HP has purchased Palm

WebOS on the HP Slate tablet maybe? (kudos to my friend, Aaron Champagne, for making this quick connection)

HP has just announced that it's acquiring Palm to the tune of $1.2 billion, which works out to $5.70 per share of Palm common stock. The deal is planned to close by July 31, which marks the end of HP's third fiscal quarter of the year. Current Palm CEO Jon Rubinstein is "expected to remain with the company," though it's not said in what capacity.

Press release from HP:

HP and Palm, Inc. (NASDAQ: PALM) today announced that they have entered into a definitive agreement under which HP will purchase Palm, a provider of smartphones powered by the Palm webOS mobile operating system, at a price of $5.70 per share of Palm common stock in cash or an enterprise value of approximately $1.2 billion. The transaction has been approved by the HP and Palm boards of directors.

The combination of HP’s global scale and financial strength with Palm’s unparalleled webOS platform will enhance HP’s ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets. Palm’s unique webOS will allow HP to take advantage of features such as true multitasking and always up-to-date information sharing across applications.

“Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices,” said Todd Bradley, executive vice president, Personal Systems Group, HP. “And, Palm possesses significant IP assets and has a highly skilled team. The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share. Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market.”

“We’re thrilled by HP’s vote of confidence in Palm’s technological leadership, which delivered Palm webOS and iconic products such as the Palm Pre. HP’s longstanding culture of innovation, scale and global operating resources make it the perfect partner to rapidly accelerate the growth of webOS,” said Jon Rubinstein, chairman and chief executive officer, Palm. ”We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners.”

Under the terms of the merger agreement, Palm stockholders will receive $5.70 in cash for each share of Palm common stock that they hold at the closing of the merger. The merger consideration takes into account the updated guidance and other financial information being released by Palm this afternoon. The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Palm’s stockholders. The transaction is expected to close during HP’s third fiscal quarter ending July 31, 2010.

Palm’s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.

Morgan Stanley comes to the conclusion that the iPhone is dominate with pretty charts and graphs

"Morgan Stanley drinks the Apple Kool-aid":

In 1995 Mark Meeker researched, at length, and wrote a piece called "The Internet Report" which became known as "the bible" of the dot-com boom.

Graphics like the one at right charting the rapid growth of the iPhone/iPod touch/iTunes ecosystem — the fastest new-tech ramp up in history, according to Meeker's team of 27 research analysts — dominated the 92-slide PowerPoint stack.

This particular slide shows that the rate of adoption of the iPhone and iPod touch in their first nine quarters on the market outpaced NTT's DoCoMo two-fold, Netscape five-fold and AOL eight-fold.

Based on past performance, according to Morgan Stanley, Apple is in the "pole position" in the race to dominate mobile Internet computing, which is supposed to be for the 2000s what desktop Internet computing was for the 1990s, personal computing for the 1980s, mini computing for the 1970s, and mainframe computing for the 1960s.

"Apple has a two or three-year lead" according to Katy Huberty, thanks to an installed base of 57 million handsets, 100,000 apps and 200 million iTunes subscribers with credit card numbers on file. (She will keep her eye, however, on Samsung, Nokia and Google's Android.)

But much of the presentation was spent showing, in slides culled from research over the past two and a half years, that the iPhone is not like previous mobile devices, and its owners not like ordinary cell phone users.

For example, although iPhone and iPod touch owners represent only 17% of the global smartphone installed base, they account for 65% of the world's mobile Web browsing and 50% of its mobile app usage (see chart below).

Another slide, this one a pie chart, shows that the average American cellphone user spends 40 minutes a day on a mobile phone, making calls 70% of that time. The average iPhone user, by contrast, spends 60 minutes on the device but makes calls only 45% of the time. The rest of those 60 minutes are spent texting, e-mailing, listening to music, playing games and surfing the Web.

Finally, we have the Venn diagram below that compares Facebook's 350,000 apps and 137% year-over-year growth with the iPhone's 100,000 apps and 163% growth. The place where Mark Zuckerberg's 430 million users overlap with Steve Jobs' 57 million is the sweet spot of the mobile Internet. It's here, according to Morgan Stanley, where we find the future of computing.

There's lots more where this came from. You can see the 92 slides presented Tuesday at Morgan Stanley's website. But that's just an appetizer for the two main courses: a 659-slide key themes presentation and the full 424-page Mobile Internet Report.

