Palm, Facebook investor changes tune on Apple over iPad, apps

Posted:
in iPad edited January 2014
In a marked shift from his former belief that sales of the iPhone would dry up after two years, Roger McNamee, a prominent venture capitalist who has invested heavily in Palm and Facebook, said in an interview that Apple will likely lead a 10-year technology growth cycle with the continued success of the iPad and its App Store ecosystem.



McNamee, a founding partner in venture capital firm Elevation Partners, gained notoriety in 2009 after making overstated claims about Palm and disparaging remarks about the iPhone.



At the time, McNamee claimed that ?not one? person who bought the original iPhone ?will still be using an iPhone a month? after the end of their two-year contract, suggesting they would all defect to Palm's webOS platform.



McNamee's comment was later retracted for being "an exaggerated prediction of consumer behavior pattern," according to Palm and Elevation lawyers.



Two years later, McNamee has changed his mind about Apple and now believes that the company will lead a post-PC technology boom, even as rivals Google and Microsoft may stumble, as revealed by a recent interview with CNBC.



Windows down, Apple up



"This is the cycle where [Microsoft Windows] stops growing," said McNamee. "I think the availability of iPads and smartphones is allowing corporations to trade down and eliminate the $1000 expense per year of supporting a Windows desktop.



"This is the year where Microsoft has fallen below 50 percent of internet-connected devices, down from 97 percent 10 years ago. So what you're looking at is we're going to free up over $100 billion of revenue over the next few years per year in that category."



McNamee sees much of that revenue going toward tablets, especially Apple's iPad. "At the same time, you've got the rise of tablets, which I think will replace them to a certain extent.



"Think of this as Windows goes down and Apple rises, and maybe other people do too, but that's a big thing," he said.









Web vs. Apps



According to McNamee, Apple is currently winning a battle with Google for control of the Internet. One on hand, Apple is pushing an 'app model,' while on the other, Google leads with traditional index search.



"If you think of Google as the leader of the World Wide Web group, their problem is that the underlying software for the Web, what's called HTML hasn't changed for a decade. And as a result, we haven't been able to have a bull market. There hasn't been enough opportunity for innovation. The only things that have slid through are Google and then the social companies," said McNamee, adding that he has invested heavily in Facebook and Yelp.



"The thing that I think is so powerful here is that right now Apple is just killing the World Wide Web. Peope are adapting iPads and iPhones at a rate: Apple will do almost 100 million units this year. I mean, the numbers are staggering."



"Google is still a great company and still growing but it's losing influence because the success of index search essentially has caused pollution to go into it." McNamee pointed out that index search has dropped from being 95 percent of searches a few years ago to just 50 percent of searches, as more specific searches on Wikipedia, Facebook, Twitter and Yelp have taken off.



However, though Apple is winning now, McNamee did note that HTML5 will be a major upgrade to the World Wide Web infrastructure and should give a boost to content producers.



McNamee said the new growth cycle, driven apps, HTML5 and tablets such as the iPad "will start slowly, but I think this is literally one of those mega-cycles like the Internet cycle that began in 1994 that goes on for 10, 12, 15 years."



When asked whether investors should simply short Microsoft, Dell, Intel and go long on Apple and Facebook, McNamee replied, "It's much more complicated than that, but it's directionally right."



According to McNamee, Microsoft is "going to be fine" because it can leverage its monopoly on corporate email to raise prices on Exchange. But, for Dell, Intel and other partners in the Windows ecosystem, "it's going to be brutal on them."



McNamee's recommendation for a "perfect hedge" is long Apple and short Google, which "would give you a positive return in almost every period from here on out."



The rise of tablets



When asked to comment on players other than Apple in the tablet market, McNamee remarked that HP has a chance, if it can move fast enough, while expressing skepticism about the Google Android tablet opportunity.



"We were a big investor in Palm and HP bought the Palm technology, which was really designed to do tablets as well as phones. They could have a compelling product if they get it out soon enough and if they can promote it. And HP's a very very strong player in consumer electronics and I think they are very credible," he said.



Beginning in 2007, Elevation Partners invested over $400 million in Palm as the company struggled to turn itself around. The influx of cash, however, wasn't enough, and in April 2010, HP acquired Palm for $1.2 billion.



Earlier this year, HP revealed its plans to release a webOS-based tablet, dubbed the TouchPad, later this summer.





As for the Android market, McNamee expressed a lack of excitement. "The problem is nobody makes any money from it. You know, Google doesn't protect the hardware guys. There's no anti-virus protection on it.



