All Things Digital

John Locke (played by Terry O’Quinn) and his Apple II in ABC’s “Lost”

“Because they’re the super-small-market share guy, they get all these statements about them.” Microsoft (MSFT) Chairman Bill Gates said that about Apple back in 2005. And while it’s essentially still true, it’s less so than it has been in years past. In separate reports today, research houses Gartner (IT) and IDC (IDC) both note that Apple has climbed to third place in the desktop market in the U.S. Gartner figures Apple’s share of state-side PC shipments for the second quarter of 2008 to be 8.5 percent, up from 6.4 percent in the quarter a year earlier. IDC pegs it at 7.8 percent for the second quarter this year, up from 6.2 percent in last year’s second quarter. And that puts the company in third place in the domestic PC market–ahead of Acer, if you believe Gartner. And in fourth place behind Acer if you believe IDC.

Not that it matters all that much. Because regardless of whose metrics you prefer, Apple (AAPL) still lags far behind the two PC sales leaders. Dell (DELL) is still the No. 1 seller of PCs in the U.S., with 32 percent of the market according to IDC. HP is No. 2, with 25 percent. And in terms of worldwide sales, Apple hasn’t even cracked the Top 5. Yet.

It’s definitely No. 1 in Hollywood though, as critic Roger Ebert noted a few years back. “Macs turn up in the movies all the time–not so much because of product placement, but because so many movie people use them and like them,” Ebert wrote. “A historian of the future, counting all the on-screen computers between 1983 and today, would likely conclude that Macs represented 90 percent of the computer market.”

Valiantly soldiering on in its quest to buy the search market share it has been unable to attain on the strength of its own technology, Microsoft (MSFT) this morning announced an alliance with Hewlett-Packard (HPQ) that will give its Live Search service a very broad beachhead in the PC market.

The deal calls for a Silverlight-powered Live Search toolbar be installed on all HP consumer PCs shipping in the U.S. and Canada beginning in January. Come next year, Live Search, not Yahoo (ouch), will be the default search-engine setting in the browser on HP PCs. “This agreement with HP is a strategic indicator of our increased focus on securing broad-scale distribution for Live Search,”Kevin Johnson, president of Microsoft’s Platforms & Services Division said in a statement. “This is the most significant distribution deal for Live Search that Microsoft has ever done.”

Microsoft wouldn’t say how much it’s paying HP for access to its vast customer base, but a similar deal between Google (GOOG) and Dell (DELL) was rumored to have cost the search sovereign nearly $1 billion over three year. Chances are Microsoft’s looking at fees around that order of magnitude with this HP deal. That said, now that the Yahoo (YHOO) acqusition has fallen through, the company’s got more money to spend on this sort of thing. Said Search Engine Land’s Danny Sullivan, “Given the billions it was prepared to spend on acquiring Yahoo, I’d assume it’s willing to pay much more for distribution these days.”

Well, Marc Andreessen must be grinning into his cornflakes this morning. At market open today Hewlett-Packard said it had agreed to acquire Opsware, the enterprise-software company Andreessen founded back in 1999, for $1.65 billion. H-P will pay $14.25 for each share of Opsware, a 39% premium over Friday’s close of $10.28.

At that price, Andreessen–who owns nearly 6.5 million shares–stands to make $92 million off the deal. Which is a nice bit of validation, given Opsware’s inauspicious beginnings as Loudcloud, a managed hosting company remembered more for a string of heavy losses and a lackluster 2001 IPO.

“Loudcloud took off like a rocketship, raised $350 million in equity and debt financing, went public in March 2001, and was rapidly nearing $100 million in annual recurring managed-services revenue when the entire market blew up and virtually all of our competitors and peers went bankrupt,” Andreessen recalls in a blog post announcing Opsware’s sale to HP. “In September 2002, we did a complete restart as a public company–we sold our managed-services business to EDS and turned Loudcloud into Opsware, a software company based on the core intellectual property developed at Loudcloud. Over the next five years, we executed our original vision–automation of large-scale modern data centers and computer systems. … Today we have announced that Opsware is being acquired by Hewlett-Packard for more than $1.6 billion in cash, or $14.25 per share. For Opsware, this means that our vision will now get delivered at much higher scale–being part of H-P’s software business will ensure that our software will be used by a much larger number of organizations and have an even more dramatic impact on the industry than we would possibly have been able to reach by ourselves over the next several years.”

