LONDON, Aug 13 (Reuters) - Once they were warriors battling one another on the digital battlefield. Nowadays, Microsoft and Nokia are worriers, huddling together for comfort.

The world's top phone and software companies need each other to compete with Apple, Google and Blackberry-maker Research in Motion (RIM), whose products increasingly define what users expect from phones and charge premium prices in consequence.

In the market for so-called "smartphones", Deutsche Bank estimates Apple and RIM now take home more than half of all profits, despite producing less than a third of high-end mobile phones. Nokia held a 45 percent share of the smartphone market in June, according to Gartner Inc. (Table 2 in Gartner release)

The news this week that Nokia will feature Microsoft's office software -- features such as Word and Excel -- on phones aimed at business users is symbolic of what is possible rather than significant in itself. It fell short of predictions in the gadget trade press that Nokia might introduce phones running on Microsoft's own Windows Mobile software.

But that doesn't mean their collaboration should be dismissed. There's more to this budding relationship than meets the eye.

First and foremost, Microsoft and Nokia say they are taking on the Blackberry email-phone, a must have among corporate professionals. So far the they haven't done very much, for all the big talk. But they have pledged to make Microsoft Outlook work smoothly on Nokia phones.

This is crucial in overcoming Blackberry's key advantage -- the underlying software that companies rely on to securely manage corporate e-mail.

The opportunity here is that corporate technology managers are no longer content to supply only Blackberry devices but are gearing up to support a wider range of devices and software systems, reflecting shifting user tastes and demands.

Microsoft and Nokia need one another because despite being leaders in their respective fields -- computer software in Microsoft's case and phones for Nokia. But these powers have not translated into dominance in the era of converged devices.

To some extent, they have themselves to blame. The two giants spent the first half of the decade at war with one another over Microsoft's bid to enter the mobile phone business with its Windows Mobile software and Nokia's half-hearted attempts to do the reverse and expand its presence in computer
markets.

Years of legal and technology standards battles resulted in a stalemate. Windows-based phones number only a little over 20 million in a market of billions, and Nokia has made only tentative steps to enter computer tablet or netbook computer markets. Nimbler rivals have exploited these distractions.

Microsoft isn't the only technology giant Nokia is cuddling up to. In June, the Finnish company announced that it would team up with computer chip king Intel Corp on chips for future phones. Nokia was careful this week to underscore that the Intel deal is about future generations of Nokia products while the Microsoft ties are for phones in the here and now.

Whether or not Nokia sells some Windows-based phone models or Nokia eventually introduces a mini-netbook computer running Windows software is largely irrelevant to the central problem these two companies face.

Microsoft and Nokia must create differentiated products that help users do things Apple and Research in Motion cannot do. Otherwise these two giants face marginalization in the era when phones become computers.

You can read some of Eric's recent columns here.

(Photo: Reuters/Vivek Prakash, Singapore)

Few observers expressed much surprise over Google CEO Eric Schmidt’s decision Monday to step down from Apple’s board. Analysts said the writing was on the wall, as Google’s Android smartphone software competes in the same market at Apple’s iPhone, and Google’s forthcoming Chrome operating system prepares to enter a market against Apple’s Mac OS.

Schmidt said earlier this month he expected to chat with Apple about his role on its board, and what with increased regulatory scrutiny about the company’s ties, many say it was only a matter of time.

“It’s the collision course that they’ve been on for a while, I think they’ve managed it well up to until now,” said Todd Dagres, a venture capitalist whose firm Spark Capital funded Twitter. “I think Eric getting off the board may be an indication of sort of the last straw here.”

The ties between the two companies do run deep, he said, noting that current Google director Ann Mather was CFO at Pixar while Apple’s Steve Jobs was CEO. But he said competitive juices among folks at both companies will start to flow as their empires bump into one another and “it affects your performance, your bonus and your market share.”

This is not the first time a CEO has stepped down as a director of another Silicon Valley company against a backdrop of competitive concerns, noted JMP Securities analyst Sam Wilson, who mentioned Carly Fiorina — then CEO of Hewlett-Packard — who left the board of Cisco Systems in 2003.  The two companies partner in some areas but are increasingly competitors in others.

Wilson said technology companies are always looking to branch into new markets, meaning today’s allies are tomorrow’s rivals. “Tech overall isn’t growing that fast, the pie isn’t growing that fast, so everybody is looking at everybody else’s piece of the pie.”

He said Apple’s recent rejection of the Google Voice app for the iPhone should be read as a sign.  “They’re no longer friends. I think when Apple turned off Google Voice it was clear they’re no longer friends.”

Ah, the morning after.

Microsoft and Yahoo have finally come to an understanding, putting to rest what seemed like an endless back-and-forth (As Barry Diller said yesterday,  “We’re not going to have to talk about whether or not it’s going to happen anymore).

