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11 Reasons Why Apple (NASDAQ: AAPL) Could Fall in 2011

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AAPL LogoAfter revolutionizing the technology of media and personal electronic devices for the 21st century, staging one of the greatest comebacks of any company in history, and dominating consumer and investor attention for the past five years, Apple (AAPL) may be setting up for a hard fall.

Down and almost out, Apple was nothing to be too excited about 10 years ago. Its Macintosh computers were the bulk of its product line, and PCs were in almost full control of the market. But with the invention of the iPod, which revolutionized the way we listen to and buy music, Apple began its road to recovery – which eventually led it not only to recovery, but to domination as well.
It’s hard to even imagine what things were like before the iPod. Walkmen, CD players and far-inferior MP3 players would be almost embarrassing nowadays in comparison to the iPod, which has become the icon for music devices in the past few years. And the addition of the iPhone to Apple’s product line was met with almost hysterical excitement, as lines outside of Apple stores became a common occurrence. Add to that a consistently-innovated computer and laptop line, thousands of “Apps” for the iPhone that allow people to do anything from looking up restaurants to turning on their cars, and the seemingly never-ending hype as to what Apple will do next, and it is obvious why Apple has been able to build such a powerhouse out of its brand.
But as is the case with every company, story, and fixation, the party eventually ends. Things can’t improve and improve and improve and improve forever. At some point, what was once popular becomes second-class; what was once innovative, becomes old-fashioned; what was once a well-kept secret becomes a monotonous, repetitive idea that offers no benefit.
What I’m saying is that at some point Apple will no longer sit as loftily as it now does. It could fail to innovate, fail to care for its customers, or simply fail to meet expectations. And when that happens, we can expect “Apple lovers” to snap out of their whole-hearted faithful love-affair, wreaking havoc on the stock price if not also sending the company into frenzy. There is no doubt that Apple is one of the greatest companies in the world, with some of the greatest consumer products and revolutionary technologies. But at what point does the fun end?
 
11 Reasons Why Apple Could Fall in 2011

1) Price Run-Up. Less than eight years ago, you could have bought Apple shares for $7. Today they’re sitting at an all-time high above $325 – more than a 4,600% gain!
Take a look at the following chart:

As you can see, there were plenty of opportunities to buy Apple if you missed the first moves: early 2006, early 2008, late 2008-early 2009, and basically at any point before today. The stock did not move straight up without pause; it offered investors numerous chances to jump in.

But after a 4,600% move, now sitting at all-time highs, and especially after such a steep rise since early 2009 – is there really that much room left to go? Aside from the fact that there are probably plenty of other investment opportunities that will outperform Apple, could such a meteoric rise in stock price continue for that much longer?
 
2) Market Cap. With a market cap of over $298 billion, Apple is now the second-largest company in the world. It recently became the world’s largest technology company, moving past Microsoft (MSFT), which was once in a similar position that Apple finds itself now. Besides for the fact that Apple is by no means the market-share leader in computers or phones, there is one much bigger point that just stands out in my mind. The market cap of Apple is equal to the market caps of IBM (IBM), Hewlett Packard (HPQ) and Dell (DELL) combined!
Moreover, it is hard to argue with the claim that it is much harder for a large company to grow as quickly as it did leading up to that point. In other words, as hard as it is to double a company’s market cap from $50 million to $100 million or from $10 billion to $20 billion, it is exponentially harder to take a huge company like Apple and grow its market cap from $300 billion to even $400 billion. Large corporations are sometimes like large, heavy objects much harder to move.

3) CEO Steve Jobs. Undoubtedly the most prominent figure in Apple, if not the entire technology space, Steve Jobs has been the mastermind and visionary behind much of the company’s success. Yet while Jobs should be granted the utmost credit for his achievements, two issues could still derail the company.
First, his health is of major concern to the future of Apple. In 2004, Jobs announced that he had been diagnosed with pancreatic cancer. His health has been repeatedly scrutinized over the past few years, with Bloomberg even mistakenly publishing a 2,500-word obituary of Jobs in 2008. In April 2009, Jobs underwent a liver transplant, further pointing to the heightened issue of his health.
What happens if Steve Jobs is no longer able to lead Apple? The man who has been behind Apple’s revival and surge to the top of the technology world is seen by many to be vital to Apple’s continued success. Yes, he has established a very strong foundation on which the company can continue to build. But the loss of his vision and continued leadership will hurt the company in the short-term if not put a major damper on its growth in the long-term. Even if strong leadership is available to replace him, you can surely bet that many stockholders would be selling their shares if anything were to happen to him.
The second issue, which has been the downfall of many powerful men and innovative companies, is Jobs’ arrogance. Jobs has downplayed Apple’s surpassing Microsoft in market cap, rejected Adobe’s (ADBE) Flash technology for use in his own company’s products, and bashed competitors like Research in Motion (RIMM) and Google (GOOG). His arrogance has obviously brought him the success he now enjoys, but some of the excessive and unnecessary arrogance he may be guilty of could prevent Apple from taking part in new ventures, new ideas and new partnerships, and could even make Apple a target. One of the most important rules of wisdom and success is being open to new opportunities and not thinking that nobody else can offer good ideas. We’ll see how this one plays out.

