Apple today has a market cap of $207.99 billion. That means it ranks fourth on a list of the Top Five publicly traded U.S. companies–just below Wal-Mart.

That’s right: Just below Wal-Mart.

1. Exxon Mobil (XOM): 315.05 billion
2. Microsoft (MSFT): 261.71 billion
3. Wal-Mart (WMT): 212.19 billion
4. Apple (AAPL): 207.99 billion
5. Berkshire Hathaway (BRKA): 202.54 billion

An astonishing turnaround for a company whose market cap bottomed out at $630.9 million back in 1982.

Incidentally, at 207.99 billion, Apple’s market cap is more than seven times that of Dell’s (DELL) 29.44 billion, which is pretty funny considering Michael Dell’s proposed solution to Apple’s late-’90s woes…

UPDATE: As a commenter below notes, Apple actually surpassed Wal-Mart’s market cap briefly a few weeks back.

The presentation catalyzed a movement. Start-ups everywhere adopted a lean, low-burn, low-investment model. To this day, companies seeking funding at our venture firm, Andreessen Horowitz, proudly proclaim in their pitch decks that they are raising tiny amounts of capital so they can run lean.

On the one hand, it is a fact that capital invested is negatively correlated with returns in the venture capital industry. Pumping too much money into a small start-up is unhealthy for both the company and the investor. On the other hand, Facebook has raised several hundred million dollars and is on track to produce fantastic returns for all of its investors.

So what’s a start-up to do? Much of what has been written and said about lean start-ups makes good sense. However, that advice is often incomplete, and some of the things left unsaid are the least intuitive. In this article, I will articulate some of those things left unsaid in arguing the case for the Fat Start-up.

Here is my central argument. There are only two priorities for a start-up:
Winning the market and not running out of cash. Running lean is not an end. For that matter, neither is running fat. Both are tactics that you use to win the market and not run out of cash before you do so. By making “running lean” an end, you may lose your opportunity to win the market, either because you fail to fund the R&D necessary to find product/market fit or you let a competitor out-execute you in taking the market. Sometimes running fat is the right thing to do.

What the hell do I know?

“Al Pacino couldn’t be no gangsta, DeNiro in ‘Casino’ he no gangsta
Wanna be, wanna see, wan’ get a shovel
dig Tookie up n*&%^!, cause he know gangstas”

–The Game

At this point, some of you are asking yourselves, “What the hell does Ben know? If he were really smart, then he’d know that thin is in.” It turns out that I have some experience in managing a fat start-up through the dot-com implosion of the early 2000s. This chart offers a brief summary of equity market history when I was CEO of Loudcloud and Opsware (click to enlarge):

Note that the Nasdaq index is very highly correlated to the start-up funding environment. During the two years I was CEO of Opsware, the Nasdaq fell 80 percent, far more than it has fallen during the current 2008-10 downturn. So the 2000-02 environment was at least as traumatic as this one for Silicon Valley companies–and arguably much worse.

Here is a brief summary of Loudcloud/Opsware’s fund-raising history during that time:

• September 1999: Loudcloud founded
• November 1999: Loudcloud raises $21 million at a $45 million pre-money valuation (Benchmark Capital is the lead investor)
• January 2000: Loudcloud borrows $45 million from Morgan Stanley (MS)
• June 2000: Loudcloud raises $120M at a $700M pre-money valuation
• March 2001: Loudcloud goes public on Nasdaq, raises $160 million and is valued in the public markets at approximately $480 million. Total funds raised to this point: $346 million.
• August 2002: Loudcloud sells the managed services business to EDS (this was the only actual business we had at the time) for $63.5 million and becomes a software company (and changes its name to Opsware).
• September 2002: Opsware trades for 35 cents per share or approximately a $28 million market cap.
• September 2007: Hewlett-Packard (HPQ) acquires Opsware for $1.6 billion

During this period, Loudcloud/Opsware had over 20 direct competitors. Almost all the competitors from the Loudcloud era went bankrupt, including MFN/SiteSmith, Exodus, LogicTier, Williams Communication, Global Crossing, WorldCom/Digex and Storage Networks. Those that survived got bought with valuations of less than $100 million (e.g., Totality) or still have very low valuations (e.g., Navisite).

How did we do it?

“I had a dream I could buy my way to heaven
When I awoke, I spent that on a necklace”

–Kanye West

So how did we navigate through the great dot-com crash, crush the competition, emerge as the No. 1 company in our space and sell the company to HP for $1.6 billion? Did we “cut spending, cut now, and preserve capital?” Did we make cash preservation our No. 1 priority?

No, we didn’t. To underscore the point, here are Loudcloud’s average monthly cash burn figures for the quarters ending in:

• Apr 2001:  $39 million
• Jul 2001:  $35 million
• Oct 2001:  $29 million
• Jan 2002:  $25 million
• Apr 2002:  $22 million
• Jul 2002:  $19.4 million

As you can see, we were aggressively investing in the business throughout 2001 and 2002. While we did reduce our cash burn, we did not make cash preservation our No. 1 priority. As it was, over the course of the transition from Loudcloud to EDS, we sadly laid off 400 employees and transferred another 150 to EDS. However, we didn’t scrimp and save our way to a $1.6 billion acquisition: Instead, it’s what we chose not to cut that ultimately got us there.