In case you were at the beach, on the golf course, riding your bike, or hiding out in a cave yesterday, here are the very basics: It’s a 10-year Web search deal; doesn’t include display; Microsoft will the guarantee revenue per search for the first 18 months; Yahoo expects deal to boost income by $500 million and save about $200 million in capex; Microsoft will pay traffic acquisition at an initial rate of 88 percent; Yahoo will act as the global sales force for both companies’ premium search advertisers; etc. etc.

Just about everyone has weighed in on the deal, and more analysis is certain to come in the days ahead. In the meantime, here’s what we see as a few key questions about the deal.

Will it get regulatory approval? Tough call. It certainly will get a close look, given the high-profile names of the companies involved. And, remember, it leaves really only two major search engines rather than three. On the other hand, is the market really competitive at the moment? And won’t Google just keep extending its lead — and hurting competition — if Yahoo and Microsoft don’t get together? “Without this deal, I think it would be really unlikely that you’d have a market with three robust search providers in 10 years,” said Beau Buffier, an attorney with Shearman & Sterling LLP. (More here from Reuters)

What do advertisers and media buyers think? Most appear, at first blush, to be happy with the deal. Having one dominant search player — Google — makes it tough for the advertising community. So they seem to welcome the idea of some competition. Plus, it simplifies life for media agencies. “”This is extremely encouraging and introduces more balance into the search and display markets,” said Sir Martin Sorrell, chief executive of British advertising group WPP. “It is good for our clients and our agencies and for regulators.” (More here from Reuters)

Can Yahoo and Microsoft put their differences aside? This is always a major hurdle in joint-ventures, partnerships and mergers. It could be especially difficult in this case, given the fiercely competitive nature of both companies. What’s more, in the case nobody is fully in control, unlike a takeover, where, it may be ugly, but one company can impose its will on another. “It ties them together but in a complicated way with no long-term certainty and limited control,” said Ryan Jacob, chief investment officer of Jacob Asset Management, which owns Yahoo shares. (More here from Reuters)

Who came out on top? This will be the big one — at least in dinner party circles.  The early opinion seems to be Mcrosoft (particularly if you want to use stock market performance as a gauge). True, Yahoo is getting a big 88 percent of revenues from sending queries to Microsoft, it will cut spending, and increase operating income. But what about the company itself? Is banking on display advertising really a smart move? Are they locked into a strategic no-man’s land for the next 10 years? As BreakingViews put it, “This turns Yahoo into a company oddly reminiscent of the Internet also-ran AOL.” Reuters columnist Eric Auchard offered a similar comparison, writing “For Yahoo shareholders, it’s value destruction not seen since the misguided merger of America Online and Time Warner at the peak of the dot-com era.” (More here from Reuters)

Keep an eye on:

• Believe it or not, there is other news in the media world. For instance, Cablevision has approved the spinoff of its Madison Squarter Garden unit (Reuters).

• Sony had a tough quarter, reporting a big loss. Again. But the company says better times may be in sight.  (Reuters)

(Updated to reflect that Apple was referring to application downloads, not application sales.  Many iPhone apps are free.)

Apple Inc impressed the tech world with the rapid take off of its applications store, announcing on April 24th that it had sold 1 billion apps downloads in just 9 months to users of its iPhone and its iPod Touch.

That was just for starters. Now it says it has sold seen another half a billion apps downloaded in around a third of that time, showing that its growth is speeding up despite the fact that its rivals have all opened their own apps stores.

App developers appear to be taking notice too as Apple says it now has 65,000 apps available in its store ready for download to the 40 million iPod Touch and iPhone devices it has sold.

How will its rivals — Android from Google, BlackBerry from Rim, Windows Marketplace from Microsoft and Ovi from Nokia – ever get a break with that kind of competition?

But could it really be just a coincidence that Apple revealed its numbers on the same day that Techcruch notes Microsoft is expected to kick off its Worldwide Partner Conference in New Orleans with an announcement of the opening of its mobile app developmer program?

Keep an eye on:

• NY Daily News owner Mort Zuckerman describes an analyst’s prediction — that Rupert Murdoch could buy the paper instead of New York Times — as “total fiction” (DailyFinance)
• FT Tweets that it has an iPhone App (Techcruch)
• Michael Jackson family says concert plans were too much for him (Reuters)
• Netbook shipments to double this year (PCWorld)

(Photo: Reuters)

He once called Twitter the poor man’s email. But to hear Google CEO Eric Schmidt today, one would be forgiven for thinking it’s the next big thing.

Schmidt’s comments on the microblogging site are picked over with the kind of meticulous care often associated with neurosurgery, simply because Twitter is often rumored to be a Google acquisition target.

On Thursday, In an apparent reversal of his earlier pooh-poohing, Schmidt declared Google to be open to some sort of advertising partnership with Twitter.

“Twitter proves innovation is alive and well in Silicon Valley, and it’s really come on-board very strong in the last year,” Schmidt told investors and analysts on a conference call after unveiling better-than-expected first-quarter earnings.

“To the degree they become successful, it could become a channel for real-time information, for which you can hang advertising products, whether it’s a text ad or video ad, off of it. I don’t know personally their strategy, but it strikes me that’s a logical strategy for them to pursue and something we would be happy to pursue.”