The Mobile Internet Report

The Lost Decade

Daniel Lyons, of Fake Steve Jobs fame, has written an excellent article for Newsweek regarding his thoughts on the differences between Microsoft when Bill Gates ran the company to how Steve Ballmer now runs the company. I am a firm believer that you should not have non-programmers managing programmers. If you do not understand how to do the job, you should not be managing the people that do. This is especially true for non-technical CEO's running technology companies.

The Lost Decade

Why Steve Ballmer is no Bill Gates

Last month Microsoft rolled out Windows 7 and opened the first of a chain of new retail stores. As usual with such announcements, there's been loads of hoopla and ginned-up excitement. But mostly people are just relieved. Windows 7 replaces Vista, one of the most disastrous tech products ever. It also caps the end of a decade in which Microsoft's founder, Bill Gates, stepped aside, and the company lost its edge. (Click here to follow Daniel Lyons).

Ten years ago, when Gates appointed his longtime second in command, Steve Ballmer, as his replacement as CEO, Microsoft was still the meanest, mightiest tech company in the world, a juggernaut that bullied friends and foes alike and which possessed an operating-system franchise that was practically a license to print money. Techies likened Microsoft to the Borg on Star Trek, the evil collective that insatiably assimilates everything around it, with the slogan, "Resistance is futile."

That was then. Now, instead of being scary, Microsoft has become a bit of a joke. Yes, its Windows operating system still runs on more than 90 percent of PCs, and the Office application suite rules the desktop. But those are old markets. In new areas, Microsoft has stumbled. Apple created the iPod, and the iTunes store, and the iPhone. Google dominates Internet search, operates arguably the best e-mail system (Gmail) and represents a growing threat in mobile devices with Android. Amazon has grown to dominate online retail, then launched a thriving cloud-computing business (it rents out computer power and data storage), and capped it off with the Kindle e-reader. Microsoft's answers to these market leaders include the Zune music player, a dud; the Bing search engine, which is cool but won't kill Google; Windows Mobile, a smart-phone software platform that has been surpassed by others; and Azure, Microsoft's cloud-computing service, which arrives next year—four years behind Amazon.

How did this happen? How did Microsoft let tens of billions in revenue (and hundreds of billions in market capitalization) slip through its fingers? Hassles with antitrust regulators distracted Microsoft's management and made the company more timid. But the bigger reason seems to be that in January 2000, Gates stepped down as CEO. It's been downhill ever since.

Ballmer is by all accounts an incredibly bright and intensely competitive guy. But he's no Bill Gates. Gates was a software geek. He understood technology. Ballmer is a business guy. To Ballmer's credit, in his decade at the helm Microsoft's revenues have nearly tripled, from $23 billion to $58 billion. The company has built a huge new business selling "enterprise" software—programs that run corporate data centers. Microsoft has also done well in videogames with its Xbox player.

But the problem with putting nontechies in charge of tech companies is that they have blind spots. Gates was quick to recognize that the Internet represented a threat to Microsoft, and he led the campaign to destroy Netscape. In those days Microsoft was still nimble enough that it could pivot quickly and catch up on a rival. Since then the company has become bureaucratic and lumbering.

Worse yet, as Microsoft slowed down, the rest of the world sped up. The new generation of Internet companies needed little capital to get started and could scale up quickly. Google got so big so fast that by the time Microsoft recognized the threat, it could not catch up. With Apple, the threat was not the iPod player itself but the Internet-based iTunes store; by the time Microsoft could create a credible clone of the Apple store, Apple had the market locked down.

Meanwhile, Microsoft's core business hit a snag with Vista. Its engineers have spent three years undoing their mess; Windows 7 doesn't leap past what Apple offers, but it's still really terrific. But while Microsoft has been distracted fixing its broken Windows, yet another new crop of Internet saplings has gained root: Facebook and Twitter in social media, Hulu and YouTube (owned by Google) in online video.

And so it goes. This is perhaps why, in the 10 years of Ballmer's reign, Microsoft's stock has dropped by nearly 50 percent, from $55 to $29. (Apple shares have climbed 700 percent; Google has gone up 400 percent since its IPO in 2004.) A spokesman for Microsoft points out that the company pays a quarterly dividend and in 2004 paid out a special dividend worth $32 billion. Still, it's been a pretty dismal 10 years. Unless the company can do more than focus on the past, the next decade might not be any better.

NYT's Visualization of Music Purchasing Trends by Format

Link courtesy of Waxy.org.

