channel relationships, will expand HP’s success.”

The two apps are the coffee chain’s first for the iPhone and iPod touch. It has previously offered mobile services, such as the ability to send a text message to locate a nearby store, and has worked with Apple (AAPL) to make in-store songs available through iTunes.

The apps resulted from customer feedback it received via social-networking sites and My Starbucks Idea, the online community it launched last year, said Stephen Gillett, its chief information officer. “We think it’s really talking to our customers in new ways.”

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