Will They Really Modu?.

I’ve been in Tel Aviv for almost two days and I still haven’t been able to shake off the jet lag, mostly because I’ve been so busy catching up with old friends, making new ones, and learning all I can about what’s going on in this tiny country, which has the highest number of startups outside of Silicon Valley. Here, working for a tech company is as much a part of life as being a member of the Israel Defense Forces.

I typically write about a startup after hearing about it from many different sources. It doesn’t matter if the chatter is positive or negative; if people make mention of a company, unprompted, in casual conversation, there’s almost always a good story behind it. These days Israelis are talking about Modu.

According to the chatter that I’ve heard while sitting in cafes and bars here, Modu, which was started by M-Systems founder Dov Moran (who sold that company to SanDisk for $1.6 billion), may already have or is close to raising a whopping $100 million from investors including some of its partners. The Kfar-Saba, Israel-based company has backing and relationships with SanDisk, Texas Instruments, Telecom Italia, BeeLine (VimpelCom) of Russia and Cellcom of Israel.

When I asked Guy Horowitz, director of strategy for Modu, about the funding, he declined to comment. Regardless, the chatter isn’t focused on how much money the company might be raising (it’s already raised $20 million from investors including Gemini Israel Partners and Genesis Partners). Modu is the first Israeli startup aiming to hit a home run in consumer electronics.

Modu has developed a tiny, 2.5G mobile phone — about the size of a cigarette lighter — that uses a Texas Instrument chips to pack in features including music playback, FM radio, GPS and of course, tons of memory.It is a mobile phone module that can be inserted into a sleeve. And depending on which sleeve it’s inserted into, its feature focus will change.

A sleeve with a focus on music can turn the phone into a music player. A sleeve with a Qwerty keyboard can turn it into a messaging device. What makes it possible is a tiny connector port hidden at the bottom of the device that interfaces with these sleeves.

“We are taking our cues from the fashion industry,” says Horowitz. Indeed, just like fashion changes every season, people can swap and change their sleeves but keep the basic innards of the phone — with all information, such as address book and music, intact. With each different sleeve, while basic functionality remains the same, the focus shifts to another function. And in the same way that you buy shirts from, say, Banana Republic or Faconnable, Mobu hopes that one day you’ll be able to buy these sleeves not just from them but also from retail stores, carriers and even small, specialized designers who will come-up with sleeves.

“Today it takes about 12 to 18 months to bring a phone to market,” says Horowitz. “And phone companies need to sell millions of units to recoup profits.” Modu, in comparison, can build and bring sleeves to market in less than a quarter — and they only need to sell some 100,000 of them to make money. From that perspective, their plan seems quite logical.

But Modu still has lots of work to do. After launching at Mobile World Congress in February, it has yet to deliver a product. It plans to launch its phone sometime this year, but it will only be a 2.5G version. A 3G version won’t be ready until 2009.

I think the lack of a 3G device is going to prevent Modu from getting any meaningful traction. Apple, while a newcomer to the mobile market, was able to buy time for a 3G version, mostly because it had a strong brand and a loyal cadre of fanboys (and gals.)

The lack of a well-known brand will prove a challenge for Modu, especially since the company is aiming for fashion-conscious users. While these consumers can afford to buy new sleeves to “show off” their expensive toys, this same group is almost perversely married to “brands” and would pay a premium for them. Carrier-branded phones, on the other hand, might not hold as much appeal. As a result, Modu needs to get a lot of “brand names” to develop “sleeves.” And in order to do that, it needs to spends tens of millions of dollars.

Horowitz said the company’s carrier partners are going to be spending millions to promote Modu devices because it would allow them to push mobile brands into the background. I wouldn’t hold my breath, for carriers’ loyalties are worse than the fidelity of a free agent in baseball.

Finally, Modu is going up against entrenched players with deep pockets, who can use discounts as a way to destroy the company’s plans. And a desperate handset maker, like Motorola, could always copy Modu’s idea.

But at least it makes sense why this company needs more than $100 million in VC backing. In fact, I get the feeling that it won’t be enough. Still, the fact that they’re doing something this audacious makes their story one worth following.

How Modu Works:

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GigaOM Interview: Citrix CTO Simon Crosby on Xen, Microsoft & VMware.

Virtualization underpins cloud computing by making it possible to separate the software from the hardware. So far the dominant player has been VMware, with about 95 percent of the market, but Simon Crosby, CTO of Citirix and former CTO of open source virtualization company XenSource (which Citrix acquired last year), plans to take that market back. The launch of Microsoft’s Hyper-V hypervisor is part of of his strategy. The rest revolves around services that “play nicely with others,” and free hypervisors embedded into servers and operating systems.

