Mergers, acquisitions, lawsuits, scandals, and battery recalls kept journalists busy in 2006.
Megadeals signaled realignment in the IT industry and foreshadowed the Internet’s multimedia future. A much-delayed Vista debuted amid speculation that it would be the last of the old-school, big-bang product launches. As software giants announced support for Linux, and manufacturers switched chip allegiances, the open-source and chip industries were thrown into turmoil. 2006 was a transition year, as IT giants positioned themselves for a new era of global competition in the post-PC era. Here, not necessarily in order of importance, are the IDG News Service’s top news stories of the year.
HP Spy Scandal: Board, and Broad, Implications
A board feud at Hewlett-Packard hit the newspapers in September, leading to the resignation of Chairman Patricia Dunn. The board spat erupted over an investigation to see which board members leaked information–including arguments about the ouster of former Chief Executive Officer Carly Fiorina–to the press. The company used “pretexting,” where investigators pretend to be the people being investigated in order to access private information.
Criminal charges were filed against Dunn, legal counsel Kevin Hunsaker, and outside investigators. Users are unfazed: Under Mark Hurd, CEO and newly appointed chairman, HP has overtaken Dell as the leading PC maker and IBM as the biggest IT company in revenue terms. However, the scandal has broad implications. Congress may make pretexting a federal crime. Oversight of corporate governance is a rallying cry.
Microsoft Cuts a Deal With Novell: Embrace and Devour?
Microsoft’s November deal with Linux distributor Novell created turmoil in the open-source world. Microsoft will offer sales and support for Novell’s Suse Linux, work on interoperability, and indemnify Suse users and developers from potential Microsoft lawsuits against copyright infringement.
Industry insiders say that Microsoft is driving wedges into the open-source community, protecting only some users from legal reprisals. The open-source world had already been rocked in October, when Oracle’s move to offer full support for Red Hat Linux had industry insiders worrying Red Hat’s business model would suffer. Ultimately though, the software giants’ embrace of Linux is a sign that no one can ignore open source. Microsoft CEO Steve Ballmer said the impetus for the agreement came from customers. Though that’s an old line, there’s no doubt that open source has truly come of age.
Alcatel-Lucent: M&A Mania Grows
The merger of Alcatel and Lucent Technologies, announced in April, formed a $24 billion networking giant and signaled trends in global mergers and acquisitions. The hookup was necessary to face down competition in growth areas of the mature enterprise market–such as Voice over IP–while Chinese manufacturers put pressure on the West on the low end.
2006 is expected to yield 3945 M&A deals, up from 3455 in 2005 and the highest number ever, according to investment firm Innovation Advisors. Globalization and changing demand are fueling M&A in networking, the Internet, the chip industry and enterprise software. 2006 examples include Advanced Micro Devices and ATI Technologies, Red Hat and JBoss, and EMC and RSA Security.
Google-YouTube: Convergence 2.0
Google’s ability to afford the $1.65 billion price tag for its acquisition of YouTube, announced in October, underscored its status as the Internet’s superstar revenue generator. The deal itself confirmed video’s importance in the evolution of Web 2.0: the mashing together of user-generated content and multimedia applications.
“Anybody who wasn’t interested in YouTube was either asleep or not being honest,” said Jonathan Miller, who was deposed as AOL chairman after the Google-YouTube deal.
Competitors scrambled. Lycos launched a movie-streaming service mixing elements of social networking and online video, while movie studios and TV networks rushed to put video online. Legal issues between Internet sites and content producers need to be worked out, but one thing is for sure: Convergence of video and the Net has hit prime time.
AOL Search Data Release Fans Privacy Debate
AOL’s July release of search log data on 658,000 subscribers, meant for research use, became a cause celebre in the privacy-rights debate. Coming amid reports of corporate data leaks and phishing scams, it was yet another reminder of the general insecurity of data. The AOL records contained sensitive information like Social Security numbers.