4) Extreme Expectations. After shattering analyst estimates again and again, expectations for Apple are higher than ever. They just haven’t ceased to amaze almost everyone with their record numbers, continuous innovation, and growing grasp of market share. There simply is no company out there like Apple.
But after exceeding investors’ expectations time and time again, is Apple setting up for disappointment? With 47 out of 50 analysts covering Apple maintaining a “Buy” rating and the remaining 3 a “Hold” rating, it’s hard to say investors could be any more bullish than they already are. Almost no one dares to bet against or even speak poorly of Apple; analyst price projections are hovering in the $400+ dollar range; and with Apple touted as everyone’s favorite stock for years now, it could be that all the high growth, big expectations, and future opportunities are already priced in. What happens if Apple slips or even just fails to meet the sky-high expectations that have been set for it? It’s understandable that Apple will drop if it completely screws something up; but what if it just fails to exceed expectations? After exceeding expectations for years, investors’ won’t settle for just meeting expectations. If Apple can’t continue on its course for growth, and do so in tremendous fashion, it could begin to lose its luster. And if it loses its luster, you can bet that many of those invested in Apple will begin to pull their money out in search of better investment opportunities. Nobody remains a crowd favorite forever.

5) Anyone Left to Buy? After dominating the headlines, media coverage, and the minds of investors for years, is there anyone left who hasn’t bought Apple yet? Almost every fund and institution is invested in Apple; your grandmother is probably invested in Apple. If it’s no longer a well-kept secret, is it really a great investment anymore? And is there anyone left to swear to it? With all the opportunities to invest in it, I find it hard to believe that there are that many people left to buy it. Anyone who has wanted to already has. And though there may be some investors who may get into it again or even for the first time, there is a higher chance that those who own it will sell it at $325 – the new investors would, in effect, be buying from those who have owned it for a while. Smart money will be selling to last-to-get-in investors.

6) Declining Quality. Apple used to be known for its product quality and customer service, but lately it appears it has been cutting some corners. Understandably so, as Apple tries to grow rapidly and has to keep up with demand and strict time schedules, it sometimes comes across some issues, such as getting its products out on time. But at the same time, a company that grows so quickly sometimes can’t keep up with quality and customer service; it simply doesn’t have the time or resources.
And where did we see this happen? The iPhone was shipped out as soon as possible, and ended up having faulty antennas. To make matters worse, Apple refused to recall the phones and shipped out iPhone “bumpers” instead. Moreover, many iPhones are functioning poorly – just ask some of your friends who own one. iPods have been dying on people for years, for no apparent reason. I’ve even heard people complain about the laptops recently – something Apple has never had problems with. And now, the iPad has been made with a reflective surface, which makes it almost impossible to use in the sunlight – how can anyone take it to the beach or use it outdoors? The Kindle, on the other hand, is made with a non-reflective surface, and avoids these issues. Apple must address these issues and keep up with quality control, or it faces the threat of losing loyal customers.

7) Innovation? Apple is where it is today because it was able to introduce revolutionary products and continuously innovate them. But after a few generations of iPods, iPhones and laptops, innovation is somewhat lacking. It’s just not that easy to continuously improve on an already-successful product. Take the iPod, for example: it started off as a music-only, black-and-white display device. Then came color, video, internal speakers, touch-screen, Internet, and many other features. But what else is really left? Much of the good features have been introduced already. Many have therefore claimed that the iPods, iPhones and computers are now part of Apple’s core product line – meaning they will continue to grow, but fairly steadily.
The iPad is supposedly Apple’s new focus. I will admit that it’s an interesting and probably useful gadget. But is it really as innovative as investors believe it to be? To an extent, it’s really just a big iPhone or small laptop. And it also cannibalizes some of the iPhone, iPod and laptop sales. Since it offers very similar features to Apple’s other products, there is not much benefit in owning the iPad if one owns the iPhone, iPod and laptop. The iPad may just have been the result of Apple’s dire need to innovate, but innovation may have plateaued.