If not Twitter, anyone else?

“Well, I think the most important thing to say, that it (cash) is not burning a hole in our pocket. $2.2 billion of incremental cash will sit in nice space, low interest bearing accounts while the economic system works its way through the banking system and all of that,” Schmidt said.

“We continue to evaluate what we might do with the cash but our view at the moment is to remain very, very conservative and I don’t think that will change any time soon.”

News organizations are all a-twitter about Twitter: Is it a friend or a foe? Should it be embraced or eschewed? Will Twitter kill journalism or revive it?

As journalists learn about Twitter and how they can use it, they also write more about it. In the past day alone, there have been a handful of stories about Twitter.

The Miami Herald wrote about CNN’s Washington bureau chief David Bohrman talking about the importance of newer technologies like Twitter and YouTube. Bohrman said CNN has been using YouTube and Twitter to attract the more elusive younger audience, and had great success with the presidential-primary debates.

The Financial Times, meanwhile, writes a novella-length piece on Twitter that asks whether the “trendy little short-message service really be the next YouTube or Facebook?”

And then, as search giant Google sent out its first official Tweet yesterday, bloggers and reporters began speculating madly about whether Google might buy the micro-blogging site. PC World wondered if Google will pull a YouTube on Twitter, while San Jose Mercury News’s Chris O’Brien discussed whether Twitter could actually become a threat to Google.

Meanwhile, guess who’s on Twitter now?

Keep an eye on:

• Sony Corp CEO Howard Stringer takes direct control of its ailing electronics arm. (Reuters)
• Could this be the year of Thomson Reuters? (Silicon Alley Insider)
• Billionaire Richard Li is planning to set up a new online financial news venture in China. (Bloomberg)

(Photo: Lovebirds in a pet shop in Riyadh/Reuters)

This is turning out to be an earnings season when all bets are off on how technology giants will perform. With tech earnings taking the market on a roller-coaster ride, it wouldn’t be surprising if investors are a little sick in the stomach already. 

The hits and misses so far among the biggest and brightest:

Intel: Missed expectations, profit fell 90 percent and they said they wouldn’t give a detailed quarterly forecast due to the economic uncertainty.

IBM: Beat expectations and gave an outlook above Wall Street estimates. Not only did IBM shares surge on the news, it even lifted major U.S. indexes.

Apple: Record quarterly earnings made Wall Street delirious. Can’t blame investors for feeling relief after all the worry about CEO Steve Jobs.

Microsoft: Didn’t want to hold on to the bad news until the appointed time, so the it reported earlier than expected on Thursday. Said revenue and profit would almost certainly drop over the next quarter or two. 

Google: Saved the day, kind of, by balancing Microsoft’s disappointing results with news of a quarterly profit that topped Wall Street expectations.

Google gave Jefferies & Co analyst Youssef Squali some hope that the tech sector continues to be more resilient than other sectors. “Although it depends on the severity of the recession,” Squali wrote in an e-mail yesterday. “Nobody is immune forever.”

Squali carried this ominous tone into his Friday morning research note as well, calling this earnings season a “mixed bag” and the 2009 outlook “unanimously poor.”

With Yahoo and Amazon set to report earnings next week and no guarantee what surprises might be in store there, we wonder if investors will just call in sick until next year’s earnings.

(Photo: Reuters)

Able to use a computer? Check. High school diploma? Check. Work well with others? Check. Willing to strike a deal with Microsoft? Ummmm….

Indeed, in the hunt for the next top dog at Yahoo that last issue — whether the candidate can do a deal with Microsoft — may be the most pressing.

Since Yahoo’s announcement on Monday that Jerry Yang would step aside, the tech/media world has been abuzz with speculation about his replacement. Silicon Alley Insider is even running a terrific mock election — letting its readers vote among six candidates.

(News Corp’s Peter Chernin is one of them. Wouldn’t it be great if he got the job? It would let us spend some time chattering about what will happen over at Rupert Murdoch’s empire).

But as Anupreeta Das points out in the Reuters story, the only way Yahoo may be able to satisfy its investors is either a massive turnaround plan, which would be very difficult in this environment, or an M&A deal. And the best shot at a deal may be with Microsoft.

“Microsoft wants Yahoo’s search audience, the traffic, the clicks,” Needham & Co. analyst Mark May said. “They want to have as much as Google does. So it’s important for Microsoft to have a big presence in search and display.”

The upshot: Yahoo needs a CEO who is willing to negotiate. The trouble is that means it needs a CEO who would also be willing to possibly negotiate himself or herself right out of a job. Or go to work for Steve Ballmer. Hmmmm…

Keep an eye on:

• Dan Abrams, the former general manager of MSNBC, is launching a media-strategy firm, Abrams Research, to help business executives navigate public-relations challenges (WSJ.com)
• Procter & Gamble and Google are swapping some staffers — to help each other learn more about marketing (WSJ.com)
• Time Inc is expected to cut more than 250 from the payroll as part of an overall cost-cutting plan (NY Post)

(Photo: Reuters)