GigaOM: Can you tell me how the launch of Hyper-V affects Citrix Xen products?

Crosby: Our key founding philosophy was fast, free, compatible and ubiquitous hypervisors. Microsoft’s Hyper-V which is compatible with XenServer, is alright when it comes to being fast; it’s 28 bucks, so close to free; and because it’s Microsoft it will be ubiquitous. So for us, it’s good. The problem is it took them too darn long to get it out. Working with Microsoft has been a little bit like having a ring through the nose of the bull. We have a rope tied to that ring because we’re ahead of them on this thing, but when they charge I’m going to get out the way and point them at VMware.

GigaOM: But will Hyper-V compete with the Citrix server virtualization business anyway?

Crosby: You should look forward to interesting announcements of products to add value to Hyper-V. We’re going to sell into that footprint much like Citrix has always extended the use cases of Microsoft products.

GigaOM: What about VMware?

Crosby: We only have a 4 percent or 5 percent share in this market, and the market is significantly overpaying for what they have today, so it’s a very, very interesting time. We’re going to track VMware down with the fast, free, compatible and ubiquitous hypervisor and sell on top of that. We’ve accepted that hypervisors are not the stuff you can charge for. It has taken longer than I thought to get there, and customers have yet to decide, too, if the hypervisors are part of the box or in the operating system. We’ll be wherever we can to create for ourselves the largest possible upsell with other products.

GigaOM: So we’re early on in this game?

Crosby: Virtualization is reorganizing the IT industry. Separating the software from hardware allows more services oriented on the software stack. It creates this huge power vacuum in the industry, and everyone is rushing to fill it. Virtualization becomes a tool for differentiation for a former commodity box maker. Look at our deal with Symantec and its Veritas products. That’s a profoundly important play because, in the enterprise, what you’re about to see is companies entering the virtualization market with a commodity hypervisor and a clear intent to upsell the products.

GigaOM: What will virtualization mean for storage?

Crosby: With Xen, multiple servers will automatically pool, and from these resource pools customers get dynamism and availability. VMware turns the storage industry into a dumb block of boxes, while we have a storage model that allows us to leverage our software to the let the storage infrastructure participate in the value chain, and the storage industry works with us very closely. Microsoft is completely missing from storage.

GigaOM: What about desktop virtualization? Unlike the server side, you guys have a lot of competition ready to pounce.

Crosby: Yes, and that opportunity is of great interest to both of us. Arguably the remote delivery of apps is what we have been doing for 18 years at Citrix. We have always cared about the line of sight between an app in the data center and the desktop. We’re very confident and have opened up the category, but everyone and their dog are in there too. We’re watching 10 to 12 other offerings, but we just see a lot of smoke and not a lot of fire.

GigaOM: After storage, where is virtualization heading next?

Crosby: There’s a lot happening with I/O virtualization and the creation of these fabrics for information flow. Fibre Channel won’t roll over and die, but some of the Ethernet stuff is really interesting. Backing away this thing that has always been proprietary presents interesting opportunities. When you virtualize the resources of a single compute memory you create a new type of system where Xen is the virtualization engine, because it’s not proprietary.

GigaOM: So you’re describing a cloud?

Crosby: To the extent that the clouds are relevant, the largest virtualization effort is Amazon Web Services. Xen will be in every cloud. The only cloud that it won’t be in is Microsoft’s and that will be running Hyper-V. So that’s an interesting path as clouds become an opportunity for some IT functions to be outsourced.

AT&T May Drop Dish, But Still Has U-verse.

AT&T has decided not to renew its contract to resell television services provided by Dish Networks. The announcement, made last night in a filing from Dish with the SEC, have sent shares of the satellite company tumbling and analysts rushing to point out that this may not be the end for Dish and AT&T. My question is, why not? Where the heck is AT&T’s belated IPTV service?

Several analysts said that AT&T’s refusal to automatically renew the five-year-old contract means the telco will try to negotiate a better deal by bringing Dish rival DirectTV to the table. Others say this kills any hope that AT&T might buy Dish. But Dish has been a stopgap measure to give AT&T a triple play of voice, data and video as the cable guys encroached on the voice business. AT&T has always wanted to offer its own video service.

Six years ago I sat through demos of AT&T’s Project Lightspeed (now Homezone) and marveled at the coming television service options ahead. By that measure I’ve spent a fifth of my life waiting for U-verse as it worked through technical hurdles and issues with the Microsoft platform. And only now is the service getting widely rolled out. Dare I hope that AT&T is actually getting close to owning its own triple play?

