TEN TECH TRENDS
1. Smart Dust Kicks Up a Storm
Tiny wireless sensors start monitoring the nation's food, workplaces, and welfare.
By Matthew Boyle

 The last thing a company wants in its factories, trucks, or corporate offices is a layer of dust. But "smart" dust? That's a different story.

Hatched in Pentagon-funded research by the University of California at Berkeley in the late 1990s, "smart dust" refers to networks of cheap (under $100), low-power (1/1000th of what cellphones use), itsy-bitsy computerized sensors (some no bigger than an aspirin, but most about the size of a pager) that can monitor temperature, light, or vibration—or even sniff out radiation or toxic chemicals.

Most of today's versions are powered by AA batteries and controlled by an operating system aptly called TinyOS. These so-called motes survey the world around them and chat with each other wirelessly, grapevining down the line until the data get to a PC. (The "smart dust" moniker comes from the ultimate goal of making each mote about one cubic millimeter small.) When motes fail, others pick up the slack, and new ones dropped into the system quickly meld into the network. A dispersion of motes ten to 100 feet apart could monitor a hotel floor or a 500-acre vineyard.

After several years of tinkering, smart dust is primed over the next 24 months to blow out of the lab and into a host of commercial, military, medical, security, and ecological applications. An expected 150 million motes should ship by 2006 and will find their way everywhere from art museums to aircraft carriers. Along with the Pentagon, the Department of Homeland Security is also devoting a huge chunk of its R&D budget to sensor technology. Corporate America is still figuring out how it will cash in. But everyone, from tech companies like Intel and Motorola to consultants like Accenture to users like Cargill and Honeywell, is aiming to get in the game. "This is a year for learning," says analyst Navi Radjou of Forrester Research. "Next year the checkbooks come out."

Soon, these mini-me PCs will be found all over: Vibration sensors on a factory floor will tell when a machine is about to go on the fritz, saving millions in downtime. Air-pressure sensors on truck tires will prevent accidents and save on fuel. Sensors dropped in a forest fire's path will predict which areas will flame up next, while others will sniff for dirty bombs. Motes will be able to determine when a building is safe to reenter after an earthquake or monitor the vital signs (and locations) of elderly people.

Smart dust is far from perfect—issues of reliability, standards, and power consumption need ironing out. While motes can last for a few years on AA batteries—they spend a lot of time "asleep" to conserve juice—researchers want to make them smaller by ditching batteries and instead having them scavenge power from light or vibration. Privacy advocates also fear Big Brother implications if, say, microphone or camera motes are embedded in a system.

But those concerns won't slow this storm. A Dust Age is upon us.

Next Trend: Role Changing Roils Tech

TEN TECH TRENDS
1. Smart Dust Kicks Up a Storm
Tiny wireless sensors start monitoring the nation's food, workplaces, and welfare.
By Matthew Boyle

 

The last thing a company wants in its factories, trucks, or corporate offices is a layer of dust. But "smart" dust? That's a different story.

Hatched in Pentagon-funded research by the University of California at Berkeley in the late 1990s, "smart dust" refers to networks of cheap (under $100), low-power (1/1000th of what cellphones use), itsy-bitsy computerized sensors (some no bigger than an aspirin, but most about the size of a pager) that can monitor temperature, light, or vibration—or even sniff out radiation or toxic chemicals.

Most of today's versions are powered by AA batteries and controlled by an operating system aptly called TinyOS. These so-called motes survey the world around them and chat with each other wirelessly, grapevining down the line until the data get to a PC. (The "smart dust" moniker comes from the ultimate goal of making each mote about one cubic millimeter small.) When motes fail, others pick up the slack, and new ones dropped into the system quickly meld into the network. A dispersion of motes ten to 100 feet apart could monitor a hotel floor or a 500-acre vineyard.