"I'm just really worried about the day if you own an Android tablet when some 16 year old kid in the Eastern Bloc presses a button and erases everybody's hard drive. Seriously."



McNamee also referenced a number of Android apps that had been removed for stealing credit card numbers, calling the Android ecosystem "too Wild West" for him.



Ultimately, McNamee sees Apple continuing to lead the tablet market, with a bull case scenario of as much as 70 percent market share.



"Everybody says Apple's going to end up with 10 or 15 percent market share in tablets and that may be the most likely case, but what if they wind up with 60 or 70 percent, what if it's closer to iPods. Then Apple's going to be the biggest hardware company by a mile."
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Comments

  • Reply 1 of 41
    The problem with Android is that no one is making money off it.



    1) HTC is making money, but they are making about the same money they were when they were the leaders in Windows Mobile. Essentially, Android has replaced Windows Mobile with them (after accounting for the growth in size of the overall smartphone market, which, even if you completely remove Android from the picture, is MUCH larger than then. In fact, for all the marketshare RIM is losing, they are still selling FAR MORE phones than they were before the iPhone).



    2) Motorola is barely treading water.



    3) Samsung is hard to tell, because they don't break up numbers.



    4) Google's ad mobile revenue has grown with the size of the market. They would have had the same results even without Android (assuming WP7 did not take off, that is, but that was unlikely), because their ad impressions are growing with the market, and the rest of their mobile revenues are directly from the purchase of AdMob.



    So while Android has been great to prevent an iOS monopoly, the ecosystem seems really unstable to me. The only real winners have been the carriers, who have been able to reassert their influence, since they can bully over HTC, Samsung, Motorola in ways they cannot with Apple.



    I am interested to see how the Android ecosystem will play out, where, unlike MS and Windows, Google isn't even making a tremendous amount of money they wouldn't have with Admob anyways.
  • Reply 2 of 41
    Funny. I was watching the very same interview this morning, and remember thinking two things: one, that he's making a tremendously cogent argument about where tech is headed in the near term, and two, that he's done a 180 degree turn on Apple. I agree strongly with his sentiments on both fronts (although the latter should have at least warranted a mea culpa).



    McNamee is a superbly smart and perceptive guy, and it's obvious that in his prior running down of Apple, he was simply trying to put a floor on the value of his Palm investment.



    Incidentally, the other area where I agree with him completely is on his bearish view of Google. As I have been saying in these forums for over a year now, Google's best days are behind it.
  • Reply 3 of 41
    taniatania Posts: 63member
    All this forecasts in various flavors are well and good to read about. Althhough i'd like to read more what Apple is doing product wise, like how are they going to break into the Microwave market. With the Apple branded television set coming, everything is fairgame now i guess.
  • Reply 4 of 41
    Let's see, he obviously didn't get it right the first time. Everything he says we've been reading from the news and bloggers. So why is he news?
  • Reply 5 of 41
    Quote:
    Originally Posted by AppleInsider View Post


    "I'm just really worried about the day if you own an Android tablet when some 16 year old kid in the Eastern Bloc presses a button and erases everybody's hard drive. Seriously."



    Yes having your "hard drive" erased in a 2011 tablet device is a serious issue, though not quite as serious as the duct tape commonly used to attach the hard drive to the outside of your tablet. Then again, that's probably why only the most clueless of teenagers in countries so backward they're still called "Eastern Bloc" would attempt to write hard-disk-wiping malware for tablets.
  • Reply 6 of 41
    My medium-term tablet prediction (2-4 years out): Apple's marketshare will be somewhere between "iPod" and "iPhone).



    Companies learned their lesson from iPod, so they're unlikely to let Apple completely dominate an entire category. Yet, I don't see Android reproducing its success from the smartphone market, as there is much less influence from carriers, making it a much more level playing field.



    I'd say 2 years from now, Apple will still have 50-60% of hardware marketshare, and more than that of profit. Android will probably have 20-30%, but of course divided amongst the various hardware manufacturers. HP, probably a hair under Android, despite the fact that I like webOS better than Honeycomb. It just doesn't have the mobile reputation.



    Apple has experience in both computer hardware/software and mobile hardware/software.



    Google has experience in computer software, mobile software, but no hardware.



    HP has experience in computer hardware, makes terrible computer software IMO, fairly unsuccessful mobile hardware, and no mobile software. Palm has good experience in mobile software but makes mediocre mobile hardware.