Right now, according to an emailed response from an AT&T spokesman, “U-verse TV is our primary offering in the areas where it is available, but AT&T | DISH is available across our footprint.” As U-verse expands, losing the AT&T contract may not be such a blow.

Vyyo Out of Air?.

Vyyo, loosely translated, means “air” in Hindi. And air is what the Norcross, Ga.-based cable broadband equipment maker with that name might have run out of. The company, which used to trade on Nasdaq under the ticker VYYO, is down to some $5.3 million in cash and cash equivalents, according to an SEC filing. The sad turn of events for the company comes a year after it received a big cash infusion — $35 million — from Goldman Sachs. It now has a market capitalization of around $3 million and trades on the Pink Sheets OTC market.

Vyyo makes spectrum-overlay technology that allows cable providers to give big boosts to both upstream and downstream bandwidth. Unfortunately, with the exception of a handful of buyers, the company couldn’t get its technologies widely deployed. And according to Cable Digital News, Vyyo has been fighting a losing battle with vendors that make switched digital video and 1 GHz bandwidth expansion gear.

The Real Reason Powerset Sold (Out).

When visiting Israel in the middle of summer, it’s generally not a good idea to go for a walk in the afternoon, even if it is along the sea. The heat and humidity sap your energy, making you feel as if you spent nearly three hours in the gym. But that wasn’t enough to stop me from writing a post about Microsoft buying Powerset for what is rumored to be around $100 million.

I’ve been unable to stop wondering why founder Barney Pell decided to take the money and run — after all, he used to turn blue in the face telling people how superior Powerset’s approach to search was. If it was so superior, Mike Masnick of Techdirt put it best when he wrote that “[T]he exit certainly falls well short of the hype around Powerset. If Powerset was actually seeing any traction at all it never would have agreed to sell at that price.”

To some extent, Mike is right, but I would add another reason: infrastructure, specifically how expensive it is to build. At our Hadoop meet-up earlier this year, Chad Walters, director of engineering at Powerset, noted that their search “requires 100 times more processing than simple keyword searching and indexing (about one second per sentence is required for processing).”

Powerset used some pretty nifty technologies to build out their system, but in order to really scale, they would have needed more money — a lot of it.

And Powerset would have had to scale; there’s no other way to compete with search’s 800-pound gorilla, Google. That’s why Microsoft is building a gigantic data center in the Chicago area focused almost entirely on search. (Which it can now use to help roll out Powerset’s search technology to a larger audience.)

This is an abject lesson for every startup looking to get into the business of search: No matter how good your algorithms are, you still have to deal with the cost of queries, which need to be low enough to be offset by some kind of advertising in order to make a profit. (The conspiracy theorist in me says that if your results are really good you won’t be able to generate enough inventory to serve up ads that bring in the dollars, but maybe I’m just too cynical.)

One of our readers believes that it is possible to build a search engine that surpasses Google’s. Nevertheless, as I’ve noted in the past, “[P]rocess-optimized infrastructure ensures that Google’s cost of executing a query keep going down” — and that allows the company to wring more dollars from the system.

Given all that, Powerset has done a good job of wringing a hundred million from Microsoft. Not that there’s anything wrong with that.

Bonus Link: Don Dodge of Microsoft explains the logic behind the deal.

Those Jonas Brothers Sure Do Get Around Online.

While pop stars’ fortunes these days are heavily dependent on building an online fan base, the reverse is even more true. Social media sites are tripping over themselves to score the one celebrity who will shower them with rabid fans.

I’m surprised to see how often the words “The Jonas Brothers” show up in my inbox. And no, it’s not because I’m signed up for their fan club alerts or anything like that. It’s because these guys are huge. Their magical combination of luscious locks and mediocre crooning have captured the hearts of young ladies everywhere. And outside of their day jobs as Hanson 2.0, they’re also the poster children for any number of social media services.

The first time I heard about the band was last October, when Justin.tv told me the brothers were by far their most popular users, helping the startup to secure venture funding from Alsop Louie. As I noted then: “Up-and-coming band the Jonas Brothers has been the biggest hit to date, with 80,000 uniques and a maximum of 14,000 simultaneous viewers turning in for a live chat last week.”

Then a couple months later I got a pitch from widget provider Nabbr: “Nabbr has delivered more than 28 million video views in two months for the Jonas Brothers and helped their first single, ‘Mandy,’ reach No. 4 on MTV’s TRL with virtually no radio airplay.” Now it’s hard to find a startup that isn’t hawking some tie-in with the band. This week I talked to Uber, which just concluded a contest for the best Jonas Brothers fan page created with its tools. I also heard from Bebo and Kyte, who are teaming up for the official Jonas Brothers UK launch with a contest that will see the winner attend a live concert held on a bus as it drives around London. It will be broadcast using Kyte on Nokia N95s.