After several years of tinkering, smart dust is primed over the next 24 months to blow out of the lab and into a host of commercial, military, medical, security, and ecological applications. An expected 150 million motes should ship by 2006 and will find their way everywhere from art museums to aircraft carriers. Along with the Pentagon, the Department of Homeland Security is also devoting a huge chunk of its R&D budget to sensor technology. Corporate America is still figuring out how it will cash in. But everyone, from tech companies like Intel and Motorola to consultants like Accenture to users like Cargill and Honeywell, is aiming to get in the game. "This is a year for learning," says analyst Navi Radjou of Forrester Research. "Next year the checkbooks come out."

Soon, these mini-me PCs will be found all over: Vibration sensors on a factory floor will tell when a machine is about to go on the fritz, saving millions in downtime. Air-pressure sensors on truck tires will prevent accidents and save on fuel. Sensors dropped in a forest fire's path will predict which areas will flame up next, while others will sniff for dirty bombs. Motes will be able to determine when a building is safe to reenter after an earthquake or monitor the vital signs (and locations) of elderly people.

Smart dust is far from perfect—issues of reliability, standards, and power consumption need ironing out. While motes can last for a few years on AA batteries—they spend a lot of time "asleep" to conserve juice—researchers want to make them smaller by ditching batteries and instead having them scavenge power from light or vibration. Privacy advocates also fear Big Brother implications if, say, microphone or camera motes are embedded in a system.

But those concerns won't slow this storm. A Dust Age is upon us.

TEN TECH TRENDS
2. Role Changing Roils Tech
Convergence, long a discredited buzzword, finally lives up to its hype. Apple, HP, and Dell won't look the same.
By Fred Vogelstein

 

Since the invention of the PC, techies have taken two things for granted: Processor speeds will grow exponentially, and PCs will become indistinguishable from televisions—that there will be, in industry lingo, convergence. The first prediction obviously has come true (nice crystal-ball gazing, Gordon Moore!), and the second—well, consumers aren't exactly firing off e-mail from their TV sets.

So what are Michael Dell and Carly Fiorina doing hawking flat-screen TVs? And why, while we're at it, is Fiorina waving around an iPod at the Consumer Electronics Show? It turns out that after a generation of hype, convergence has actually become real—and, over the next few years, it's going to be huge, if a little different from what we once imagined. Consumers may not like to watch movies on their PCs, but they love listening to music on them. They may not like to send e-mail from their couch, but they love having a PC—known as a digital video recorder—attached to the TV to automatically record all their favorite shows. And while they won't buy an old-fashioned TV from Dell or HP, when it comes to flat-screen TVs, they have no problem at all.

Why is convergence happening now, after all these years? Thank the cheap flat screens and hard drives, easy broadband access, and simplified home-network setup. Today, hard-drive storage—the guts of an iPod or DVR—costs less than $1 a gigabyte, down from $20 a gigabyte in 1999. Flat-screen TVs that cost $10,000 a few years ago now goes for less than $1,000.

For PC makers, it's also good business. Prices and margins for computers keep falling; gross margins in consumer electronics are twice those in the PC world. And now that the music and movies consumers play on those systems are the same zeros and ones that are the foundation of PCs, there is little conversion cost.

The only clear winner in this new world is Apple, which has leveraged its computer platform to make it easy and fashionable for consumers to get with the digital-music age. Apple today sells almost as many iPods per quarter as it does Macs. Microsoft wants in on this business badly, but as HP's decision to shift its loyalty to Apple illustrates, Microsoft doesn't have much leverage just now. The other company to watch over the next few years is Sony. It misplayed the convergence game but is redoubling efforts to make its PC, consumer electronics, gaming, and entertainment divisions play together. Whoever wins the hearts and minds of consumers, one thing's clear: The eye-rolling over convergence can stop right now.

TEN TECH TRENDS
3. China Sets the Standards
Last century, America ruled the technology world. This century, will the crown be Shanghaied?
By Peter Lewis

 

Just try to find an area of science and technology that isn't already feeling the huge shadow of China. It is now the world's technology manufacturer of choice, siphoning jobs not just from the United States but also from Mexico, Thailand, Singapore, and other low-cost labor centers. Each year China produces as many engineers and scientists as the United States does—and while its numbers are going up, America's are going down. The Chinese government is pouring the equivalent of tens of billions of dollars into education and R&D facilities for science and medicine, while R&D spending in the U.S. has been stagnant.

