The Top 5 Tech Biz Stories of 2012

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Alexander Zemlianichenko / REUTERS

Facebook CEO Mark Zuckerberg looks on before a meeting with Russian Prime Minister Dmitry Medvedev at the Gorki residence outside Moscow, October 1, 2012.

For the first time ever, smartphones outnumber basic mobile phones. Apple‘s iPhone and Google’s Android devices — which are more powerful than the top consumer PCs of just a decade ago — are changing our habits. Consumers are using smartphones to compare prices at brick-and-mortar retailers. Innovative startups are using these devices to make entrenched markets more efficient. And the “social networking” phenomenon continues forward, as people everywhere join Facebook and Twitter to connect and share content with friends, relatives, and strangers.

In 2012, tech titans Apple and Google solidified their market power, even as questions percolated about how each company plans to remain on top of its respective market. (Google is currently staring down the barrel of a major federal antitrust investigation.) Meanwhile, relative upstarts Facebook, Zynga, and Groupon tested the public stock market and each encountered a harsh response from investors.

Far from an apocalypse, 2012 was a year of ascension, as Apple CEO Tim Cook asserted his leadership following the passing of his mentor Steve Jobs, and Marissa Mayer became CEO of Yahoo, in an appointment that highlighted the lack of female CEOs at America’s most high-profile companies.

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Apple vs. Google Tech War — In 2012, it become clear that the most high-profile battle in technology is between Apple and Google, two tech juggernauts that bring radically different visions to the marketplace. As the locus of computing shifts from the desktop to the mobile device, Apple’s iPhone and Google’s Android have emerged as dominant platforms. This fight is bigger than just a commercial clash between two tech titans. It’s a war between two fundamentally different visions of technology, described in simplistic terms as closed vs. open. Apple’s model is end-to-end control over the iPhone process, from hardware to software, while Google’s strategy has been to distribute the Android system for free in order to leverage innovation from hardware makers and the software developer community. Each company has been wildly successful: Apple generates over $10 billion in profit annually on iPhone sales, while Google’s Android is now the top mobile operating system on the planet.

Given the intensity of the competition in the mobile marketplace, it’s no surprise that Apple has been fighting over mobile patents with Google’s hardware partners, in what is widely viewed as a proxy war against Google itself. In August, South Korea–based hardware giant Samsung, a key Google ally, was slapped with a $1.05 billion verdict after a federal jury concluded that it had infringed Apple’s iPhone patents. Samsung appealed, and the case continues. Top executives at both Apple and Google maintain that they dislike costly and time-consuming litigation, but at least in Apple’s case, CEO Tim Cook insists that he has no choice but to defend his company’s inventions. Despite glimmers of rapprochement, the patent wars continue, which is unfortunate, because consumers want to see these firms compete in the marketplace, not the courtroom.

(MOREApple vs. Google Is the Most Important Battle in Tech)

Facebook’s IPO Debacle — Facebook’s highly anticipated public stock offering was supposed to be a triumphant moment for Silicon Valley and Wall Street. Instead, between trading glitches on the NASDAQ exchange and accusations of “selective disclosure” against Facebook’s bankers, the IPO turned into an epic disaster. Why? Because the stock fell off a cliff on the first day of trading, after opening at $38 per share. After trading below $20, the stock has only recently moved north of $25. Of course, Facebook’s IPO was not a failure, at least not for the company itself. The IPO raised $10 billion for the social networking giant, which, after all, is what public offerings are designed to do. On the other hand, the IPO was woefully mispriced, in part because company CFO David Ebersman grievously miscalculated market demand for the stock.

In the wake of the offering, many investors were furious, and the performance of two other high-profile Internet IPO’s only fueled investor ire. By midsummer, shares of online game-maker Zynga had plunged by 69%, while Chicago-based e-coupon concern Groupon was down 72%, since their respective IPOs. In each case, company insiders made billions while ordinary shareholders suffered steep losses, raising questions about the fairness of the IPO process. By now, it’s clear that some people on Wall Street have better information than others, but at the end of the day, investors need to understand that the stock market — especially hyped-up tech stocks — is very risky. Caveat Emptor.

(MOREFacebook Blame-Game: Who’s at Fault for IPO Debacle?)

Tim Cook’s Debut at Apple — Talk about a tough act to follow. Several months before he died in October of 2011, Apple’s ailing leader Steve Jobs asked his trusted lieutenant Tim Cook to become CEO of the world’s most profitable tech company. Jobs instructed Cook not to try to divine what Jobs would do in a given situation, but rather to “just do what’s right.” With that blessing, Cook has begun to make important changes at Apple, including addressing critics about working conditions at Apple’s giant Chinese manufacturer Foxconn, and loosening Jobs-era limits on corporate philanthropy. He’s also begun high-level talks with Google CEO Larry Page over the ongoing smartphone patent wars. (Jobs vowed “thermonuclear war” after he became convinced that Google had ripped off key designs from Apple’s iPhone.)