Wait a second, doesn’t Kyte compete with Justin.tv? These guys can’t be everywhere, can they? Well, it doesn’t appear that they’ve updated their Justin.tv channel in the last 10 months (though the chat room hasn’t stopped; members there are still arguing over which brother is cuter). And they started posting actively on Kyte about three weeks ago.

Meanwhile, back at the official Jonas Brothers home page, they don’t mess around with the all the social media flavors of the month; there are only links to Flickr, MySpace and YouTube. The Jonas Brothers have made a pretty big indent on the heavyweight YouTube: Their channel is the No. 6 most-subscribed channel of all time, and the band is ranked as and the No.1 most-subscribed-to musician of all time.

Much can be attributed to the fact that the teeny-bopping superstars actually use these services. Give fresh, original content to your fans and you can bet they’ll come back for more. Live-streaming, blogging, and contest-holding is invasive and exhausting, but feeding people’s obsessions is a remarkably easy formula for success. And having young fans doesn’t hurt, either. As Uber founder Scott Sassa notes, “[The Jonas Brothers] resonate with an audience that has the aptitude and the time to spend on social media sites.”

But scoring a celebrity user is a difficult game of relationship-building, evangelizing and luck. The hottest stars will always be in the highest demand, and there’s no easy system for figuring out whether your best bet is the celebrity, or their label, manager, promoter or PR company — and if any of them will actually call you back. And celebrity fairy dust isn’t unlimited; even the Jonas Brothers (and their staff) can’t use every single service.

State of U.S. Broadband: Demand Hits Speed Bumps.

A new report from Pew Internet shows that broadband growth in the U.S. has slowed down to a crawl, a sign that U.S. broadband carriers would have to work hard to find ways to grow their overall businesses. Pew points out that 55 percent of adult Americans have home broadband connections.

According to some estimates there are over 64 million broadband connections in the U.S. Some additional interesting bits from Pew’s report:

Broadband users report an average monthly bill of $34.50 for high-speed service, 4 percent lower than the $36 reported by broadband users in December 2005.

38 percent of those living in rural American now have broadband at home, compared with 31 percent who said this in 2007.

The percentage of Americans with broadband at home has grown from 47 percent in early 2007 and 42 percent in early 2005.

Cable broadband users pay $37 a month, down from $41 a month in 2005. DSL subscribers pay $31.50 a month down from $32 in 2005. Apparently, cable guys responded by price cuts (more like lower tiers) with increased competition from DSL companies.

2 percent of home subscribers have fiber optic connection. Verizon FiOS should be thanked for this development.

The research group finds out that low income groups — households with annual incomes of less than $20,000 — have started to cut back on broadband spending. Their broadband adoption rate had dropped to 25 percent in 2008 from 28 percent in 2007. It isn’t much of a surprise, because the economic downturn is forcing people to control and cut back their spending.

Earlier this year, telecom operators like Qwest & AT&T, pointed out they were experiencing the impact of this penny pinching. Of course, what didn’t help was the fact that it was their geographic footprint that played host to the housing bubble. New home sales drove the demand for broadband connections and as foreclosures started, the broadband party also started to wind down. The net new additions for the second quarter 2008 will tell an interesting story.

My feeling is that this is hurting the DSL providers more than cable companies and they are scrambling to respond by offering higher speeds. The smaller providers like Embarq & Windstream could be impacted the worst by the slowdown.

There is some research that shows that speed bumps are not quite the panacea for these carriers, though they might provide some temporary relief.

Bruce Leichtman recently conducted a survey and found out that nearly 72 percent of cable broadband subscribers, and 62 percent of telco broadband subscribers are happy with their broadband connection’s quality and speed. Only 24 percent are interested in getting faster connection and a mere 11 percent of broadband subscribers would pay an “additional $10 per month to double their Internet speed.”

In comparison, Pew’s report shows that 35 percent of dial-up users want broadband prices to decline further — fat chance of that happening when most carriers are dreaming of tiered Internet plans. Overall 62 percent of dial-up users say they are happy to be Slowskys. (That should make AOL and United Online rather happy.)

Download Pew’s Home Broadband Report (pdf.)

Is YouTube Killing Video Originality?.

 The promise of web video was that cheap cameras, easy editing software and free online distribution would open up new vistas of creativity. Instead we’re just seeing the same things, mostly parodies, over and over. Some are just recycling the same ideas. It’s just becoming faster and easier, which is spawning more of it, as people chase video views on YouTube. Continue Reading.