    Long story short, tablets are essentially a cross between computers and mobiles. Only Apple has experience and success across the board...Even Microsoft doesn't make its own hardware, but I guess that's why they teamed up with Nokia...
  • Reply 7 of 41
    I saw this interview as well. It was very interesting and the guy made several good points, particularly what he said about the general idea that Apple will have 10-15% of the tablet market. I think he nailed it there.



    Apple has created and owns this oyster called the tablet market, with the iPad 2 (which is still in short supply) they are going to pry it open and nobody is even close to competing with them.



    As Motorola is finding out this isn't the PC world where price and the best specs means you win. Its going to be fun to watch.
  • Reply 8 of 41
    Give him another few years, maybe he'll predict the downfall of the "Eastern Bloc"?you know, the Eastern Bloc that dissolved in 1989?



    Seriously, who's predicting that Apple will wind up with 10 or 15 percent of the tablet market? Who's coming from behind, over a year late already, and grabbing 85 or 90%? Oh, yeah, I know, Android....
  • Reply 9 of 41
    Quote:
    Originally Posted by Mac-sochist View Post


    Give him another few years, maybe he'll predict the downfall of the "Eastern Bloc"?you know, the Eastern Bloc that dissolved in 1989?



    Seriously, who's predicting that Apple will wind up with 10 or 15 percent of the tablet market? Who's coming from behind, over a year late already, and grabbing 85 or 90%? Oh, yeah, I know, Android....



    In all fairness, in these live interview settings where one is staring into a camera lens under time pressure, it's just as easy to say 'Eastern Bloc,' when you might have intended to say something like '...former Eastern Bloc.'



    Things always sound more 'black and white' in after-the-fact print -- well, written word -- than they are in live spoken word heard in real-time.
  • Reply 10 of 41
    mdriftmeyermdriftmeyer Posts: 7,259member
    He's just another MBA due to fortunate timing in the late 80s made money for the VC firm he worked at and got well-paid for his efforts.



    He later invested in Electronic Arts and Sybase. Whoopi!



    The man has absolutely zero technical background, has no insight [Vision] in any industry and is not an Inventor with a background in Patents.



    He's an MBA and an average musician.



    End of story.
  • Reply 11 of 41
    lkrupplkrupp Posts: 7,072member
    This guy is a fart-knocker who should just shut his pie hole.
  • Reply 12 of 41
    Quote:
    Originally Posted by lkrupp View Post


    This guy is a fart-knocker who should just shut his pie hole.



    Given your comments, you probably live in a trailer home.



    The mis-predictor probably has a nice apartment above 5th Avenue.





    Hindsight is always 20-20, so it's easy to criticize this guy for his prediction that turned out to be false.



    However, realize that even Jobs wasn't so sure about the initial launch of the iPad. He did a great sales job calling it 'magical', but he was mostly being a P. T. Barnum. A decent machine, but he talked it up to the media while not really sure how popular it would become.



    Even Apple has been surprised. So give this reviewer a break. To predict that a more 'open ecosystem' will eventually shake out is a reasonable guess. Didn't happen, but it was a reasonable guess.
  • Reply 13 of 41
    wizard69wizard69 Posts: 12,791member
    It takes a little bit of time to realize just how good iPad is and how well the ecosystem supports it. In many ways it is a big iPod Touch, but what the detractors don't realize is that is a good thing. Now in this guys case he maybe took awhile to come around but that is a sign of rational and critical thinking. More people in this world need to follow the example set buy this guy and question their beliefs.



    As to my new iPad 2, man this thing is NICE. Now I have a question, why do people stand in line every morning at the Apple store in the hopes of buying one there? Honestly I walked into Target and had mine in about 8 minutes.
  • Reply 14 of 41
    bedouinbedouin Posts: 331member
    Quote:

    "If you think of Google as the leader of the World Wide Web group, their problem is that the underlying software for the Web, what's called HTML hasn't changed for a decade. And as a result, we haven't been able to have a bull market. There hasn't been enough opportunity for innovation. The only things that have slid through are Google and then the social companies," said McNamee, adding that he has invested heavily in Facebook and Yelp.



    Ehh. Plenty of innovation has occurred. Innovation and what makes you money are not synonymous.



    Quote:

    When asked to comment on players other than Apple in the tablet market, McNamee remarked that HP has a chance, if it can move fast enough, while expressing skepticism about the Google Android tablet opportunity.



    What?



    Quote:

    "We were a big investor in Palm and HP bought the Palm technology, which was really designed to do tablets as well as phones.



    Oh, now I get it.



    Quote:

    "I think the availability of iPads and smartphones is allowing corporations to trade down and eliminate the $1000 expense per year of supporting a Windows desktop.