Loudcloud was a Web-hosting business. Today, we’d call it a “cloud services” business, but people weren’t quite ready for the “cloud” in 2001. We supercharged our hosting business with software (called Opsware) that automated our Web-hosting operations. The other cloud services businesses of our day also had software investments. However, as the macroeconomic climate changed, they all “cut deep and cut now.” In the end, they ended up putting their software in maintenance mode and stopped building new features.

As we weighed a decision to make the same deep cuts in our own software R&D efforts (a move advocated by the intelligentsia of the day, as well as nearly every MBA we had working in the company), I faced a hard decision: Cut deep and get to cash flow break-even quickly or continue to invest heavily in software?

In the end, I decided to run fat so that we could continue to invest in the Opsware software. At the end of the day, I realized that much larger companies like IBM (IBM) could hire smart people and train them. But without a lasting technology-based advantage, it would be increasingly hard for us to defeat them and build our customer base despite early wins with Ford (F), Fox Sports, and the U.K. government (to name just three of our early customers).

Running fat meant that I laid off zero software engineers so that we could keep on investing in our technology, find our product/market fit, and build a lasting technological advantage.

Still, we had to reduce costs or we would clearly go bankrupt. With this new view of the world, I decided that rather than divesting our intellectual property, I would divest our business. Now, that may sound logical the way I’ve described it, but consider these facts:

• We were generating $65 million/year from the Web-hosting business.
• We were a publicly traded company with a market capitalization of close to $200 million.
• All of our investors (pubic and private) believed in and invested in the Web-hosting business.
• We had close to 500 employees at the time. Nearly all of them were supporting the Web-hosting business.
• We had no other business. We had software, but we did not have a software product and certainly did not have a software business.

Despite all of this, we sold the Loudcloud hosting business to EDS and became Opsware the software company. It was not clear that this was a good idea at the time. In fact, the market thought it was a terrible idea: Our stock promptly lost 80 percent of its value, putting our market cap at about $28 million. It’s worth pointing out that this was about $40 million less than the cash that we had in the bank.

During the transition, we shrank our payroll from 450 employees to fewer than 100. Even with this massive reduction in expenses, it would take another three quarters to reach cash-flow break-even, a milestone we finally reached in Q2 of 2003.

One could argue–and many did–that we should have cut a lot deeper than we did given that we only had one customer. Although EDS was a very large customer (it generated $20 million/year in revenue), a brand new software company doesn’t need 100 people. We could have taken steps to reach cash-flow break-even immediately (clearly, that might have helped us get above 35 cents per share). In other words, we could have “gone lean” by cutting deep, cutting now, and preserving capital.

But rather than do what seemed obvious, I decided to keep on investing. Here’s why: In an economic boom, cash is great, but not necessarily a meaningful competitive advantage. If every company is well funded, being super-well funded doesn’t help you win. In fact, being super-well funded can actually screw you.

But in a bust (like the one we were in), having a lot of cash can be a huge competitive advantage because you can use that cash to put enormous pressure on your underfunded competitors. And that’s what we did.

We spent aggressively to match our best competitor’s product, feature for feature. And we used our public currency to acquire important adjacent functionality (network, process and storage management) that our competitors did not have and couldn’t acquire because they didn’t have the cash (or the equity).

In doing so, we were able to beat a really high-quality start-up (Bladelogic) that did not have the massive technical and cultural baggage that came from exiting the managed services business. Bladelogic was eventually sold to BMC (BMC) for $800 million. But I’m firmly convinced that had we not spent the money, Bladelogic would have emerged as the No. 1 company in the space and gotten the $1.6 billion exit instead of Opsware.

In the end, by continuing to invest aggressively in our technological advantage despite a hellacious funding environment, we were able to turn a doomed business into a winning one.

That is the very short version of how we won the market during the great tech recession of the early 2000s.

So did we learn?

“Hegel was right when he said that we learn from history that man can never learn anything from history.”

–George Bernard Shaw (1856-1950)

Every start-up is in a furious race against time. The start-up must find the product-market fit that leads to a great business and substantially take the market before running out of cash. As a result, the top two priorities are always to:

1. Find the product that 1,000 enterprise or 50 million consumers want to buy and grab those customers before your competitors do.
2. Raise enough cash and spend it intelligently so that you don’t go broke along the way.

Clearly, you can’t succeed if you don’t achieve both priority No. 1 and priority No. 2. So why is taking the market more important than not running out of cash? Because the only thing worse for an entrepreneur than start-up hell (bankruptcy) is start-up purgatory.

What is start-up purgatory, you ask? Start-up purgatory occurs when you don’t go bankrupt, but you fail to build the No. 1 product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company. You have zero chance of being anything but a very small technology business (see Navisite). From the entrepreneur’s point of view, this can be worse than start-up hell since you are stuck with the small company.

