The technology industry is littered with the carcasses of once-hot startups and obsolete giants.As 2010 ends, several tech companies face once-in-a-lifetime challenges.
If they meet these challenges in 2011, they’ll look back some day and raise a toast to how they persevered. If not, their investors and employees will feel the consequences.
Here are the 10 tech companies with the most to prove in 2011.
Twitter has millions of users, but it still doesn't have much revenue. In 2010, CEO Ev Williams stepped down and was replaced by Dick Costolo, who's hiring like crazy in hopes of building a real business. It better work because Twitter's latest round values it at $3.7 billion, which makes it a lot harder to sell the company.
AT&T's subscriber growth for the last three years has been driven largely by one phenomenon: the company has exclusive rights to Apple's iPhone. But if Apple and Verizon team up to end that exclusive, as many are predicting will happen in March, analysts predict that as many as 20 million Verizon iPhones could be sold. AT&T needs to keep upgrading its infrastructure and come up with a viable 4G plan, or it's going to face a long ugly fall.
Intel provided the microprocessors that powered the PC industry for the last 30 years, but in the nascent tablet market, chips based on rival ARM's designs dominate. Intel knows it has a problem: CEO Paul Otellini admitted on a recent earnings call that the company needs to get its chips into more tablets, and recently formed a product group devoted to that end. In 2011, it has to prove it can execute.
Intel's not the only company with a tablet problem: Microsoft's Windows ships on 400 million PCs per year, but the iPad is already cutting into Windows sales, and a crop of new Android competitors is going to impact the PC market farther.
Microsoft's only tablet strategy so far is to shoehorn the desktop version of Windows--with a user interface that was never designed for touch screens and few touch-compatible apps--into tablets made by its traditional PC partners. Next week at CES, the company might announce a new version of desktop Windows that supports low-powered ARM processors, or perhaps a completely new tablet OS based on Windows CE. But whatever it is won't be shipping for a year or more, and there's going to be a long haul to get developers to build apps for it as other tablets take off.
In addition, Microsoft earns far less money for each sale of its CE-based platforms--maybe $15 for Windows Mobile and less for pure CE--than the $30 to $150 it earns from desktop Windows. That's a hard addiction to overcome.
The smartphone market is poised to explode in 2011, but Nokia is still addressing the market with years-old technology (Symbian) and a hopeful plan based on yet another operating system (MeeGo) in a market that's crowded with them. No wonder it's losing smartphone market share every quarter. Former Microsoft President Stephen Elop took over as Nokia CEO this year with a mandate to turn the company's smartphone strategy around. He needs to do something dramatic--perhaps adopting Microsoft's Windows Phone 7 platform could do the trick? Or maybe Nokia becomes yet another Android reseller.
Currently, there are half a dozen smartphone platforms. Apple's iOS and Google's Android have upward momentum. Nokia still has dominant market share. Microsoft's Windows Phone 7 and HP's Palm have deep pocketed backers and recent dramatic platform changes.
That leaves Research In Motion somewhere in the muddy middle, with a years-old platform, new handsets that have failed to excite users, and defections by longtime loyalists. The company's Playbook tablet shows promise, but RIM has been increasingly defensive lately -- for good reason. In 2011, RIM has to prove it's going to remain a big player, not an also-ran.
No matter how much trouble Nokia and RIM are having in the smartphone market, at least they're not Palm, whose smartphone market share has been spiraling toward zero--it's currently around 1% in the U.S., according to Nielsen, and no longer rated a mention on Gartner's last survey of smartphone platforms. HP acquired Palm for $1.8 billion in April 2010. The second revision of Palm's redesigned mobile platform, Web OS 2.0, is starting to ship on new handsets in 2011. This is the year that HP has to prove the acquisition was worthwhile, or get out of the market altogether.
Yahoo CEO Carol Bartz has been at the company for two years as of January. She knows what she wants Yahoo to be: a content and communciations company. She's spent the last year and a half making a plan and getting out of non-strategic businesses like search and downsizing to control expenses. It's been an ugly transition. In 2011, Yahoo has to prove that it can profit and grow in its more focused role, or the downward spiral will continue.
From a revenue perspective, Google is one great business--paid search advertising--and a bunch of also-rans. Display advertising is on track to top $2.5 billion, but that's less than 10% of the company's total revenue and is far less profitable than search advertising. Android ships on millions of phones, but it's free and its main contribution is to add mobile search revenue. Gmail and Google Apps for businesses may be scoring occasional takeaways from Microsoft, but they'll amount to less than $1 billion in revenue in 2010.
Meanwhile, search isn't driving traffic like it used to--more people are starting to discover content through Facebook and other social networks. As search traffic flattens, search advertising revenue will as well. In 2011, Google has to prove that it has a second great business--perhaps in content, perhaps somewhere else.
How much is Facebook worth? Based on the latest trades of the company's preferred shares on the secondary market, it's north of $50 billion. That's somewher between 200 and 400 times earnings--for a company that's never reported revenues or profits and never sold a share to the wider public.
That's not such a big problem as long as Facebook's user growth continues. But the company claims more 500 million active users--about one-thirteenth of the world's population--leaving it little room to add more users. So the only way it can keep growing is to increase revenue per user. In 2011, Facebook will have to open the kimono and show how much money it's making for each of its users, and how that revenue is growing. Otherwise, the company's shares are poised for a dramatic fall.
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