The Dying Goodwill Toward AT&T

AT&T HQCongratulations! When Apple releases iPhone OS 3.0 next week, we'll finally be gaining the following features ...

Multimedia Messaging Service (MMS)! ... unless you're on AT&T.

Tethering! ... unless you're on AT&T

A brand new 16GB iPhone 3G S for only $199 with a two-year contract! ... unless you're on AT&T and already own an iPhone 3G.

AT&T has long been the subject of grumbling from the community of US iPhone users who want to use their phones legitimately. Ever since the original release back in 2007, it feels like AT&T has been trying to play catch-up when it comes to service and tower availability. But, the release of the iPhone 3G S might be the straw that breaks the camel's back. I can walk down to my local AT&T store and pick up a cheap handset for less than $100 that will have MMS. AT&T knew this day was coming. The company may wail and gnash its teeth, complaining that it aren't ready for this, but it should be, especially since Boy Genius Report tells us that all AT&T needs to do is manually remove the opt-out code!

It was even apparent during the keynote yesterday that Apple sounds pretty disgusted with how far behind AT&T is dragging them. Notice the absence of any AT&T personnel on stage. Had AT&T been on the ball to begin with, it most likely would have taken center stage -- boasting about all the improvements that would garner shiny new services for iPhone users and more money for the corporate coffers. But it didn't, and the tension coming from Apple during the moments when MMS and Tethering were announced was pretty tangible. Apple had all of these features that people have been begging for ready to go, and now Cupertino is forced to wait for AT&T to finish twiddling its thumbs and do what it should have done two years ago. I wouldn't even be surprised if AT&T somehow found a way to block copy/paste!

A small footnote on Apple's iPhone page indicates that MMS support from AT&T will be coming later this summer. Another note on the 3.0 software pages says that tethering isn't available in the U.S. and some other countries, although Engadget cites AT&T sources who say it's coming -- there just isn't anything to announce yet.

Then there comes iPhone pricing. Those expecting a repeat of last summer's offer to replace their current iPhones with the latest model on the cheap are being sorely disappointed. You can read full details on that kerfuffle over at TUAW. Those who bought the first generation iPhone paid the full price right off the bat, but later buyers were able to get the iPhone 3G at a subsidized price. Like with any other subsidized phone with any other carrier, you'll have to pay a pretty hefty price for the privilege to upgrade before you're eligible. For me, that'll be in October 2010. By then, the iPhone 3G s4π will most likely be out. Still, people aren't happy with this one either.

The ramifications for AT&T will come when it sits down at the negotiation table with Apple to extend its current gig as exclusive carrier for the iPhone in the United States. Apple won't forget that AT&T didn't have key features in place when they needed to be there. If Verizon, T-Mobile, Sprint, or any other carrier can convince Apple that they would be ahead of the game while AT&T lags (and, believe me, it wouldn't be that hard of an argument to make), Apple will take its toys and go elsewhere. And loyal iPhone users would follow. I know I would.

Newspapers Gather In Secret (With An Antitrust Lawyer) To Collude Over Paywalls

From Techdirt:

You may have noticed a bunch of stories recently about how newspapers should get an antitrust exemption to allow them to collude -- working together to all put in place a paywall at the same time. That hasn't gone anywhere, so apparently the newspapers decided to just go ahead and try to get together quietly themselves without letting anyone know. But, of course, you don't get a bunch of newspaper execs together without someone either noticing or leaking the news... so it got out. And then the newspapers admitted it with a carefully worded statement about how they got together "to discuss how best to support and preserve the traditions of newsgathering that will serve the American public." And, yes, they apparently had an antitrust lawyer or two involved.

In the end, though, it won't matter. If a bunch of newspapers decide to lock up their content, they will only be digging their own graves. Smart newspaper execs will stay away and get all of the traffic. The wire services that compete with the Associated Press (such as Reuters, and CNN's new wire service) would be well served to put out a press release now hyping up the fact that their content is free. Other, smaller providers of news should trumpet how much they want people to come to them for news instead of paying, and then watch in amusement as the newspapers (whether it's an antitrust violation or not) discover both their advertising and their subscription money disappear.

Whether it's antitrust or not, it sure looks like collective suicide.

More Apple & Verizon News: Two New Devices

In my previous post, I discussed the rumors from USA Today that Apple was in talks with Verizon about making either a CDMA or a 4G iPhone with them. Today, the news has continued, but this time the source is Businessweek.