You recruited all the employees, you raised all the money and you made all the promises. You either see it through or leave–without your good reputation. No one wants to work for an entrepreneur who quits his or her own company. This is start-up purgatory, where you work just as hard, reap none of the rewards, and watch all your best people leave you. It sucks to be you.

The Bottom Line

Spending a little or spending a lot is a means, not an end. Choose the right strategy to win the market or you may end up going straight to purgatory.

As you listen to the virtues of the lean start-up–lightweight sales, light engineering, and so on–keep the following in mind:

• If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
• You cannot save your way to winning the market.
• The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.

Thin is in, but sometimes you gotta eat.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

“We have almost $25 billion safely in the bank and zero debt. This provides us tremendous stability and the ability to invest our way through this downturn. This is what we did during the last downturn–we increased R&D investments and created some of our best new products and businesses, like the Apple retail stores, for one. This downturn may also present some extraordinary opportunities for companies that have the cash to take advantage of them, like Apple does.”

— Apple CEO Steve Jobs, Oct. 21, 2008

Apple made its first acquisition on March 2, 1988, with the purchase of Network Innovations. Since then, Apple has bought just 23 more companies (see table; click to enlarge), including Quattro Wireless, which it purchased for $275 million. Which isn’t all that many for a company with $23 billion in the bank (as a point of comparison, Google has acquired 11 companies in the last 18 months alone).

But that may soon change, because Cupertino finally has a dedicated acquisitions specialist, Adrian Perica. According to BusinessWeek, the former Goldman Sachs (GS) banker, who was brought in after Apple reportedly lost AdMob to Google (GOOG), is believed to have quarterbacked the company’s purchase of music site Lala in December and Quattro Wireless earlier this month.

Both were executed uncharacteristically quickly for Apple, which suggests that the company’s lackadaisical, ad hoc approach to M&A has been recast to make it, necessarily, more nimble. Said one Silicon Valley banker: “[Apple has] always gone slow on M&A, but that’s changing.”

Perhaps it’s a good time for that long-rumored merger with Adobe (ADBE). Then again, it’s probably never a good time for something like that.

Under terms of the agreement, Intel (INTC) will pay AMD (AMD) $1.25 billion (nearly a quarter of AMD’s $4.46 billion market cap) and agree to “abide by a set of business practice provisions” presumably crafted to temper Intel’s allegedly anticompetitive practices. Here are details of the agreement:

Business Practices Provisions Prohibit Intel From:

• Offering inducements to customers in exchange for their agreement to buy all of their microprocessor needs from Intel, whether on a geographic, market segment, or any other basis (Section 2.1.1.a)
• Offering inducements to customers in exchange for their agreement to limit or delay their purchase of microprocessors from AMD, whether on a geographic, market segment, or any other basis (Section 2.1.1.b)
• Offering inducements to customers in exchange for their agreement to limit their engagement with AMD or their promotion or distribution of products containing AMD microprocessors, whether on a geographic, channel, market segment, or any other basis (Section 2.1.2a-b)
• Offering inducements to customers in exchange for their agreement to abstain from or delay their participation in AMD product launches, announcements, advertising, or other promotional activities (Section 2.1.2.b)
• Offering inducements to customers or others to delay or forebear in the development or release of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis (Section 2.2.2 and 2.1.2)
• Offering inducements to retailers or distributors to limit or delay their purchase or distribution of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis (Section 2.2.1)
• Withholding any benefit or threatening retaliation against anyone for their refusal to enter into a prohibited arrangement such as the ones listed above.

In return, AMD will drop all its pending litigation against the company and pull out of regulatory complaints worldwide. Finally, the two rivals will enter into a five-year patent cross-licensing agreement.

In a joint statement, the companies said, “While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development.”

Interesting. Clearly, AMD CEO Dirk Meyer’s earlier comments about the ratification of its complaints about Intel’s business practices and the company’s hope for a future in which AMD’s “ability to succeed as a business is really determined by the quality of our products and customer relationships” was quite prefigurative.

During a call to discuss the settlement, Meyer said the accord marks the beginning of a new era, one that changes the game for AMD. “It is an important milestone for us, for our customers, our partners, and most importantly–for consumers and businesses worldwide,” Meyer said.

“It is the culmination years of litigation and regulatory engagement, and we are optimistic that it will usher a new era for our industry,” the CEO continued, further noting that change may not be immediate. “We recognize that it will take time for people to understand how the operating conditions in processor business have changed–but make no mistake–they have changed….We look forward to healthy competition with the mutual respect one would expect between world-class competitors.”

It is unclear if the settlement will affect the antitrust suit brought against Intel by New York Attorney General Andrew Cuomo last week as Cuomo hasn’t yet commented. But the European Union says it will not change its decision in May to fine Intel a record $1.5 billion for anticompetitive behavior.

“The European Commission takes note that Intel and AMD have settled all their litigation and that Intel is paying AMD compensation of one-and-quarter billion dollars,” said an EC spokesman. “But Intel has an ongoing obligation to comply with the commission’s antitrust decision and with EU competition law. The commission continues to vigorously monitor Intel’s compliance with its obligations under the EU antitrust decision.”