For the tech industry, it's China—not Europe, or Japan, or other Asian countries—that will soon be its main rival. The implications are profound. No longer content to cheaply make other people's products, a task it has clearly mastered, China wants to be a global standards setter. In recent months it has moved to define its own standards for office software, operating systems, mobile phones, wireless computing, Internet protocols, DVD players, video compression, RFID, and other important technologies. China argues that by dictating standards it avoids potential national security risks. Of course, it could also potentially save the billions of dollars a year in licensing fees that it now shells out. Tech giants are bowing to its demands despite China's blithe attitude toward intellectual-property rights. The country recently insisted on, and won, permission to inspect Microsoft's Windows source code.

Over the next few years, the standard-setting drive cannot help but fracture, or at best confuse, the global tech market. China's economy is growing 8% to 10% a year, and its consumer market is growing even faster. No CEO is willing to ignore that.

One place to watch the flexing of power is in mobile phones. China already has more cellular users than any other country. For the next generation of mobile technology, the government is throwing its weight behind a home-grown phone service called TD-SCDMA. Any company wanting to do business in China will probably have to embrace it.

Now duplicate that scenario for software, microchips, consumer products, and other technologies. The message: Just as the U.S set tech standards in the 20th century on everything from the phonograph to the PC, China could set the agenda in the 21st. But hey, that's capitalism

Open Source Opens Its Wings
As Linux battles Microsoft, another 86,000 open-source projects prepare to send shock waves through the rest of software.
By David Kirkpatrick

 

The trends in this package all provide tantalizing markets for business and new ways for customers and consumers to spend money. Except this one: Open source, the free software movement that started with Linux, will become an inescapable margin eroder for just about every company doing anything in software.

This disruptive technology is finding its way into companies large and small as well as governments worldwide. Shipments of server computers loaded with Linux are growing 50% annually. The open-source Apache program controls 67% of the web-server market. MySQL, a fast-growing open-source database, has been downloaded by more than four million users.

The next frontier for open source—and the next battleground for the likes of Microsoft—will be on desktop PCs and other consumer devices. Linux-based cellphones are emerging; Japan's biggest mobile company, NTT DoCoMo, recently asked its phone suppliers to start using the software. And Linux already runs consumer-electronics gear like the TiVo digital video recorder. There's lots more to this trend—too much to include here. To see how Big Software is wrestling with this upstart free competition, read the following story, "How the Open-Source World Plans to Smack Down Microsoft, and Oracle, and ..."

There's No Stopping eBay
CEO Whitman's international and big-business plans mean big bucks for the auction site that just can't stop growing.
By Adam Lashinsky

 

In autumn 2000, as net stocks were in free fall, Meg Whitman announced to a skeptical Wall Street an audacious goal: eBay would ring up $3 billion in revenues by the end of 2005—a sevenfold expansion in half a decade. She was way off. eBay expects to hit the $3 billion mark in 2004, a full year early. Unfortunately for the handicappers, Whitman says she'll never again provide a five-year plan, the first one having caused too much of a ruckus.

If she won't go out on a limb, we will: In the next two years, watch eBay soar to over $4 billion in annual sales, coming mainly from the fees it collects on the more than $40 billion worth of merchandise—equivalent to what 118-year-old Sears Roebuck does in a year now—that sells over its site. It will also cement its place as the dominant commerce site on the Net. We're not just talking collectibles and cars. eBay is positioning itself to be global and giant: part international swap meet, part clearinghouse for the world's manufacturers and retailers.