8 ) Competition. Apple has hogged the spotlight and much of the smartphone and tablet market. But as other companies see the benefits and opportunities in the space, they will begin to ramp up the competition. The Android and the Blackberry continue to be threats to Apple’s iPhone market share, with Android actually growing faster. The iPad’s relative success also has interested companies like Samsung (SSNLF.PK), HP and Research in Motion to introduce their own respective tablets. It’s only a matter of time before Apple loses its “first-to-enter” role and faces the reality of a market with increasing competition. Another sign of Apple’s struggles is its recent sale of iTunes gift cards for less than their face value. Best Buy (BBY) recently sold $50 iTunes gift cards for $40. A 25% sale seems pretty desperate; it tells me that even Apple doesn’t believe its prices are justified. Apple does have the ability to remain on top and offer the most appealing products, but it definitely won’t be easy as it has been until now. And that could easily send the stock price lower.

9) Hacking and Viruses. Unlike PCs, Apple computers have been known to be very resistant to viruses. While PCs have been plagued by hackers, viruses and other similar issues, the Apple system has been relatively safe. But as Apple computers continue to sell at an increasing rate, viruses and new problems are more likely. And if Macs begin to wear down at a quicker rate, they could lose some sales. My strategy has been to buy three PCs for the price of one Mac. Apple computers are just too expensive to justify, in my opinion; I’d rather buy three PCs over the course of a few years for the same price I’d be paying for one Apple laptop. That way, if I get a virus on one computer, I can just buy a new one without worrying about all the money I’ve spent. Unless Apple can continue to protect itself from viruses and maybe lower its prices a bit, it may face some fierce challenges.

10) Weight in S&P 500 and NASDAQ 100. As Apple shares continued to rise, they have carried the broader market and indices with them. Apple is second only to Exxon (XOM) in the S&P 500 in terms of weighting, and makes up over 20 percent of the NASDAQ 100 (QQQQ), equal to the weighting of Microsoft, Google, Oracle (ORCL), Cisco (CSCO), Intel (INTC), Amazon (AMZN), and Research in Motion combined.
That means that for every one percentage point that Apple gains or loses, its impact on the NASDAQ 100 equals much bigger moves in any other individual stocks or even an equal move in the 6 next-biggest companies. In other words, the market and the indices heavily depend on Apple to continue to carry them upward; if Apple begins to fall, it will drag the rest of the market along with it. And regardless of how the other companies are doing, if investors start seeing the market drop, they are prone to avoid the market. Also, Apple’s weighting in the index will be up for review if its weight reaches 24% of the index. If that does happen, Apple’s weighting will be reduced, which will in turn result in less broad-market ETF money being invested in Apple. Right now, money being invested in the NASDAQ 100 through the QQQQ is being allocated heavily to Apple; if Apple’s weighting is reduced from 20%+, however, less money will be allocated to it, which could result in a weakening stock price.
Apple’s heavy weighting in both the S&P 500 and NASDAQ 100 make it the benefactor of a large portion of ETF and broad-sector investments, as allocations are based on a stock’s respective weighting. But at the same time, Apple’s heavy weighting makes it susceptible to a big drop if investors pull out their index ETF or funds, or if Apple’s weighting is recalculated in the NASDAQ 100. The market’s tremendous dependency on Apple is something to take note of.

11) Poor Use of Cash. With over $25 billion in cash on its balance sheet, Apple is not efficiently putting its money to work. With these massive cash levels, Apple could have paid a dividend to shareholders, buy back stock, or even buy a few companies with promising technology or services. Instead, Apple is not rewarding its investors and isn’t improving through acquisitions. Its idle cash may be due to the uncertainty about the market or simply due to Steve Jobs’ arrogance in thinking the company doesn’t need to acquire any smaller companies. Either way, however, Apple isn’t making the best use of its resources.
Apple has been on top for years now. It is the favorite of many funds, individual investors and the media. It has revolutionized the technology and culture of music, mobile phones and computers. And it is expected to continue to shock the world with its capabilities. But expectations may simply be too high. After a 4,600% parabolic rise in stock price, the involvement of almost every investor, extreme expectations as to Apple’s future, a CEO with health issues and potentially-blinding arrogance, a tremendous market cap which could prevent it from growing as quickly as it has, increasing competition, slowing innovation, and declining quality and customer service, Apple’s euphoric peak may be rapidly approaching. With an almost euphoric position in the business and investment world, it may just take a small slip or a failure to exceed expectations to send Apple stock tumbling, triggering a snowball effect that sends institutions and investors running for the exits.
There has been no proof yet of Apple stock price slipping, but it has been stuck near the $320 range since October. Such a sideways move could be a sign of distribution at the top – as smart investors sell their shares to newcomers. Unless Apple can shoot out of this range, it may be setting up for some trouble. The best move for investors would be to wait and see which way it moves, and maybe even take some profits; with all the issues we’ve discussed, there may be too much risk out there.