Since the beginning of the year, Apple shares have more than doubled from $90.75 on Jan. 2 to almost $186 today.

Google (GOOG) has done about half that performance, while Microsoft (MSFT) has done one-third. (See the chart below; click on it to make it larger.)

But that’s apparently not enough, according to Thomas Weisel analyst Doug Reid, who has raised his price target on Apple (AAPL) stock to $210 from $180 a share.

Citing higher sales and profit estimates, healthy demand and the iPhone headed to China–and the launch of a cheaper $800 MacBook soon–Reid wrote, “We believe there is a high likelihood Apple will fortify its entry into the holiday season and that such a move will be a positive for AAPL shares.”

While this all makes sense, one wonders if the froth can reach that level.

In any case, perhaps what is more interesting is the $166.4 billion market cap for Apple, which is well below Microsoft at $232 billion.

But it is well above Hewlett-Packard (HPQ) at $113.4 billion, Google at $158 billion, Dell (DELL) at $30.6 billion and Palm (PALM) at a paltry $2.4 billion.

With that kind of massive valuation and a pile of it in cash, perhaps the better question is what Apple will do with its soaring stock.

Oddly enough, Idina Menzel and Kristin Chenoweth singing the big number, “Defying Gravity,” in the musical, “Wicked,” sound a lot like they are channeling Apple’s corporate mantra these days.

Witness:

“‘We have no plans to acquire EA,’ Phil Spencer, corporate vice president of Microsoft Game Studios, told Reuters in an interview on Thursday. ‘They remain a very important partner to us. No acquisitions.’ Spencer declined to comment on whether it had held talks with Electronics Arts on such a move.”

Anybody else want to take a run at the company? After a seven percent jump yesterday, the company behind the Madden franchise, among others (it also has a piece of the Rock Band business), sports a $6.4 billion market cap.

Meanwhile, both Google (GOOG) and Yahoo (YHOO) have announced that they’re in the market for relatively bit-sized deals.

“June 29, 2009, is the two-year anniversary of the first shipment of the iPhone. Not one of those people will still be using an iPhone a month later.”

– Palm investor Roger McNamee, March 6, 2009

“The statement…that ‘not one’ person who bought an Apple, Inc. iPhone on the first shipment date ‘will still be using an iPhone a month’ after the two-year anniversary of that day is an exaggerated prediction of consumer behavior pattern and is withdrawn.”

– Palm Free Writing Prospectus, March 9, 2009

Good thing Palm withdrew investor Roger McNamee’s your-next-iPhone-will-be-a-Pre claim because there obviously wasn’t much truth to it. If there was, well, there would have been a massive rush on Pres nationwide this past month. And that clearly didn’t happen.

In fact, by all indications, the Pre hasn’t even come close to performing as well at market as McNamee promised. Though it was the most successful handset launch in Sprint’s history, it didn’t come close to supplanting the Apple (AAPL) iPhone. Hell, it couldn’t even stop Sprint from losing 991,000 subscribers during the second quarter of 2009.

Which is not to say that the Pre and what it’s done for Palm (PALM) aren’t remarkable. Any device capable of transforming a $423 million market cap into a $2.9 billion one in 12 months is nothing short of a miracle, as I’ve noted before. Seriously, check out the chart below.

It’s just that McNamee was, and is, as full of it as a beef ranch manure truck. Because at a run rate of roughly 25,000 per week (according to the latest stats from Pali Research), Pre sales are decent. Nothing more, nothing less.

Consider this: In its first quarter, 8.6 percent of Sprint’s (S) 35.4 million post-paid subscribers upgraded handsets. In its latest quarter approximately nine percent of the company’s 34.4 million post-paid subs upgraded. So despite all the hoopla over the Pre, just 15,000 to 50,000 more Sprint users upgraded their handsets this quarter than last quarter, a period with no important handset launches.

Given Sprint’s substantial base of Palm handset owners, that’s not exactly impressive. Makes you wonder if that “accidental” price cut we saw at Best Buy (BBY) earlier this week might become an official one before the end of summer.

Below, McNamee pokes fun at himself in the video introduction to his D7 appearance:

]]> http://allthingsd.com/20090730/mcnamee%e2%80%99s-elevation-partners-henceforth-known-as-exaggeration-partners/feed/ 0 http://allthingsd.com/20090629/dell-who-you-gonna-buy/ http://allthingsd.com/20090629/dell-who-you-gonna-buy/#comments Mon, 29 Jun 2009 19:40:51 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=20425 Bernstein Research analyst Toni Sacconaghi has a few ideas about what Dell should do with the nearly $11 billion in cash reserves it’s sitting on, and they don’t include buying Palm.

Sacconaghi believes that Dell (DELL) isn’t interested in a “transformational” acquisition, though its interest in the handset market might suggest otherwise. Rather, the company is mulling the acquisition of small- to medium-sized enterprise-related companies.