    20 page report? Let's do it on a 10" touchscreen.



    Quote:

    According to McNamee, Microsoft is "going to be fine" because it can leverage its monopoly on corporate email to raise prices on Exchange.



    Forget that little product called Office and that with 20 years of programs Windows isn't going to disappear in 5 years.



    Quote:

    There's no anti-virus protection on it.



    Uh oh!
  • Reply 15 of 41
    dualiedualie Posts: 333member
    He was wrong then, why should I think he's right now?
  • Reply 16 of 41
    Quote:
    Originally Posted by bedouin View Post


    Ehh. Plenty of innovation has occurred. Innovation and what makes you money are not synonymous.



    they are not. Bt until someone is making money off it it's unlikely to be a long term success. Especially in the tech world. Even the poster child of open source success, firefox, really only blew up after they figured they could make money off their little search box.



    Quote:

    20 page report? Let's do it on a 10" touchscreen.



    yeah because every working professionals job is to write 20 page reports...how hard is it to understand that just because tablets dontdo everything well doesn't mean that they can't be used for work, or play, as long as they are great for the kind of work you do? A great example of this is doctors who would carry around heavy and confusing $1000 tablet pcs, which are now replaced by $500 iPads that have custom apps designed for their work, are lighter, and don't slow down because norton kicked in in the background.





    Quote:

    Forget that little product called Office and that with 20 years of programs Windows isn't going to disappear in 5 years.



    what a terrible straw man since he specifically cites ms as a company which will be okay because of their entrenched software. But the point, again, is that not everyone needs office.
  • Reply 17 of 41
    tbelltbell Posts: 3,146member
    You have to take the guy's prior words with a grain of salt. Sure he was pumping up Palm because of his money. That makes sense. However, there was bad blood between Elevation Partners and Apple. First, you had Fred Anderson who was a co-founder of Elevation Partners. As many will recall, Fred got booted from Apple for the whole stock options scandal. Fred thought he was the fall guy and made no bones of making that public. Second, you had Jon Rubinstein running Palm. Jon ran Apple's hardware operations responsible for bringing the world the iPod. He then defected to Palm. Obviously, Jon had no problem ticking Apple off by continuing to hack iTunes to sync with Palm devices and publicly being very vocal on how the iPhone sucked compared to the Palm Pre. Jon's experience was the reason Elevation Partners invested heavily in Palm.



    So, this guy probably was sucked into all that drama as well.





    I am surprised the guy was willing to come out and say something positive about Apple. I don't think he has it all correct though. He makes it seem like Apple is working against HTML, when in fact Apple has heavily supported it. I also don't see any evidence of Google's dominance subsiding soon. With his investments in Facebook and Twitter, it isn't surprising he'd talk down Google. He might be right though.



    Microsoft could still pull it all together, but the more iOS devices become relevant, the less relevant Microsoft's money makers are. In today's economy companies are looking for ways to cut costs. Paying big bucks to Microsoft isn't a formula for success anymore.





    Quote:
    Originally Posted by anantksundaram View Post


    McNamee is a superbly smart and perceptive guy, and it's obvious that in his prior running down of Apple, he was simply trying to put a floor on the value of his Palm investment.



  • Reply 18 of 41
    Quote:
    Originally Posted by dualie View Post


    He was wrong then, why should I think he's right now?



    No reason to think he is right. However he raises some interesting points borne of a reevaluation of his original position.



    I think several of his predictions are wrong but he still does present some good insights into this space.
  • Reply 19 of 41
    I'm buying an Apple product because of the music apps and Garage Band. I think those apps alone will draw people to the iProducts.



    Then there's the office things. Even MS has things made for the iPad. If people can buy MS software that works on iPads and Macs then why would they buy other bands of computers? IPads are more fun and cheaper than some laptops. Given a choice I bet most employees of companies would choose an iPad over a laptop for most office work. All they need to add is the keyboard for typing and they're set.
  • Reply 20 of 41
    Quote:
    Originally Posted by addicted44 View Post


    No reason to think he is right. However he raises some interesting points borne of a reevaluation of his original position.



    I think several of his predictions are wrong but he still does present some good insights into this space.



    It's easy to make fun of his old predictions?I've been doing it?but you've got to give the guy credit for being able to change his mind. A lot of people in this arena will stick to an ideology no matter how idiotically wrong it turns out to be?I think we all know who I'm talking about.



    As for why we should believe his predictions this time around?we shouldn't. His old predictions were so spectacularly wrong, though, that his new predictions just have to be closer to the truth. That's just math....
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