To become a global colossus, eBay is pursuing a fairly simple, three-pronged strategy. It's evangelizing the wonders of eBay around the world. It's starting to get non-U.S auctiongoers used to the idea of paying over its PayPal electronic payment system, as well as peddling PayPal to merchants who don't sell on eBay. And it's doing all this as it is beefing up the U.S. site—still 45% of the company's sales—by adding new categories and big partners, like Sears, Sharper Image, and IBM, which all unload excess inventory over eBay.

With eBay a runaway success, Whitman watchers are waiting for her to start branching out by bidding on, say, an online dating or professional connections service—or by challenging Google in the market for paid search ads. Don't count on it. The CEO insists eBay won't stray from its current path. "One of the things people forget about eBay, because we've grown so fast and because we have 6,000 employees, is that eBay is eight years old," she says. "And young companies are very well served by focusing." (Only in technology can a company call itself focused that aims to sell every kind of product in every country of the world.)

Not that Whitman's shy about wielding eBay's power. With a $43 billion market cap, $1.7 billion in cash, and a stock that trades for 60 times Wall Street's 2004 earnings estimates, the company can buy its way out of jams. When faced with a strong niche competitor in a key market, eBay doesn't hesitate to acquire, adding PayPal in 2002 and, more recently, German car site Mobile.de. And, for now at least, eBay's market muscle has scared off other giants. Example: Google. For more than a year it has been testing its Froogle.com product-price-comparison site, but it hasn't launched it widely, in part because it can't afford to anger huge advertiser eBay. Who's doubting eBay now?

TEN TECH TRENDS
6. Wi-Fi Where You Want It
The sky's no longer the limit for accessing the Net.
By Christine Y. Chen

 

The proliferation of wireless broadband has made life easier in the past couple of years. But it's also been a nuisance. Just when you come to rely on it, there's no wireless signal anywhere around.

Now it's time to roam free (but not for free). Wireless roaming—similar to its cellphone counterpart—has begun, and over the next couple of years you'll see it take off, with wireless carriers signing agreements allowing one another's subscribers to connect anywhere. The trend is being led by companies like Boingo Wireless, which partners with carriers to develop a Boingo-branded network of "hot spots"—places where Wi-Fi is accessible.

Others are taking roaming to new heights. Germany's Lufthansa Airways, in partnership with Boeing, is planning to roll out Wi-Fi in long-haul jets in April. Passengers pay $30 for access; the companies could rake in $1.5 million for each Wi-Fi'ed plane each year. In an era when flight attendants are hawking sandwiches, don't expect any airline to turn up its nose at extra income.

As Wi-Fi becomes more widespread—the number of Wi-Fi hot spots should double to about 20,000 by the end of 2004—some companies will be rolling out the next wave. In January, chipmaking giant Intel announced that it would begin shipping chips later this year that send and receive by the 802.16 standard, called WiMax. While Intel's Centrino chip for Wi-Fi is used for distances up to 300 feet, WiMax can cover up to 30 miles. Intel execs believe this could be a solution to the "last mile" problem of delivering high-speed services into the home, which has plagued telcos for years. Intel's investment, according to Peter Kastner, an analyst at Aberdeen Group, means that "the odds that WiMax gets off the ground are much, much higher than a few months ago." Get ready for access everywhere.

TEN TECH TRENDS
7. HDTV Comes Into Focus
Clear, cheap, and federally mandated.
By Peter Lewis

 

Janet Jackson's breast may someday be credited with spurring the adoption of high-definition television, but the adoption rate of HDTV was already building long before the Super Bowl halftime incident earlier this month.

After years of teasing, it appears that HDTV is finally ready to deliver. The first piece of the HDTV puzzle—converting the nation's TVs to digital—is supposed to be complete by 2007. This is arguably the most significant TV upgrade since the medium's inception, greater even than the shift to color. Digital signals are less susceptible to interference, make more efficient use of the airwaves, and enable new types of applications, like data services and interactivity.