The rumors seem to have taken on a life of their own with multiple reports that the companies are planning to work together as early as 2010. Businessweek provides the most intriguing report yet with claims that Apple could be working on releasing two different devices with Verizon: an iPhone Lite and a Media Pad.

One device is a smaller, less expensive calling device described by a person who has seen it as an "iPhone lite." The other is a media pad that would let users listen to music, view photos, and watch high-definition videos, the person says. It would place calls over a Wi-Fi connection. One of these devices may be introduced as early as this summer, one person says.

BusinessWeek was able to confirm with Verizon Wireless CEO Lowell McAdam that Verzion had been in talks with Apple but could not get any details from McAdam.

Instead, the magazine cites "two people familiar with the subject" as the source for these two possible Apple devices. The Apple media pad is said to be smaller than Amazon's Kindle ebook reader but its touchscreen is bigger than the Kindle's. The source predicts that this new product will be a category defining breakthrough device:

"The media pad category might go to Verizon," said the person who has seen the device. "We are talking about a device where people will say, 'Damn, why didn't we do this?' Apple is probably going to define the damn category."

Meanwhile, the iPhone Lite is said to be thinner, smaller, and cheaper than the current iPhone. Most of the cost savings are said to come from a new system-on-chip that has reduced costs.

The Businessweek Article in its entirety:

New Gear from Apple and Verizon Wireless?

The companies are in talks to develop two iPhone-like handhelds that could be unveiled as soon as this year

By Spencer E. Ante and Arik Hesseldahl

Verizon Wireless is warming to the idea of an Apple (AAPL) partnership. Verizon Wireless is in talks with Apple to distribute two new iPhone-like devices, BusinessWeek has learned. Apple has created prototypes of the devices, and discussions reaching back a half-year have involved Apple CEO Steve Jobs, according to two people familiar with the matter.

One device is a smaller, less expensive calling device described by a person who has seen it as an "iPhone lite." The other is a media pad that would let users listen to music, view photos, and watch high-definition videos, the person says. It would place calls over a Wi-Fi connection. One of these devices may be introduced as early as this summer, one person says.

Until now, AT&T (T) has been the only carrier of Apple's iPhone in the U.S., adding more than 7 million subscribers as a result of the arrangement; the company has said it's in talks with Apple to extend the partnership, due to end as soon as next year. An agreement to distribute Apple communication devices via Verizon Wireless may cost AT&T some of the business it has gained as the sole Apple carrier. Even if Verizon Wireless and Apple fail to strike a deal, talks between them increase pressure on AT&T to accept partnership terms favorable to Apple.

A Turnabout for Verizon Wireless

In a recent interview with BusinessWeek, Verizon Wireless CEO Lowell McAdam confirmed that the company has spoken with Apple executives. "In the last six months, I have talked to Steve Jobs," McAdam says. Although McAdam would not say what the two companies discussed, two people familiar with the subject said talks covered the new smaller iPhone-like device under development. Representatives of Verizon Wireless and Apple declined to comment. AT&T spokesman Mark Siegel says: "We are delighted with the iPhone and our partnership with Apple." The company declined to make an executive available.

The recent round of talks marks a turnabout for Verizon Wireless, which initially balked at becoming the exclusive U.S. distributor of the iPhone. Verizon Wireless, a joint venture of Verizon Communications (VZ) and Vodafone (VOD), chafed at Apple's request early on to take a cut of the phone's monthly service fees and its desire to choose which retailers could sell the phone. Despite the failure of that deal, McAdam says "there is no animosity" between the two companies.

While talks between Verizon Wireless and Apple have heated up recently, no deal is imminent. It's possible both sides may disagree over financial terms, such as how big a subsidy Verizon Wireless might pay for each device or whether to share monthly service revenue with Apple. Another deal breaker could be disagreements over distribution of wireless software applications. Apple is the exclusive provider and distributor of apps for the AT&T iPhone. If Apple requests a similar deal on newer devices, Verizon Wireless may balk.

Whatever the outcome of Apple's discussions with Verizon Wireless, they at least could be used as a bargaining chip to help win concessions from AT&T. Apple may want AT&T to absorb an even larger portion of the costs of manufacturing the phone. Plus, it may seek to obtain promises from AT&T to beef up investments in its network and customer service operations. Many iPhone customers have complained about the quality of AT&T's wireless network. AT&T's success is so tied to the iPhone that it may have little choice but to accede to Apple's demands. Still, during Apple's quarterly earnings call on Apr. 22, Apple Chief Operating Officer Tim Cook said: "We're very happy with the relationship that we have [with AT&T] and do not have a plan to change it."

