The Snowden revelations shook the tech giants, but they had plenty of their own problems to deal with

Tight integration of hardware and software has become the norm following Microsoft’s purchase of Nokia.

Tight integration of hardware and software has become the norm following Microsoft’s purchase of Nokia.

Fri, Dec 27, 2013, 01:01

This was the year the technology industry faced a pivotal moment in its evolution, all thanks to a certain NSA contractor based in Hawaii who decided that the world needed to know just how invasive the surveillance-industrial complex had become.

When Edward Snowden decamped to Hong Kong in May and revealed the breathtaking scale of surveillance of our digital communications, the most basic perception of our online lives was forcibly altered, and with it our attitudes to the technology companies that had enabled those communications.

Technology giants have since been scrambling to adjust to the altered reality, culminating in the open letter published in early December in which eight of them – Apple, Google, Microsoft, Facebook, Yahoo, LinkedIn, Twitter and AOL – demanded dramatic change in the way US intelligence agencies gathers data on terror suspects.

Will it be enough to salvage customer trust, or will it be seen as a belated move prompted by concerns over revenue rather than principle?

Trouble at Microsoft
The problems ailing the former big kahuna of the tech world, Microsoft, are rather more homegrown – years of failure to keep up with the pace of innovation in the computing industry all culminated in a real annus horribilis at headquarters. Shortly after announcing a major internal reorganisation of its corporate structure, seemingly in an attempt to replicate Apple’s functional structure, and just after booking an embarrassing $900 million loss on its Surface tablet project, larger-than-life chief executive Steve Ballmer announced he was retiring after 13 years at the helm.

Not many believed Ballmer’s line that the decision was his own – few doubt the board initiated his departure after years of seeing the software giant drift into irrelevancy in the post-PC era, and the markets reacted with a euphoric spike in stock price.

But rather than behave as a lame-duck chief executive until a successor was found, just a week later Ballmer announced the €5.44 billion acquisition of beleaguered Finnish telecom giant Nokia’s handset business, including 32,000 staff, its devices and services business and a licence to its patents. The purchase will see further vertical integration in the industry – following Google’s purchase of Motorola in 2011, it seems the Apple model of tight hardware and software integration is now the conventional wisdom, after being seen for years as the idiosyncratic philosophy of Cupertino’s perfectionists.

For Finland, the Nokia sale represented a severe blow to national pride, and prompted much anger at chief executive, former Microsoft man Stephen Elop.

Ever since his appointment, conspiracy theorists had been loudly suggesting that Elop was a Trojan horse from Microsoft, a hypothesis that accelerated when he killed Nokia’s Symbian and MeeGo platforms and bet the house on Microsoft’s Windows Mobile operating system instead.

By the time of the sale of the handset business, Elop had overseen a 95 per cent decline in Nokia’s profits, a tenfold collapse in its market share and 60 per cent drop in its share price. When he then picked up a €18.8 million bonus, contractually agreed in the event of such a sale, the conspiracy theorists seemed utterly vindicated.

Elop will now return to Microsoft and is currently jockeying to succeed Ballmer, alongside external candidates such as Ford’s Alan Mulally.

Too little, too late for Blackberry
Nokia’s sad decline was matched by another erstwhile pioneer of the mobile business, Research in Motion, which started the year with a final roll of the dice – a new operating system (Blackberry 10), a new flagship device (Blackberry Z10) and a new name (from RIM to Blackberry). The consensus was quick and unanimous: it was all too little, too late.

The writing has been on the wall since at least 2010, when the full impact of the iPhone and Android became unavoidable. Chief executive Thorsten Heins has seemed hapless since taking the reins in 2012 and, by November, he was out, replaced on an interim basis by John S Chen after an attempt to sell the company off piecemeal or at least take it private failed.

Where Blackberry failed, Michael Dell succeeded, managing to take the computer maker he founded private. Dell has been one of the high-profile companies to struggle badly as demand for Windows PCs declines dramatically.

Dell hopes to transform the company into an enterprise firm, away from the pressures and prying eyes of the market. To do so, he was forced into a protracted battle for control as investor Carl Icahn engineered a rival bid, which he eventually withdrew in September.

Icahn’s activism was not restricted to Dell; he also tried to pressure Apple chief executive Tim Cook into engineering a jawdropping $150 billion stock buyback programme. Cook humoured Icahn’s ideas to an extent, but hasn’t taken up his ideas, leaving the firm’s $147 billion cash-pile untouched.

Apple’s tax arrangements
Cook, indeed, had more to worry about than financial engineering. Where Apple was in the spotlight last year over its supply chain labour practices, this year it was at the centre of a political battle about its global corporate tax arrangements. During evidence at a US senate committee hearing in May, Cook confirmed the tech giant pays a paltry 2 per cent on revenues from its Irish operation, and received a grilling from senators John McCain and Carl Levin.

The revelation put neither the company nor the Irish tax regime in a favourable light, despite the legality of the arrangement.

However, it was the lack of new products, or even updates to existing products until the launch of the latest iPhone models in September, that led to rumblings of discontent from analysts and shareholders used to blockbuster new products and rocketing share prices.

The firm’s gargantuan revenues – $37.5 billion in its fiscal fourth quarter of 2013 – don’t seem to be enough to convince the doubters that Apple is missing the magic provided by late founder Steve Jobs.

A large element of that anxiety is the inexorable rise of Google’s Android mobile operating system, which has mutated into an all-purpose platform for all sorts of connected devices, quite apart from its use in smartphones and tablets. It has grown to such a scale, with such a splintered user base between different releases and flavours, that it almost appears to be an autonomous entity, resisting Google’s attempts to control it.

As it stands, it appears that Samsung is the only company managing to make any money off Android, hoovering up most of the profits in the Android smartphone and tablet space, at the expense of nearly every other manufacturer.

Running robots
Perhaps that was one of the reasons chief executive Larry Page shuffled the deck at Mountain View, installing Sundar Pichai as head of Android in place of Andy Rubin, who had been in charge of the mobile operating system from its earliest days. Rubin is now overseeing Google’s next big “moonshot” in the field of robotics, where the company recently acquired Boston Dynamics, the maker of the world’s fastest-running robot and other machines supplied to the US military.

For all the boundary-pushing, headline-grabbing products, from Google Glass headsets to balloon-connected wifi networks, Google is still the world’s most efficient advertising company, an expertise backed up by its seemingly unassailable lead in online search.

The only firm that looks in a position to rival its online advertising haul is Facebook, which announced a stunning 66 per cent surge in advertising revenue to $1.8 billion in its third quarter, of which nearly half were mobile ads. That announcement was enough to see its share price shoot past $50, finally making up for the disaster of its IPO last year.

That has bought founder Mark Zuckerberg some extra breathing space, and he used some of that space to make an astonishing $3 billion bid for evanescent photo messaging app Snapchat, popular among teens for sharing pictures they might want to keep private.

In that sense, it is very much the anti-Facebook, which preserves all those embarrassing photographs for endless posterity, making Snapchat’s rejection of the offer that bit more understandable, despite the general incredulity.

Subsequent reports suggested that they then turned down an even bigger offer from Google.

Perhaps Snapchat’s founders, Evan Spiegel and Robert Murphy, are hoping to emulate Twitter, whose founders turned down numerous acquisition offers, including one from Facebook back in 2008. Now Twitter stands as Facebook’s great social media rival and closed the year on a high with a hugely successful IPO that valued the firm at $31 billion. The size of Zuckerberg’s 2008 bid? A mere $500 million.

Which all goes to show that while a year is a long time in technology, five years is a veritable epoch.

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