“While there has been speculation that Dell could look to acquire a handset company and we continue to believe that a consolidation play in the PC space could make sense for additional details, Dell appears focused on boosting its enterprise business by acquiring small to medium sized companies with strong margin profiles and higher levels of recurring revenues,” Sacconaghi writes.

Which companies? Software, services or storage and networking outfits, most likely, says Sacconaghi. Companies like Perot Systems (PER), Salesforce.com (CRM), Compellant (CML) and 3Com (COMS).

“We see Dell potentially looking to acquire a smaller remote infrastructure management company, or a smaller outsourcer–Perot fits the latter description, and is possible, but it is unclear that it is a willing seller, and its unique concentration (50 percent) in healthcare may be too narrow a platform for Dell’s offerings,” the analyst writes.

“…Dell’s software acquisitions to date have largely centered around systems management and we believe that similar types of companies could be acquired to further expand Dell’s capabilities. Also in software, we believe that [Salesforce.com] would be strategically consistent with Dell’s efforts to drive business at mid to large enterprises, but would be expensive ($4.8B current market cap) and would have a limited impact on revenues ($1.1B in their last FY)….

“Given that Dell’s biggest enterprise partnership is in storage, we believe the company could look to acquire additional IP for its own use. Compellent and CommVault (CVLT) could be appropriate targets. We think a networking deal is less likely, but purchasing someone such as 3COM and attempting to commoditize the networking space would not be inconsistent with Dell’s stated enterprise strategy.”

An interesting list of targets. Still, you’ve got to wonder why it doesn’t include Palm (PALM). After all, Dell really can’t afford to miss out on the handheld market completely. Can it?

]]> http://allthingsd.com/20090629/dell-who-you-gonna-buy/feed/ 0 http://allthingsd.com/20090624/palm-the-turnaround-story-of-the-year/ http://allthingsd.com/20090624/palm-the-turnaround-story-of-the-year/#comments Wed, 24 Jun 2009 22:10:14 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=20193 A quick but noteworthy follow-up to my earlier post about the incredible gain in market cap Palm made in the last year. Palm’s (PALM) valuation is actually higher than the $1.95 billion I quoted earlier.

Quite a bit higher, it turns out.

$1.95 billion is the company’s market cap as of March 27, when it had 137.84 million shares outstanding. But this figure doesn’t include preferred shares, etc. So Palm’s true valuation–equity valuation with convertible preferred shares, exercisable and nonexercisable in-the-money options, warrants and whatnot–at its current share price of $13.87 is about $2.9 billion.

$423 million to $2.9 billion in 12 months.

Turnaround story of the year. For now, anyway….

]]> http://allthingsd.com/20090624/palm-the-turnaround-story-of-the-year/feed/ 0 http://allthingsd.com/20090624/pre-makes-palm-a-new-man-in-only-minutes-a-day/ http://allthingsd.com/20090624/pre-makes-palm-a-new-man-in-only-minutes-a-day/#comments Wed, 24 Jun 2009 16:50:27 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=20146 Palm’s market cap is currently $1.95 billion. A year ago it hovered around $400 million.

Amazing when you think about it, really. On the promise of the Pre and the company’s new WebOS operating system alone, Palm (PALM) has added more than $1.5 billion to its market cap. A quick and impressive recovery, and one that analysts say is likely to continue now that the device has had a successful launch.

In an investment note today, RBC analyst Mark Abramsky esimates that Palm has sold 150,000 Pre handsets to date and predicts it will sell 4.1 million in fiscal 2010 and 6.5 million in fiscal 2011.

Over at Credit Suisse (CS), analyst Deepak Sitaramaneven is even more optimistic. He sees Palm selling 7.7 million Pres in 2010. “The successful launch of the Pre at Sprint Nextel (S) has raised carrier interest given Palm now offers a credible alternative to Apple (AAPL),” Sitaramaneven wrote. “We believe this will drive top-line growth of 144% in calendar 2010, and our estimate is predicated on 7.7 million units in calendar 2010.”

That seems a rather…buoyant prediction for a company still grappling with Pre supply issues. That said, if Palm is able to score distribution deals with Verizon (VZ), AT&T (T), Vodafone (VOD) and others by the beginning of next year, the prediction may be within the realm of possibility. Something to think about as the company prepares to report quarterly earnings tomorrow.

]]> http://allthingsd.com/20090624/pre-makes-palm-a-new-man-in-only-minutes-a-day/feed/ 0 http://allthingsd.com/20090617/new-iphone-is-better-model-or-just-get-os-30/ http://allthingsd.com/20090617/new-iphone-is-better-model-or-just-get-os-30/#comments Wed, 17 Jun 2009 18:00:38 +0000 Walter S. Mossberg http://ptech.allthingsd.com/20090617/new-iphone-is-better-model-or-just-get-os-30/ Apple Inc.’s iPhone has been a smashing success, redefining the smart-phone market and creating a new hand-held computing platform that has attracted over 50,000 third-party apps, or software programs, in less than a year. With its nearly identical sibling, the iPod Touch, it has sold a combined 40 million units since June 2007, when the computer maker plunged into the phone business.