In September three people sued the company in what their lawyers claimed was the first such lawsuit seeking national class-action status. They asked the court to instruct AOL not to store users’ Web search records. But the request is not likely to be granted. Law enforcement officials want service providers to retain user logs to aid investigations, and new data retention rules may be proposed. The ability of technology to store an ever-increasing amount of data will ensure continuing debate. Jurisdictional issues also come into play as the U.S. and Europe clash over different privacy standards.
When Batteries Attack: The Great Battery Recall of 2006
It was the biggest recall in the history of IT and consumer electronics. Sparked by reports that lithium-ion batteries could short circuit and catch fire, Dell in August recalled more than 4 million laptop batteries. The move was soon followed by manufacturers around the world including Apple Computer, Fujitsu, Hitachi, Lenovo, and Toshiba. More than 8 million batteries were recalled, leading to yet another black eye in an annus horribilis for Sony, the manufacturer of the faulty cells. The recall, startup costs for the delayed PlayStation 3 game console, and poor PlayStation Portable sales pushed Sony’s operations into the red.
Mac on Intel: Chip Industry Realigns
Apple’s January launch of the first Mac PCs running on Intel chips was historic. For decades, Apple’s insistence on going its own way has been its strength, and also its weakness: the company has traded seamlessly designed products for market share … at least, until the iPod came along. But Intel chips have breathed new life into the Mac line. A 30 percent jump in fiscal fourth-quarter Mac sales helped the company generate $546 million in profit and blow away analyst expectations. The company’s profit margin is great: in their last reported quarters, Dell had more than 300 percent greater revenue than Apple, but only 24 percent greater profit.
Meanwhile, in a blow to Intel, Dell announced in May that it would for the first time use chips from Intel archival Advanced Micro Devices, in multiprocessor servers by the end of the year.
Patent Wars Singe BlackBerry
After the U.S. Supreme Court declined in January to hear Research In Motion’s appeal in its patent battle with NTP, industry watchers started sounding the death knell for RIM’s BlackBerry. A $612.5 million March agreement between the companies, however, ensures that RIM will never have to worry about NTP patent claims again.
The case is emblematic of the disruptions caused by patent disputes, which often lead to near-automatic injunctions that prevent companies from selling products that allegedly infringe on patents–even before final patent rulings have been made. Many industry insiders found wisdom in the U.S. Supreme Court’s May ruling that courts need to look at multiple factors instead of immediately awarding injunctions. The court sided with eBay in a patent infringement case brought by online auction company MercExchange. But patent wars continue: NTP sued Palm in November.
After numerous delays, Microsoft in November launched Vista, along with Office 2007 and Exchange 2007.
Though Microsoft CEO Ballmer called it “the biggest launch in our company’s history,” it didn’t have that feel. Consumer versions of Vista and Office won’t be available until the New Year, thus missing the holiday buying season. The products are important: among many other things, the level of interoperability among them is greater than ever before. But the launch may go down in history for another reason: it could be the last of the traditional big products launches. With more people tapping into hosted applications, Google experimenting with Internet-based productivity applications, and users receiving a steady stream of product updates over the Web, big-bang launches may fade into the past.
Gates Steps Back … to Plunge Into Philanthropy
Bill Gates’ June announcement that he will step out of his daily role at Microsoft in July 2008 was a milestone that comes at a transition time. While he will remain chairman, Gates will focus on philanthropy.
Microsoft was rarely if ever a first mover, as for example Apple has been. But by combining technical acumen and business brilliance, Gates embodied the quintessentially American entrepreneurial knack of seizing a great idea and commercializing it beyond people’s wildest dreams. His deal to provide the operating system for the IBM PC in 1981 fueled the personal computing revolution. Over the next 25 years Gates led Microsoft to embrace the graphical interface and bring it to the masses, conquer the desktop market, and ultimately navigate the shoals of the Internet era. Microsoft faces further battles in the Internet age, against Google and other companies that will spring up. Meanwhile the Bill and Melinda Gates Foundation has assets of about $30 billion. The world watches to see if Gates can revitalize philanthropy, as he did computing.