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Originally published Monday, December 11, 2006 at 12:00 AM

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2006 Year in Review: 10 developments that kept local tech companies in the news

1 Amazon starts selling technology No longer content to wait around between "Harry Potter" releases, the company is moving beyond its traditional...

Seattle Times technology reporter

This was not a year for local technology companies to sit around.

From major product releases to big acquisitions, technology seemed to be always in the news in the Puget Sound region.

Now, words like Clearwire and Wii are part of the vernacular. New startup strategies have been established. And many are saying that, finally, Bubble 2.0 has arrived.

The game has changed in several industries, like telecom and digital media. And local companies are adapting with surprising agility.

Microsoft had a huge year, with a new operating system out the door and changes in its top ranks — and every move received enormous attention. We'll take the Redmond behemoth out of the picture for a moment and look at how other local companies made news that could have lasting significance next year and beyond.

1) Amazon starts selling technology

No longer content to wait around between "Harry Potter" releases, the company is moving beyond its traditional e-tail upbringing and selling some surprising new services.

Its Simple Storage Service (S3), launched in March, can cheaply store large amounts of data on the Web for developers and businesses. Another new service, called Elastic Compute Cloud, works in the same way but offers computing power over the Web instead.

These have precious little to do with selling books over the Web, and so far they aren't affecting the company's sales.

So why do it? Chief Executive Jeff Bezos thinks it's a good long-term bet, even one made in a year when profit is down and technology spending is up.

"We think it's going to be a very meaningful business for us one day," Bezos told BusinessWeek recently. "What we've historically seen is that the seeds we plant can take anywhere from three, five, seven years."

2) Clearwire launches

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Seattle has pretty much said goodbye to its status as a cellular hub, with T-Mobile USA the only wireless carrier based here. But the man who helped put the region on the cellular map is back, and he's held on to his ambition and big-money risk-taking.

Craig McCaw's latest venture, Clearwire, launched in Seattle last month to provide wireless Internet service to homes. As the founder of McCaw Cellular Communications, which later became AT&T Wireless, McCaw built one of the first nationwide cellphone networks.

His Clearwire network, based on WiMax technology, is now in more than 30 regions nationwide.

Clearwire brings Internet access to computers with a book-sized modem and costs from $30 to $37 a month. It's significantly slower than cable modems, however. Will it take off? Motorola and Intel seem to think so. Along with other investors, they've sunk nearly $2 billion into the venture.

3) Social networks grow up

Two trends became apparent this year with startup companies in the region: They're relying heavily on advertising sales and they're breaking new ground in social networking.

At one time, online social networks were defined by walled-garden leaders such as Classmates.com, based in Renton. People paid to be able to talk to other members. Social networking now has broadened to include new and free ways to share content and make friends.

Keep an eye on this business because more change is on the way. The local companies that have plunged in include Seattle-based RIPL, TripHub, WetPaint, Treemo, 43Things, Blue Dot and many others.

4) RealNetworks buys WiderThan

Seattle-based RealNetworks has a ton of cash — in no small part because of a fat antitrust settlement with Microsoft — and carefully plotted its next big-money acquisition. It decided to plunk down $350 million for WiderThan, a South Korean company that helps wireless carriers sell music downloads and the ringback tones you sometimes hear when waiting for your call to be answered.

This doesn't make Real a wireless company per se, but it puts the company on track for major growth in this area.

5) Nintendo's Wii launches new era in video gaming

Guess you don't have to have the best technology to capture video gamers' hearts and minds. You just have to have the right kind.

If early holiday sales are any indicator, Nintendo's big bet on its new Wii gaming console was a good one. It stands out from rivals mainly because of its motion-sensitive controller that players can wave, thrust and swing to direct the on-screen action and simulate real-life moves such as swinging a sword or hitting a tennis ball.

The graphics and horsepower don't come close to products by Sony and Microsoft, but executives at Redmond-based Nintendo of America think they'll make money anyway by going after audiences that haven't touched a game in years. Only time will tell if they're right. So far, the company's on track to meet or even beat its goal of selling 4 million consoles by the end of the year.

6) F5 Networks and stock-options scandal

The hardware and software company's top lawyer resigned amid news that F5 will restate seven years' worth of financial results. The Seattle company is under investigation for possibly backdating options — changing the date when a stock option was supposedly issued.

Backdating often makes the options worth more because the new date is generally one where the company's stock price is lower, making it even easier for employees to get in low and sell high.

F5 acknowledged that an internal inquiry found incorrect accounting for some stock options from 1999 to 2004.

It isn't alone. Nearly 200 companies, including Seattle-based image provider Getty Images, have disclosed investigations into stock-option grants. Depending on how those investigations go, the next year could see some real changes in these questionable practices.

7) Loudeye sold to Nokia

And for only $60 million, after it was valued at $1.4 billion in its public offering in 2000. There goes one of the last reminders of what once was a notable digital-music industry in Seattle.

Loudeye made a name for itself by encoding audio and video files for distribution over the Internet. RealNetworks was right there, too, working with record labels to create the MusicNet subscription service, and there was talk that Amazon would soon join the business.

Some local companies came and went, including Seattle-based HitHive, which made software to download music to mobile phones.

It must have been a heady time — before the industry consolidated and record labels figured out a standardized approach to digital-music contracts.

8) Real estate goes online

There are reports lately of real-estate agents getting a little panicky over by emerging online technologies, and that's understandable with all the attention that companies like Seattle-based Zillow and Redfin have been getting. These companies' technologies give buyers new ways to find homes from their computers, and sellers have more do-it-yourself tools than ever. Kirkland-based HouseValues is developing technologies for real-estate agents and mortgage brokers.

Last week, Zillow said it would allow users to advertise homes on its Web site for free.

But not all is rosy for the company: A nonprofit group filed a complaint this year charging that Zillow is inaccurate in its home valuations and has undervalued homes in neighborhoods that are primarily African American or Latino. Zillow denies any wrongdoing.

9) Icos sale changes local biotech picture

Eli Lilly agreed in October to buy the Bothell-based Icos, maker of the Cialis impotence drug, for $2.1 billion. And much to the chagrin of some biotech promoters, the sale was another setback for an industry that continues to struggle in Seattle.

The Icos sale has been painful so far, with more than 500 of the company's 700 employees receiving pink slips. Some shareholders are challenging the sale, saying the price is too low.

Bottom line: while some are walking away from the Icos sale as winners, the local biotech scene will need a big Band-Aid.

10) Online video surges

And we're not just talking about the phenomenon that is YouTube.

Companies big and small are trying to figure out how to make money by offering or delivering video to users.

Some are going old school, such as Seattle-based IndieFlix, which takes orders online and burns a DVD of a movie to mail to customers.

Seattle's ReelTime Rentals streams rentals of movies and television shows to computers. Pluggd helps users find podcasts online and will be adding video search capability soon. Amazon began renting movies through its Unbox service, followed shortly by Microsoft's Xbox Live division.

On the mobile side, RealNetworks is managing video streaming for Cingular Wireless, and Mobliss has developed technology to distribute interactive content to wireless subscribers.

This isn't Hollywood, but in its own small way the Puget Sound area is making a mark in the growing online video business.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

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