Bandwidth Barons Want More Money for Fewer Bytes.

According to AT&T, Time Warner and others, usage-based pricing is coming to your Internet connection. While the reasons for this change in pricing model are varied, both in terms of technology and politics, it’s clear that consumers used to an “all-you-can-eat” buffet of streaming video, photo-sharing and podcasts are headed for a lean diet of Web 1.0 and email. Unless, of course, you want to pay a lot more for your Internet connectivity.

How much more? While the service providers have not announced their pricing plans, it seems clear that usage-based pricing will be based on the number of bytes you send and/or receive from the Internet on a monthly basis. Time Warner has suggested that usage-based pricing will be tier-based, with tiers at 5, 10, 20 and 40 gigabytes and overage charges applied for bytes that exceed them.

To put those numbers in perspective, here in the Bay Area I subscribe to AT&T DSL for $24.99 per month. I can download at 1.5 megabits per second and upload at 512 kilobits per second, which means I am bit-rate limited to downloading 500.2 gigabytes per month, or about 20 gigabytes per dollar. That same $24.99 per month also allows me to upload 165.9 gigabytes per month, or about 6.6 gigabytes per dollar. But to keep the pricing simple, let’s assume that I’m currently paying 5 cents per gigabyte sent or received. Granted, I may not consume all of these gigabytes every month, but in theory, I could.

I think it’s safe to assume that the service providers will price their usage-based tiers at amounts comparable to today’s monthly fees. They’ll want to lure in customers to the lowest price tier and then gouge them with overage fees. So let’s assume that the lowest priced usage-based tier, 5 gigabytes, costs $10 per month. That equates to an increase in my current fee of 40 times, to $2 per gigabyte. The highest tier, 40 gigabytes, will undoubtedly cost the same or more per gigabyte. If we assume that this tier will be priced at the same cost per gigabyte, then that equates to $80 per month. And again, that’s without overage fees, which will undoubtedly be as hefty as the surcharges on cell-phone plans.

As a rough reference, 5 gigabytes is the equivalent of doing one of these activities over the course of a month:

• downloading about 1,000 songs from iTunes (assuming about 5 megabytes per song)
• downloading five full-length movies from iTunes (assuming a two-hour movie)
• watching about 500 minutes of YouTube video (a quick test I just ran shows that a 2.5-minute video is a 5-megabyte download)
• sharing about 2,500 two-megabyte pictures (as normally produced by today’s typical 8-megapixel camera)

These references are estimates and do not account for other ways we typically use bandwidth during a month, among them file backup and recovery; VPN connections to the office; IP video conferencing; downloading Microsoft software upgrades and patches; use of cloud computing sites such as Google Docs and Amazon’s EC2; and so forth.

Of course, service providers will argue that in reality I do not consume 500.2 gigabytes of data each month, that my effective cost per gigabyte is higher than 5 cents and closer to the usage-based prices. And if I’m only browsing the web, doing email with small attachments and downloading the occasional picture, then my usage should fit in the 5-gigabyte usage tier and my monthly bill could actually go down. But that’s not the point — the point is that the unit economics of the Internet have changed and consumers are going to increasingly pay more for each byte of data delivered to them.

Why have the unit economics of the Internet changed so dramatically? “We built a road that was well-suited for bikes and cars and spent the money to build and maintain that more or less properly,” was the way one service provider executive explained it to me. “Now we have folks landing planes on the road, tearing it to shreds and making it unusable for others. So we need to spend lots more to maintain the road for bikes, cars and planes.”

Infrastructure technology like terabit routers, 60-gigabit backbone connections and multimegabit broadband connections do exist to support bikes, cars and planes — but the service providers have failed to spend the money from your Internet connection fees to invest in that infrastructure. Instead they have spent it supporting their bloated organizations and devising new pricing models to extract more money from consumers for less service delivery.

And therein lies the rub: The Internet has evolved and has enabled new applications such as peer-to-peer and video streaming that are increasingly being used by the consumer. Unfortunately, the infrastructure evolution of service providers like AT&T and Time Warner are working at a significantly slower pace. And that slower evolution costs them money, because their infrastructure cannot handle the new Internet applications, so instead of building efficient organizations that can evolve and deploy infrastructure faster they are looking for more money from the consumer in the form of usage-based pricing.

One day soon, when you get your Internet connection bill and it is much larger than you expected, don’t blame Hulu or Microsoft for offering you funny videos or a new security patch, blame your service provider for not evolving with the Internet.

Google Takes Its Broadband Show on the Road.