But the iPhone is drawing increasing competition from entrenched smart-phone makers anxious to emulate the upstart. The most significant of these is Palm’s (PALM) impressive new Pre, which is off to a good start with an estimated 100,000 or so units sold since it launched on June 6.

So, like a shark, Apple (AAPL) must keep moving. This week, it is introducing two new products designed to consolidate and increase its position as the leader in this new generation of hand-held computers. I’ve been testing both and I like them a lot, with some minor caveats.

One of the new products is a refreshed model of the iPhone itself, called the iPhone 3G S. It looks the same, but offers more speed, more memory, more battery life, and a few new features, including video recording and a better camera for still photos.

The second is OS 3.0, the third version of the iPhone’s operating system, which comes on the 3G S and also can be installed on all prior iPhones and Touches. It includes a much longer list of added features, some innovative and some long overdue catch-ups to other phones. These include such widely requested capabilities as cut, copy and paste; systemwide searching; a wider virtual keyboard; and a feature called MMS that allows users to send photos and videos directly to other phones without using email.

Apple last week also made a bold business move to complement these new products. It decided to keep making the current model, the iPhone 3G, and to slash its price by 50%, to $99. That’s an unheard-of price tag for a pocket computer of this power and versatility, and gives millions of additional consumers a reason to choose the iPhone instead of a competitor.

In my tests, both the new phone and the new operating system performed well, with a few small exceptions. I believe the two strengthen the iPhone platform, make it likely the iPhone will continue to attract scads of apps, and are good for consumers.

But I also regard these changes as more evolutionary than revolutionary, and I don’t think this latest iPhone is as compelling an upgrade for the average user as the 3G model was last year for owners of the original 2007 iPhone.

Current iPhone owners can get an improved product by merely sticking with their existing phones and upgrading to the feature-laden new operating system, which is free (it costs $10 for iPod Touch owners), rather than shelling out at least $199 for the new iPhone 3G S. And many new iPhone buyers can opt for the $99 3G model, which is not only cheaper, but also greatly improved by the new OS 3.0.

On the other hand, power users will crave the new model’s much-better performance, battery life, storage and other features. And some will want the new model because, unlike the current model, it’s capable of handling a new cellular network feature that, in the next few years, will offer double the current data speeds.

The new, free operating system is available for download starting June 17. The iPhone 3G S will go on sale June 19 for $199 for a version with 16 gigabytes of memory, and $299 for 32 gigabytes of memory. Those memory capacities are double the amounts offered on the previous model last year at the same prices, and far exceed the built-in memory on most competing smart phones.

These prices are for new U.S. customers on the AT&T network, plus current owners who are eligible for what AT&T (T) calls a “standard” upgrade. If you already own an older iPhone, you could pay $200 more to upgrade, depending on how far along you are in your two-year service contract and how much you spend monthly. But AT&T, stung by criticism in recent days, has just decided to offer the lower, new-customer prices at launch to iPhone 3G owners eligible for upgrades at any time up to Sept. 30 of this year, even if they were originally told they’d have to pay the $200 premium.

Before I detail the new features and how they worked in my tests, let me state up-front what the new iPhone and its new operating system don’t deliver. The iPhone still lacks a physical keyboard. It still can’t run more than one third-party app at a time, as the Pre does. Its otherwise excellent Web browser still can’t play videos created in Adobe’s Flash software, which is widely used on the Web. And it still isn’t available on any U.S. carrier besides AT&T.

Also, AT&T won’t enable MMS until late this summer, even though dozens of other iPhone carriers in other countries are doing so immediately. And AT&T hasn’t set a date by which it will offer tethering, a new iPhone feature that allows the device to be used as a modem for a laptop. Other carriers in other countries are allowing this right away.

Here’s a rundown of the most important new features of both the new hardware and software, and how they performed in my tests.

The iPhone 3G S

Speed: To me, this is the most important feature of the new iPhone 3G S. In fact, the “S” in the name stands for speed. During my week of testing, the new model proved dramatically snappier in every way than my iPhone 3G. Its processor is 50% faster than in the prior model, and it sports a new graphics chip.

Applications opened much more quickly. Web pages loaded far faster. The camera was ready to use almost instantly. And I never once saw the occasional, annoying iPhone behavior where you strike a key while typing and it sits there, seemingly stuck, before you can continue.

Cellular-data speeds were about the same, but in repeated testing on different Wi-Fi networks, the 3G S racked up speeds 30% to 50% faster than on the 3G running at the same time on the same networks.

Battery Life: On my 3G iPhone, I usually could make it through the day, but it was often a close call, with the battery indicator winding up in the red. By contrast, the new model did much better, never hitting the red zone and rarely requiring interim charging at the office or in the car, even though, because I was testing it, I was pounding it much harder than usual, making more voice calls, playing lots of videos and music, trying numerous apps, constantly downloading email from two accounts, and syncing two calendars over the air.