But the real star of the digital show is HD. The actual shape of the image changes from today's boxy width-to-height ratio of 4:3 to the widescreen 16:9, allowing the viewer to see, for example, all four bases of a baseball game or Hollywood movies as they appear in theaters. HDTV screen resolution can be up to ten times greater than that of analog TV, resulting in much sharper, almost film-like pictures. Sound quality is also improved to DVD quality. Although only two million U.S. homes currently subscribe to HDTV channels, the number should rise to more than 40 million by 2007.

What's driving the shift? On the hardware side, the Federal Communications Commission endorsed a digital cable "plug and play" agreement, which will eventually permit consumers to plug a cable line directly into their digital TVs, bypassing the annoying set-top box. The first digital-cable-ready sets will appear later this year. And the FCC is leaning toward the adoption of copy protection "flags" that will ease the nerves of content providers worried about the Napsterization of HD shows.

For consumers, the attraction will be price. Dozens of companies are entering the market to compete with big Japanese and Korean setmakers, driving prices down; new players include Gateway, Dell, HP, and Intel, which says it has a processor that will soon bring the cost of a thin, 50-inch HDTV set to under $1,800—still expensive, but less than one-third the price of just a year ago.

Meanwhile, HD programming is proliferating. Cablevision just launched an HD-only service called Voom, which carries 25 HD channels. More than a dozen HD channels, including HBO, Showtime, and Discovery, are now transmitting on cable and satellite, with a dozen more soon to launch. All the big broadcast networks, with the notable exception of Fox, already send out their prime-time lineups in HD. The last big hurdle for HDTV is customer confusion over the new technologies and salesperson mumbo jumbo. But when it comes to HD, seeing is believing.

TEN TECH TRENDS
8. Subscription Burnout
Bill me later? How about never?
By Grainger David

 

Perhaps you're thinking of getting a new watch. Yours is so passe: It only tells time. Thanks to Microsoft, now you can buy a watch that receives news, weather, e-mail, sports scores, stock prices, and more—all for under $300, plus the low, low subscription price of $9.95 a month. To true geeks, that may sound great. (One such watch is actually called the Dick Tracy.) On the other hand, a subscription watch could be the last step toward the coming trend known as Subscription Burnout. "Sooner or later, there's a bill that breaks the camel's back," says Peter Rojas, editor of gadget weblog Gizmodo. "People are going to start asking how many of these subscription services they really need."

"Need" is such a subjective term. TiVo, Netflix, DirecTV, satellite radio, BlackBerry, cellphone, DSL, long distance, mortgage. Which, you may find yourself asking, is expendable? Subscription peddlers all hope that once hooked, consumers won't be able to quit. "You've got to look at us from a different perspective," says Jim Collins, a spokesman for Sirius Satellite Radio. "It's kind of like using a remote control for the first time. You're not going to want to stand up and push the buttons anymore."

But you will want to do something about your rapidly expanding credit card bill. That's why the companies that are well positioned to deal with Subscription Burnout are those that can offer Subscription Denial. Take Verizon. Its wide array of services encourages bingeing—it offers local, long distance, and mobile-phone service, Internet, and, most recently, DirecTV—all able to be bundled into a single bill. (Verizon says 48% of its 30 million users choose to bundle, and they churn away at a rate 70% lower than nonbundled customers do.)

The companies in trouble in the looming subscription shakeout, by contrast, will be those that pioneered attractive businesses only to have the territory annexed by the big guys. Think Netflix and TiVo, hurt by cable's push into video-on-demand and DVR, respectively, and (sorry, Dick Tracy fans) Microsoft's MSN Direct.

The lesson for fledgling subscription-based companies? Find a partner quick, before one finds its way into your business. And if you're thinking of making subscription watches—it's time to rethink

TEN TECH TRENDS
9. The Bells Call For Help
The telcos adopt—and get strangled by—VOIP.
By Julie Creswell

 

Three years ago we predicted the day was near when teens could enter a chat room and be able to verbally ask 'NSync questions. Like you, we're now wondering, 'NWho? And where in the heck are all these gee-whiz functions we were promised?