And for Andreessen, whose first start-up, Netscape Communications Corp., marked the beginning of the Internet boom of the late ’90s, it’s proof that contrary to what F. Scott Fitzgerald wrote, there are second acts in some American lives. “One of my favorite facts about this deal,” he wrote, “is that at our acquisition price of $14.25 per share, everyone who bought and held stock in Loudcloud or Opsware in the public market at any time made money.”

Michael was moody and inconsistent. He could agree to something on one day and object strenuously the next. … He could be charming and focused. He could be depressed and disengaged. He could be rude and abusive.

“… I told H-P’s board in midsummer [2001] that our biggest problem with integration would be Michael. I said that I would work hard to make him successful, but that we’d need to be prepared to move him out of the company within a year.

“… I concluded one of those conversations by saying ‘Michael is like the little girl who had a little curl right in the middle of her forehead. When he’s good, he’s very, very good, and when he’s bad, he’s horrid.’ ”

–Former Hewlett-Packard CEO Carly Fiorina on former Compaq Chief Executive Michael Capellas in her book, “Tough Choices”

If First Data’s board of directors owns a copy of Fiorina’s memoir, they clearly don’t lend much credence to her withering assessment of Michael Capellas. Because this morning, the Denver-based transaction processor said it will name him as CEO following completion of the acquisition of the company by Kohlberg Kravis Roberts & Co. Capellas will succeed Henry “Ric” Duques, who came back to the company in 2005 to oversee its reorganization.

Sharp guy, Capellas. When he left H-P in 2002, he received $14.4 million in severance, plus a $1.9 million incentive payment and $9.6 million to cover his taxes on the payments. When he took over at MCI, he nabbed a $2 million signing bonus. And when he left, he trousered a $39.2 million payout–$11.3 million for three years’ worth of salary and bonus; $18.5 million from a previously disclosed restricted stock grant; and $9.4 million in payments to cover the taxes on his exit package, according to an MCI proxy statement.

As ZDNet’s Larry Dignan notes, it doesn’t take a brain surgeon to chart Capellas’s next moves. They’ll look like this:

• Capellas becomes CEO at First Data and gets hooked up with a sweet compensation package (there are no griping shareholders in private equity);
• First Data goes public again (after all, that’s how KKR will cash out);
• Capellas stays as CEO and perhaps sells First Data to another firm.

Sounds like a plan. All that’s missing is a step in which he pens the 3,390-word memo about how he’s going to “transform [First Data], and do it over the next 180 days.”

Progress does march on, doesn’t it? The Federal Communications Commission has only just announced technical specifications for its upcoming auction of the airwaves in the 700-megahertz band, the last piece of prime real estate left in the nation’s radio-frequency spectrum, and efforts to develop the next-generation wireless technology that could supplant it are already heating up.

The White Spaces Coalition, an alliance of companies developing a new wireless broadband service that taps into unused and unlicensed portions of the television spectrum known as white spaces, has
submitted another prototype device to the FCC for testing. Like its predecessor, this device (developed by Philips) is designed to demonstrate that white-space technology won’t muck up the airwaves for the telecom and cable companies who will almost certainly try to sandbag it on those very questionable grounds. “The telephone companies are terrified they’ll lose 40% of their wireless minutes, because you’ll be able to connect from work or home and bypass their wireless networks,” J.H. Snider, research director of the Wireless Future Program at the New America Foundation told MarketWatch recently. Which is funny, because the incumbent telecoms could have developed their own white-space technology if they’d wanted, they just didn’t bother because white spaces can’t be licensed in contiguous blocks, and apparently it’s far easier to add ridiculous modifiers to old technologies (Comcast PowerBoost!) than it is to develop new ones. Innovating is such a hassle.

Of course, now that the WSC–whose membership includes Google, Dell, EarthLink, H-P, Intel, Microsoft and Philips–is making its presence felt in Washington, it’s a different story. Anyway … the FCC plans to conclude its testing of the WSC’s white-space devices in July. If all goes as planned, and the incumbent telecoms don’t manage to undermine the effort, white-space broadband service could begin in the U.S. in February 2009.