Potent Threat

Apple could also use the prospect of an iPhone-esque device as leverage to prevent Verizon Wireless from introducing the Palm (PALM) Pre, or at least delay the introduction of the smartphone on Verizon's network. Sprint Nextel (S) is due to release the widely anticipated phone in June. Selling the Pre through Sprint, with 35.5 million subscribers, is less a threat to Apple's iPhone than if Verizon Wireless, with 86.6 million subscribers and a reputation for a superior network, were to begin distributing the device.

USA Today reported on Apr. 27 that Verizon Wireless and Apple are discussing the development of a current version of the iPhone for Verizon Wireless. That would mark the first time Apple has produced a version of the iPhone for a CDMA wireless network, which is different from AT&T's GSM technology.

But analysts say such a deal is unlikely because it would mean Apple would have to develop two versions of the same phone, which would increase the company's costs. "We believe such a deal is unlikely due to the technology hurdles involved in building and supporting its first CDMA iPhone," Gene Munster, a senior analyst at Piper Jaffray (PJC), wrote in a research note. Re-engineering the existing iPhone would also prove challenging from a design point of view, says Richard Doherty, research director of the Envisioneering Group. "You would be throwing away dollars," he says. "Part of the miracle of the iPhone is they have big volumes with the same design."

Terms of the Apple-AT&T agreement haven't been made public, but they very likely impose strict limits on Apple's ability to introduce an iPhone on a rival network. Many analysts speculate Apple and AT&T will extend their agreement in some fashion.

Smaller Media Pad

The new Apple devices under development, if introduced, hold the potential to shake up the tech industry. The media pad is smaller than an Amazon (AMZN) Kindle electronic reader, but its touchscreen is bigger than the Kindle's, says the person who has seen it. Carriers such as Verizon and AT&T are keen on striking deals to supply wireless Internet access to these new small computing devices, such as netbooks, which represent revenue growth opportunities. Phone carriers also fear being cut out of their core markets for supplying land-line and wireless voice services.

"The media pad category might go to Verizon," said the person who has seen the device. "We are talking about a device where people will say, 'Damn, why didn't we do this?' Apple is probably going to define the damn category."

The new iPhone-like device is slightly thinner and smaller than the existing iPhone, people say. The reason the device is much cheaper than existing iPhones is that it relies on a so-called system on a chip, which incorporates many types of chips and drives down the cost of silicon in such devices, says one source familiar with the design. This new chip could also potentially be used in the media pad. "It will have a much lower cost that will blow away the margins on the BlackBerry and the iPhone," the person says.

Apple and Verizon In Possible Talks for CDMA iPhone

According to Leslie Cauley of the USA Today, Apple and Verizon have been in talks for a few months from back when, "...when CEO Steve Jobs was overseeing day-to-day business, these sources say". Jobs went on his leave of absence earlier this year so it appears that they've been negotiating, or perhaps even already agreed upon & are now working on, a new iPhone for Verizon. Now, USA Today was the orginal source, back in early 2007, that AT&T had a 5 year exclusivity contract with AT&T for the iPhone for 5 years. They revised that in June of 2008 by saying that the deal was for 3 years, not 5 and reconfirmed that earlier this year. This would mean AT&T's contract runs out in June of 2010. The source in this new article coraborates this fact.

The article claims that this would be a CDMA product, but given that Verizon boss Ivan Seidenberg himself ruled out a CDMA iPhone and opened the door for an LTE one, I'm inclined to believe that the carrier would like to see this product help roll out the first slivers of its commercial 4G network in 2010. Since AT&T (along with the rest of the world) is moving toward LTE, and an LTE-powered iPhone is a forgone conclusion,  it's really just a question of when Apple will make it happen and whether Verizon will be able to come to an agreement with them.

Perhaps now we know why it’s been reported recently that AT&T was pushing hard to get Apple to extend its exclusive deal another year, into 2011. Verizon is AT&T’s main rival in the US, and is actually larger. That being said,  Verizon lacks the one device that people are switching networks just to get. In announcing its most recent earnings, AT&T said that as many as 40% of all customers who sign up for iPhone contracts are new to AT&T which translates into the fact that having the iPhone to themselves is gravy.

Now, any skilled negociator will tell you that the first thing to do in a situation like this is to play one off of the other, and of course that may be what Apple is doing but I sure hope not. I really hope Verizon can make this happen, if the rumors are true.