Apple claims about the same talk time for the new model as on the old, and about the same Web-surfing time over the cellular network. But it says the 3G S gets about 50% more battery life when playing videos or surfing the Internet over Wi-Fi and 25% more time — an astounding 30 hours — for continuous music playback.

Memory: With the new 32-gigabyte model, I was able to store over 3,000 songs, more than 1,600 photos, 74 videos, 67 applications, 400 emails, nearly 1,000 contacts, months of calendar data, and dozens of documents, and still have 5 gigabytes left over—more than most phones offer out of the box.

Camera: The new model’s camera has a 3 megapixel resolution, up from 2 megapixels, and has autofocus and a feature that lets you tap the screen to change the focus to an object or person in the background of a shot. It still lacks zoom or a flash, though it does better in low light. It also has a macro feature for close-up shots. In my tests, all of this worked, but I didn’t think the pictures it took were dramatically better than those on the old model, and it can’t compete with phones like Nokia’s (NOK) new $700 N97, which has a 5-megapixel camera with zoom.

Video: The new video recorder worked well, even in low light, and lets you post videos directly to YouTube, among other places. You can also trim your videos right on the phone. This all worked well, but the videos aren’t high definition, and pale in comparison to those on the latest HD model of the popular $229 Flip pocket camcorder.

Voice Control: By simply holding down the new iPhone’s home button, you can dial contacts and control music playback by uttering voice commands. The phone will even tell you which song is playing. Like most voice-recognition systems, this one isn’t perfect. But it worked most of the time.

Compass: I don’t consider this important for most users, but it did work when I was walking or driving. It can orient maps in the direction you’re heading.

Small Touches: You can optionally turn on a new battery indicator that shows a precise percentage of battery life left. The screen has a new coating that resists oil and grease from fingerprints.

Downsides: The new phone crashed on me twice during my tests. Once, the voice-control feature killed the sound on the built-in iPod, requiring a reboot. But I couldn’t replicate this problem. Another time, the phone froze while downloading a TV show. Apple blamed this on a prerelease server issue, and it didn’t happen again.

iPhone Operating System 3.0

Copy, Cut and Paste: Apple is late with this common feature, but it’s the best implementation I’ve seen on a phone. In a text page, you just double tap on a word, and it is selected with little handles around it that let you expand or contract the selected area. Then, you just click on a copy icon that pops up over the selection. To paste, you tap elsewhere in the page, or even in another app, and a paste icon pops up. Click that icon, and the selected text is pasted in. It worked well in all my tests.

The feature works a bit differently for some Web pages, where you hold down your finger over an area and it selects a whole block of text, like a paragraph, but still has the handles that allow adjusting the selection. It also allows copying and pasting photos. You can also just select a word or a section or a whole page of text and delete it. And if you want to undo a paste, just shake the phone.

Some Web pages and third-party apps don’t yet support this feature, but most do.

Search: Before, you could search only in the Contacts app. Now, there are search features in Mail, Calendar, the built-in iPod and Notes. And there is a way to search the whole phone at once. You just hit the home button, slowly, twice, and a special search screen appears. Type in any phrase, and it brings up every instance in multiple apps.

This is another catch-up feature, but it works well. For instance, when I searched for the word “Phil,” it brought up songs by Phil Collins, a note about Philadelphia, calendar items mentioning people named Phil or Phillips, emails to or from people with those names, and contacts for people named Phil or Phillips.

In email, the search function will even find messages that aren’t on your phone but that are stored on the servers of certain email services. For instance, I was able to almost instantly find emails from two years ago stored on Google’s (GOOG) Gmail.

One downside — in email, search looks for words only in email headers, not in the body of the messages.

Landscape Keyboard: In older iPods, the only built-in program that supported a wider, landscape keyboard, which is better for thumb typing, was the Web browser. Now, you can turn the phone horizontally and use a landscape keyboard in the Mail, Messages and Notes programs as well.

Find My iPhone: If you belong to Apple’s $99 a year MobileMe service, you can now locate a lost iPhone on a map on any computer, send the iPhone a message saying how to return it to you, and cause it to emit a beep, even if the sound is turned off. I tested this and it worked well. You can even remotely wipe all your data off the phone.

Voice Memos: The OS includes a Voice Memo app that lets you dictate reminders or other messages, and then edit and email them. I found it worked well.

Navigation: Another catch-up feature, turn-by-turn navigation with voice prompts, is also now supported. I tested this with a third-party app called Gokivo, and it did OK, though the developer admits to a prerelease bug I encountered.

Auto-Authentication: In the new OS, the iPhone can remember your log-in credentials for commercial Wi-Fi hotspot services, so you don’t have to enter them again and again. Unfortunately, in my tests with the AT&T Wi-Fi service, this failed repeatedly in several Starbucks (SBUX) shops. Apple blames a glitch in my prerelease phone’s SIM card.

Push Notification: To make up for its lack of multitasking, the new iPhone OS has a feature where third-party apps can notify you of new events, like a sports score, or a new invitation to an online game. I tried this with a game called TapTap Revenge, and it worked fine.