Speculation that Google is working with French ISPs to build out a Gallic WiMax network has folks at Fierce Wireless wondering if Google may push open broadband overseas by investing in WiMax deployments. They point to a report in a French paper that says Google has teamed up with Illiad-owned ISP Free (Om loves these guys) and Bollore Group’s Bollore Telecom, which own licenses to the WiMax spectrum in France. Google has already invested in the nationwide U.S. WiMax effort Clearwire, has plenty of interest in making sure there’s open broadband in important markets, and money to spend. Allons-y!

The iPhone Makes Semiconductors Fun Again!.

For a while there, covering the chip industry was like covering a race run by a rabbit and a cheetah. AMD was the rabbit, while Intel — with its much larger market cap and greater profits — was the cheetah. Evey now and then the rabbit would fool you into thinking he was going to pull ahead, but we all knew who was going to win. In the past few years, however, two things have brought more runners and more diversity to the course: a challenge to the x86 architecture, and the iPhone.

I could probably find a way to credit the iPhone for changing the furniture industry if I tried hard enough (it could be the new Six Degrees of Kevin Bacon game for tech journalists.) But in this case the iPhone pushed the real Internet — as opposed to a carrier-defined portal — out to mobile consumers and showed them how compelling such access could be. That made clear to carriers that data usage, which was already on the rise, could become a huge revenue booster if consumers were given the right type of devices. Which prompted chip makers to see gold in the form of the 33.2 million high-end handsets sold around the world.

That pushed the chip world into viewing these devices as mini computers requiring their very own processors. Obviously these processors need to be small, use very little energy and still cycle fast enough to load and display web pages, pictures and other mobile computing tasks. Chip firms had been thinking about those functions for years, but the success of the iPhone showed how important the mobile computing experience could be. So Intel begat Atom, a chip designed not for a mobile phone but for a smaller laptop that Intel calls a mobile Internet device.

Other chips firms aren’t standing still, either. Via Technologies, which for a long time had the handheld computer market to itself, is refreshing its line of chips. Qualcomm now has Snapdragon, and Texas Instruments is offering OMAP chips. The dark horse in all of this frenzy comes from Nvidia’s Tegra offering, which is really compelling in demos. But Nvidia has an uneven record of supporting its products, so it remains to be seen if the real-life experience can meet the high expectations set by the demos.

Nvidia is also making my chip coverage fun with its efforts to knock out the x86 architecture. Intel and AMD dual-, triple- and quad-core chips will never go away, but both Nvidia and IBM are pushing credible alternatives for high-end processing. Nvidia’s dressing up its graphics processing chips (GPUs) to run scientific queries, visually intensive tasks and repetitive problems than can be done in parallel, such as video decoding and encoding. The influx of digital media is creating a need for such capabilities in an increasing number of data centers.

IBM, meanwhile, is pushing its Cell processor — which was designed with Sony and Toshiba eight years ago for the PlayStation 3 — for enterprise servers and high-performance computing. In many ways it’s attacking the same problems Nvidia’s GPUs are, with encoding and Monte Carlo simulations showing off the Cell’s specially designed, nine-core architecture. IBM may have an advantage over Nvidia because of its enterprise focus. It offers an enterprise-ready Cell-based blade server, while Nvidia sells its chips to firms such as Atrato and Rackable for corporate consumption.

So the two-company race that was never all that competitive has turned into several races with multiple players. Ironically AMD doesn’t have a mobile processor yet, and isn’t really pushing its GPUs into jobs other than running graphics. Perhaps it believes that if it stays the PC course it can pass the cheetah while Intel focuses on Atom and smaller devices.

GTalk on iPhone.

Google has released a Google Talk client for the iPhone that allows instant messaging as long as the application is open. I’d like to think of this as a nifty way around rising texting costs, but that’s unlikely, given how much time my phone spends in my pocket. If this type of mobile app takes off, it will raise a usability question for the high-end phone and MID apps developers. So much of our PC lives revolve around multiple applications staying open — and around the user focusing on the machine — but that isn’t how people use their mobile devices. So how do you build a phone that allows for multiple programs to be open, and how do you alert users to changes in the app’s status without going through carriers?

Fill Your Grill With Kanye, Whedon and YouTube.

You just had to squeeze a little more work in on this Fourth of July holiday, didn’t you? Well, we’re glad you stopped by. But before your fire up the BBQ, take a minute to catch up on what you might have missed over at NewTeeVee.

A federal judge ordered YouTube to hand over its user data to Viacom. If it stands (the Electronic Frontier Foundation says the judge’s order violates federal law), that means Viacom will know all about your secret obsession with making Avril Lavigne’s “Girlfriend” the most-watched video of all time.

