Palm, Facebook investor changes tune on Apple over iPad, apps
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 ânot oneâ person who bought the original iPhone âwill still be using an iPhone a monthâ 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."
41 Comments
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.
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.
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.
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?
"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.