The fact is, the number of phone calls moving over Voice Over Internet Protocol (VOIP) technology, which would enable chat rooms with voice, remains a fraction of a fraction of the total number of calls routed using good old-fashioned circuit-switched phone lines. (Fewer than 150,000 people use VOIP as their main method of communication.) With that in mind, here's our latest prediction for VOIP: It's going to make your phone calls cheaper. Beyond that, you probably won't even know you're using it.

Cable companies around the country and upstarts like Vonage are racing to offer VOIP services to consumers. The upshot? A price war, as the regional Baby Bells fight back against the all-you-can-yack local, long distance, and even international calls that are $10 to $15 a month below their rates. By 2009, as much as 40% of the nation's voice traffic could be zooming over the Internet. "For the consumer, this is all good," says Kate Griffin, a senior analyst at research firm Yankee Group.

Besides just using VOIP to retain customers, the Bells also hope to achieve some cost savings. They'd better be right. The technology's biggest threat isn't from lowered bills but from its ability to dramatically reduce the fees AT&T and others pay to move calls over the Bells' networks—fees that make up about 30% of the Bells' revenues.

Telecom execs plan to fight back by offering lots of gee-whiz voice products. "In about 18 months, John Smith will be using 'find me, follow me' on a regular basis," predicts Griffin. "That's an interactive call-routing system that lets him send all of his phone numbers—home, work, cell—to anywhere, anytime." Don't hold your breath. There's no stopping VOIP, but whether the Bells can profit from it? That's another matter.

TEN TECH TRENDS
10. The Internet Ads Up
Having been burned, big advertisers learn that the web really does work.
By Fred Vogelstein

 

Wenda Harris Millard, Yahoo's advertising chief, remembers all too clearly selling online ads after the Internet bubble burst. It is an experience she does not wish to repeat. Major advertisers that had spent billions with Yahoo and other Internet sites when times were good almost completely stopped writing checks. The medium didn't work, they said. Banner ads had about the same response rate as direct mail, but cost more. And all the promises about being able to use Internet ads to track what consumers buy and why turned out to be just that: promises.

Yet today, Millard says she can barely keep up with demand. Advertising space on Yahoo's auto and movie pages is sold out for 2004, and Yahoo's profits, which are still largely advertising driven, have sextupled in the past year. "If you looked at a list of Yahoo's top 200 advertisers right now, you would swear you were looking at an ad list for Vanity Fair or FORTUNE," she says. She's not alone. Virtually every site with a big audience—like MSN and ESPN.com—is seeing a surge in advertiser interest. Analysts predict roughly 20% growth in ad spending both this year and next, vs. single-digit growth for ads in other media.

How did online advertising regain its cool? Google helped by proving it could make millions by running simple, relevant ads alongside every search. Advertisers have also noticed that big chunks of their audience are trading their remotes for their keyboards—and that the technology is finally available to reach them. With broadband Internet soon to be in 50% of American homes, sites like ESPN, ABC, and Disney can offer advertisers the ability to simply take commercials produced for TV and rerun them with little loss in quality. When Ford launched its new F150 pickup last fall, it not only bought TV and print ads but also ran a so-called "roadblock"—a day of online ads that take over the home pages of Yahoo, AOL, and MSN for a few seconds on the screen of every new visitor.

Still, companies like Procter & Gamble, the world's largest TV and print advertiser, have yet to announce big online campaigns. And online ad spending still accounts for only about 3% of the $250 billion ad business. Yet the anecdotal evidence is mounting. McDonald's announced in 2003 that it planned to spend less money on TV ads and more online. Frito Lay announced that instead of spending money on Super Bowl ads for Doritos, it would develop an online ad campaign. "As with a lot of things related to the Internet," says Greg Stuart, president of the Internet Advertising Bureau, "we all got ahead of ourselves in the beginning." Now it's showtime.

20 Companies for Investors to Watch

Tech stocks have risen so much in the past year that a few market watchers are fretting about a minibubble. But this time, what's driving stocks is not euphoria run amok. Here are companies that seem best poised to win what will surely be some of Silicon Valley's most memorable battles.