Two big-name Hollywood types (and fanboy faves), Seth MacFarlane and Joss Whedon, are experimenting with new content models online. MacFarlane (”Family Guy”) will create “Seth MacFarlane’s Cavalcade of Cartoon Comedy,” an animated series with a multimillion-dollar budget that will be distributed by Google AdSense to targeted sites. Whedon, on the other hand, will release his musical web series “Dr. Horrible’s Sing-Along Blog” in three parts for free, online, for a limited time, then yank them off the web and make the whole show available for purchase.

Speaking of innovative distribution, after being disappointed with the token theatrical release of his indie film “The Nines,” director John August said that “leaking” the film on P2P networks would have built better buzz for the film than playing Sundance. Take that, Robert Redford!

And finally, what better way to wash down those hot dogs than with a little vodka. Kanye West is the latest pitchman for Absolut and created a kooky (though unoriginal) infauxmercial to hawk the beverage.

Now be done with work. Go outside and enjoy the holiday!

No More AT&T Callvantage?.

AT&T, long before it merged with SBC had made a half-hearted attempt at getting into consumer VoIP by selling a service called, CallVantage. It was surprisingly good, especially its call quality. Unfortunately, the company never quite made the commitment to it. And when SBC merger happened, well it fell victim of save-your-mentality that comes with it. Today, there is word that AT&T has stopped pushing the service through its affiliate channels - a sure sign that the company is backing away even further and would shut it down soon enough. Some believe that shut down is going to come next year, though I thought it was already killed, since the former AT&T Callvantage boss is now running AT&T’s CDN business, and we have not heard a single pitch from the company in over a year. I guess this is one less thing Vonage has to worry about!

Structure 08 Recap: Yo Founders! There’s Gold in Them Clouds!.

GigaOM’s Structure 08 event offered a terrific opportunity to survey the changing landscape of computing infrastructure. But as with all technology shifts, innovation won’t just belong to the big established players like VMWare, Amazon, Google, Sun Microsystems, Salesforce.com and NetSuite. With that in mind, Found|READ asked a panel of conference participants to share their thoughts via email on some of the more compelling business opportunities for startups in the cloud computing space. Specifically, we asked them:

F|R: Let’s say you’re about to start, or fund, a new business. Considering the changing landscape for computing architecture, what emerging or ignored problem in cloud computing would you target? What business or service would you launch to try to address it?

Arnie Berman, Chief Technology Strategist, Cowen and Co.:

Since Structure 08, I’ve been mulling over the following conundrum: How to give those that sign up for cloud computing services a sense of just how big (or small) their bills will be. In the wireless handset world, the advent of “bucket pricing” greatly helped the cause of mobile adoption. With “per-minute” pricing plans, charges were unpredictable – and occasionally very painful for active callers. “Bucket pricing” removed the fear of getting stuck with a ridiculously large bill.

In enterprise software, the advent of monthly subscription pricing from SaaS vendors likewise disrupted the license and maintenance pricing model of conventional software. But now companies like Amazon are threatening to disrupt the monthly pricing model with a “by-the-drink” model, where users only pay for the computing or storage capacity they use. While the economics of a pay-as-you-go approach are extremely compelling for most users, the approach actually reintroduces an element of uncertainty, because it’s very hard to predict what your computing consumption, and therefore your spending, is going to be. In wireless handset terms, it’s like going backwards from the safe harbor of “bucket pricing” to risky “per-minute” plans again.

Here’s a graphic:

Users like saving money. But they also like predictability. This suggests that what the world needs now is a monitoring and provisioning tool: a service (or a ware) that allows users to forecast their likely usage of computing infrastructure resources that they’ll purchase “by the drink.” Such a tool would also help predict their likely savings, as compared to the traditional on-premises software or SaaS models. Think of this tool as a tech innovation to help measure, and manage, the business model innovation that is cloud computing.

Luke Lonergan, co-founder and CTO of Greenplum, a maker of database management software:

The hype of cloud computing is huge with promise, and there are a lot of companies trying to explore what they can do with it. It is creating a market for services around putting applications into Amazon EC2 (leased computing infrastructure) and S3 (online storage) quickly and easily. If I were a VC in the market for a cloud company right now I’d look for something that makes the path from “application” to “cloud application” much quicker — basically I’d sell shovels and alcohol to the gold miners.

As far as the characteristics required: It would be off-the-shelf service for quick experimentation, something like “put your code or job stream here, dial in the number of units, push button to run, back comes a monitor that watches over execution, when done you get stats about efficiency, etc.” I think the current Amazon interface is more about the rental of assets and less about the execution of the experiments themselves.