In December, the 52-year-old Cook, an operational wizard and Alabama native who zealously guards his privacy, embarked on something of a publicity tour, with a cover story in Bloomberg BusinessWeek and an appearance on NBC’s Rock Center with Brian Williams. By Wall Street standards, Cook still has a lot of ‘splainin’ to do: Apple’s stock price has declined by about 25% in the last three months of 2012, although it’s still up 25% for the entire year. The iPod, iPhone, and iPad were industry changing smash-hits. A few months ago, I asked if Apple was losing its shine after Steve Jobs. (There’s been a lot of speculation about a new Apple TV product, but little hard fact.) When NBC’s Williams asked Cook if the company could stay on top, Apple’s CEO replied, “Don’t bet against us, Brian, don’t bet against us.”

(MOREApple CEO Tim Cook Announces U.S. Mac Production, Warns: ‘Don’t Bet Against Us’)

Purple Power: Marissa Mayer Takes Over Yahoo — When 37-year-old Marissa Mayer assumed command of long-suffering tech icon Yahoo in July, many on Wall Street and in Silicon Valley cheered. Mayer is a well-respected tech executive — she was Google’s 20th employee and first female engineer —  and her appointment could be the purple-hued Internet pioneer’s last, best chance to reverse a years-long slide punctuated by management turmoil and layoffs. Yahoo’s stock price has lost half its value over the last five years, as Google has come to dominate Web search and new upstarts like Facebook and Twitter have surged to the lead in the exploding social networking space.

So far, so good. Yahoo shares have soared over 24% since Mayer become CEO, reflecting a sense of optimism about the company that has been lacking for several years. Mayer’s strategy for Yahoo is focused on making its products — including search, email, and its popular photo site Flickr — “daily habits” of Internet users. In September, Mayer impressed Wall Street by sealing a long-in-the-works deal to sell half of Yahoo!’s Alibaba stake back to the Chinese e-commerce giant, raising billions in capital. Mayer then snared one of Google’s top sales executives, Henrique De Castro, to be her chief operating officer. And she’s moved swiftly to bolster Yahoo’s espirit de corps, by mandating free food at company cafeterias and equipping all employees with their choice of iPhone or Android device. Mayer’s turn-around effort at Yahoo is only beginning, but given the severity of her challenge, she’s off to an impressive start.

(MOREMarissa Mayer’s Wall Street Debut Sends Yahoo! Stock Surging)

Google Battles the Feds Over Search Power — Is Google a monopoly? And if so, has it been using its search market power to stifle its rivals unfairly? That’s one of the questions that the Federal Trade Commission has been grappling with over the course of an investigation that has lasted for almost two years. For years, several of Google’s competitors — including Microsoft — have urged federal action against the search giant, arguing that the Google has used its power to harm rivals in high-traffic search categories like travel, jobs, health, and real estate. Google maintains that competition — including Microsoft’s Bing search engine — is just “one click away,” and points out that antitrust law is designed to protect consumers, not to hobble an industry leader that gained market share through a superior product.

For the past several weeks, Google and the FTC have been in discussions about a possible settlement to avert what would be the most dramatic antitrust action taken by the U.S. government against a major technology company since the Department of Justice sued Microsoft in the 1990s. Two weeks ago, reports emerged that Google and the Feds were nearing a deal that would involve the search giant making a series of voluntary commitments in exchange for avoiding a lawsuit. But after European officials indicated that they were preparing harsher sanctions for Google, the FTC got cold feet, leaking news to the press that the probe has been extended into next year.

(MOREWill Google Escape a Federal Antitrust Lawsuit Over Web Search?)

In 2012, major tech powers solidified their lead on the most important consumer Internet markets, including Apple and Google in mobile software, and Facebook in social networking. Apple’s brilliantly designed gadgets generate billions in profit every year, while Internet search advertising remains Google’s cash cow. Facebook, however, has yet to find a money-maker on that scale to justify the astronomical $100 billion valuation that made its public offering one of the largest in U.S. history. And the crash-and-burn performance of two of Facebook’s fellow tech upstarts, Zynga and Groupon, only reinforced the perception that heavily hyped Internet IPOs are a rigged game.

Meanwhile, two of the brightest stars in Silicon Valley, Tim Cook and Marissa Mayer, assumed command of two of the most iconic U.S. technology companies: Apple and Yahoo. The circumstances they confront are vastly different: Cook took charge of Apple at its highest point, while Mayer was appointed after years of lackluster performance at Yahoo. They both face the same challenge. In a highly dynamic Internet technology market, the fundamental question all Internet CEOs face is how to adapt and thrive at breakneck speed as computing becomes more mobile, local, and social.