Stocks: The built-in stock application now has much more detailed data, including market cap, news headlines and price/earnings ratio for each stock.

MMS and Tethering: I couldn’t test these useful features because my tests were all done on AT&T, which hasn’t rolled them out.

Minor Touches: You can now move an icon among screens with one continuous motion, instead of stopping at each screen. And there are two more screens to house icons. You can finally synchronize Notes with your PC or Mac. You also can now maintain both calendars and contacts synced wirelessly with online services and those synced via cable with your computer. And you can play games and transfer files wirelessly over Bluetooth with other iPods or Touches that are nearby.

Bottom Line: Both the new iPhone and iPhone OS are packed with features that make a great product even better. But, for many users, the software may be enough of a boost to keep them from buying the new model.

Find all of Walt Mossberg’s columns and videos online, free, at the All Things Digital Web site, walt.allthingsd.com. Email him at mossberg@wsj.com.

]]> http://allthingsd.com/20090617/new-iphone-is-better-model-or-just-get-os-30/feed/ 0 http://allthingsd.com/20090115/o-ye-apple-investors-of-little-faith/ http://allthingsd.com/20090115/o-ye-apple-investors-of-little-faith/#comments Thu, 15 Jan 2009 21:13:02 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=11438

[ See post to watch video ]

]]> http://allthingsd.com/20090115/o-ye-apple-investors-of-little-faith/feed/ 0 http://allthingsd.com/20081129/total-fiction-there-is-no-20-billion-microsoft-deal-to-buy-yahoo-search/ http://allthingsd.com/20081129/total-fiction-there-is-no-20-billion-microsoft-deal-to-buy-yahoo-search/#comments Sun, 30 Nov 2008 05:40:26 +0000 Kara Swisher http://kara.allthingsd.com/?p=7131

A report in the Times of London in which Microsoft would buy Yahoo’s search business in a convoluted $20 billion deal that would include well-known Internet execs Jon Miller and Ross Levinsohn, is–in the words of one key player–”total fiction.”

Actually, that’s Levinsohn speaking, on the record. But that’s also the essential word from all key players regarding the Times’s report.

BoomTown has spoken to top sources at Yahoo (YHOO) and Microsoft (MSFT) too and all scoff at such a deal now taking place or that either side has been in any such discussions of late.

Yahoo’s entire market cap, in fact, is only $16 billion.

Rumors of Microsoft buying all of Yahoo have popped up regularly since it abandoned its failed takeover bid, all of which have been untrue.

That’s not to say there will not be some search deal between Yahoo and Microsoft, which seems more than likely at some point.

It makes sense on many levels and is supported by Carl Icahn, the Yahoo board member who upped his money-losing stake in the company last week.

That stock purchase should be enough of a reason for there to be no Microsoft-Yahoo search deal imminent, given Icahn would be more than well aware of it and buying up almost seven million Yahoo shares–now at historic lows–only days ago would smack of insider trading.

Still, the report in the Times has an unusual level of detail, involving Microsoft giving large gobs of money to Levinsohn and Miller.

Wrote the Times:

Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors.

This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo.

The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services.”

Sounds good, except it’s the first time Levinsohn has heard of the plan, he said. Sources at Microsoft and Yahoo also said there was no deal like that in the making at this point in time.

Earlier this year, there was also another deal involving Icahn, before he gave up his proxy fight against Yahoo in exchange for a board seat, which did involve Levinsohn and Miller taking over Yahoo.

But, as has happened to many schemes involving Yahoo, it never came to pass.

Interestingly, there was also a similar investment deal as the one described in the Times, many months ago, just after Microsoft had walked away from its takeover battle for Yahoo.

It involved a very complex transaction involving Microsoft buying a large stake in Yahoo shares, running Yahoo’s search business for a time period and giving Yahoo a huge guaranteed revenue stream.

But that deal had already been spurned by Yahoo for the search-ad deal with Google (GOOG), which collapsed recently under intense regulatory scrutiny.

That has focused a lot of attention back on a possible deal between Yahoo and Microsoft, the No. 2 and No. 3 players in search, both of which have been chasing Google without any success.

Microsoft, despite spending billions, has been lagging badly behind Yahoo, which has more than doubled its share.

And that is precisely why it has long been interested in acquiring Yahoo’s search business.

Microsoft CEO Steve Ballmer has said the software giant is not interested in buying Yahoo many, many times, although he has not ruled out a search deal of some sort.

But Microsoft, many sources said, has been waiting for Yahoo to get another CEO in place, after Yahoo CEO Jerry Yang recently said he was stepping down to make way for a new leader.

Yahoo has also said in recent days that it is not currently engaged in any kind of talks with Microsoft, even about a more likely search deal.

At least in this chapter of the drama that has engulfed Yahoo over the last year, believe them.

[Full disclosure, though run separately, The Times of London is owned by News Corp. which also owns this Web site.]

]]> http://allthingsd.com/20081129/total-fiction-there-is-no-20-billion-microsoft-deal-to-buy-yahoo-search/feed/ 9