Ken Elefant, General Partner, Opus Capital:

The most successful startups will identify enterprise computing needs that are not core to their customer’s business, but are still required to support it. This means targeting companies where a business buyer is eager to bypass IT. And founders should be going after cyclical businesses with predictable spikes. These are the kinds of potential customers that can benefit the most from overflow IT provisioning offered by a cloud computing startup. For example, search companies would want their large amounts of data to be in the cloud (pictures, videos, etc.) but only if they have low latency, low cost and high availability.

But don’t be too narrow in your pursuit of suitable verticals. Small companies still need to prove they have broad market applicability — and, specifically — enterprise customers who are willing to pay. The verticals need to be large enough to warrant a venture investment. An example might be financial services, where the provisioned service or function that a cloud computing startup might offer would be risk calculations, where lots of data, low latency and high availability is essential. Financial services is also a good example of a vertical of willing buyers. I believe technology will continue to trend in favor of talented, visionary entrepreneurs, especially those who can move fast.

Meebo’s Jen: How to Find Hard-to-Find Talent.

At GigaOM’s recent Structure 08 event, Meebo co-founder and engineering chief, Sandy Jen, joined a panel to talk about scaling your computing infrastructure for explosive growth. Jen also spoke with Found|READ, this time to offer founders tips on how to overcome what she calls the internal scaling challenge: hiring.

Meebo launched in September 2005, when it unveiled the first Ajax application that allowed users to access several instant messaging clients (AIM, Jabber, Google Talk, etc.) from its home page. Back then, Jen and co-founders Seth Sternberg and Elaine Wherry were bootstrapping, even using personal credit cards to lease the three servers they needed in order to launch. With no money left over for marketing, they went guerrilla.

“Digg had started about six months earlier, so we said, ‘Let’s just Digg ourselves,’” Jen recalled. “We wrote a quick description of Meebo — ‘Web IM: AIM! Yahoo!; No downloads; draggable windows! It’s free!’— and went to bed. The next morning we had 600 Diggs, and our servers were overloaded.”

Three years later, Meebo has raised $37.5 million in venture capital, has all sorts of new products (and servers), gets 30 million unique visitors a month, and faces its toughest scaling challenge yet: “The No. 1 thing we worry about is hiring,” said Jen. To keep up with user demand, Meebo must grown to 50 employees from its current 30 by 2009 — a 67 percent increase.

In a fast-growing startup, maintaining your core values is crucial. “But how do you hire and keep your small team culture? It’s really hard,” Jen told us. “In the beginning it’s easy to ask your friends and people you trust for names. But eventually you’ll tap out your networks. Then where do you look for talent?”

In order to uncover new recruits — and not just the very talented people, but the right people — for her company, Jen has developed a few tricks:

1. Go to industry events. You want to hire people who are interested in the same things that you’re interested in. That means reaching out to people who attend the same events that you do. Once you’ve seen the same person at four of five events, make your move.

2. Keep track of smart comments in blogs and forums. Pay attention to the people who are commenting smartly on the stories you’re reading — especially if they’re doing so frequently. This is an indicator of their engagement and passion.

3. Look for people through your extra-curricular activities. You want people interested in your technology, but the right cultural fit means finding people who share your other values, too. A good indicator of shared values is a shared extra-curricular activity. Do you rock climb? Play ultimate Frisbee? (Jen does.) Common fun offers opportunities for bonding, which can be a great way to find new staff.

4. Go outside your geographic circle. There’s a lot of talent in the world. One of the first things Meebo did was commission its graphic design from a guy in Italy, whose work they found on an art web site. They hired him on a trial basis; today he’s Meebo’s Agent Icon.

5. Leverage contract arrangements. As Jen acknowledged, getting H-1B visas is a long process and a pain in the butt. But they’re worth it. If you find someone you want on your team, get them in the door, excited about your company and under contract as soon as possible. Meebo usually has six or seven people working under contract at any time.

6. Commit and be generous. Really talented people rarely advertise themselves, at least not as much as we’d like them to. You must court them. There is a lot of competition, so this could mean being flexible with hours or remote work options. And once you decide to hire someone, you have to welcome them with open arms.

7. Fire fast. When someone isn’t working out, have them leave quickly. In three years, two people have left Meebo — one left in three weeks, the other, in a few months. But a bad fit will contaminate your culture. You can’t afford that.

(Photo credit: Lea Suzuki, San Francisco Chronicle.)

For more on how Jen manages Meebo’s infrastructure, check out her interview with Om, below.