 

Article courtesy of Yoni Jacobs of Chart Prophet Capital

The Future Of TV Is HTML

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The title of this post is both a very old idea and a very new one. With the prevalence of fiber connectivity and pervasive broadband speeds, this year has been a hot one for bringing together the home computer and the living room TV. While companies like Apple and Google battle over share of TV viewers, they have left open and promoted the web for content distributors to control their own experience through HTML (and, especially, HTML5).

To that end, it looks like Apple has one-upped Google by opting to privately pre-arrange distribution deals with traditional studio networks beginning with ABC and FOX, while Google has no deals in place at all, hoping the networks will just “allow” consumers to watch Web videos on their TVs. But Google TV is getting a slap in the face from several networks who pulled the plug, right on the big release day. Just as reviews were rolling out in favor of Google’s new living room effort, ABC, CBS and NBC are exiting stage left.

The interesting thing here is that the networks are not sending Google cease and desist letters, they are just simply blocking this particular device from accessing their otherwise free websites, using a free and open protocol. If you normally like to visit http://abc.com on your computer to watch video content, no problem, but if you want to access the website on your Google TV browser by going to abc.com, currently, you will be blocked.

These tactics by the networks are part of a clear strategy that has been at play for some time, Google could have anticipated this would happen. Remember the Hulu vs. Boxee battle? Boxee pumped Hulu through to the TV, but Hulu blocked Boxee because Hulu is restricting their content to computer screens. So Boxee worked around it to get Hulu to the TV screen. Then Hulu blocked the workaround, so on and so forth. Boxee was confident that they were within the boundaries of the law because they were picking up on signals that Hulu was sending out with a free and open protocol, via the world wide web.

Now the same networks behind Hulu are sending the same message to Google in exactly the same way. They are saying you can watch their content with a browser on your computer, or phone, but when it comes to the Google TV set in particular, just like the Boxee, or any other living room TV set, it’s a no go. They are discriminating by device.

Here is what is going on. If you have a TV now, you are almost certainly paying for TV content with a monthly cable bill and if you start to get your TV content through the web, it will be just a matter of time before you will cut your cable bill. The cable companies know this and they appear to be doing everything they can to force the networks to comply with their demands to block their streaming Web video from appearing on TVs. The networks have their hands tied because almost all of their revenue comes from cable right now and if they break up with cable, and go hard-core internet on their own, they will likely implode overnight. For, as you know, Google TV is not offering them anything, and Apple isn’t offering a good enough deal to exist on. So there you have the problems of the traditional TV networks, once rivals now conspiring to sustain their long held control of a medium that is slipping away.

As for the rest of the world, you can’t stop us. Developers of Web video distribution platforms forge ahead. Apple is offering to lure them in with partnerships, Google is giving them the opportunity to figure it out for free. Neither Apple nor Google, nor anyone else is waiting any longer. The time is now. You can feel it. The rest of the video world marches on, bringing the internet and the TV closer together.

Moving Ahead

For most people, Google TV vs. Apple TV is about something different. They are fighting a war for capturing people at the hardware and operating system levels. Apple is succeeding in selling hardware by locking people in with an integrated operating system, while Google is capturing people on the operating system level, with Android, and then integrating Google services from there. Google is giving Android away for free so they can tag along for the ride.

From Google on the Google TV, October, 2010 :

We are working hard to open source the code for the GoogleTV project, and hope to release the source code next year.

From Apple on the Apple TV, October, 2010:

If you can’t add or play a movie in iTunes or QuickTime Player, then you won’t be able to convert it to play on Apple TV.

When Steve Jobs says, “Open doesn’t always win,” he’s talking directly to Google about this war. But for those in the TV business who wish to distribute their content to both Apple TV and Google TV audiences, it doesn’t really matter.

In the past, with this same closed strategy, Apple may have captured the content of the music industry business but I suspect Apple doesn’t really care about the TV content business too much. The studios are traditionally full of wacky businesses and the pool of valuable TV content is a relatively small one with a profit margin that is expected to shrink. How many hit series are there at any one time anyway? Not that many. And of all the series in the past how many are still in high demand?

No Need For Apps

The world is obsessed with apps right now. An app is just software for your computer, and developers are being forced to recreate the same experience dozens of different ways. It’s a constant re-inventing of the wheel. What a waste of time. Now Microsoft is getting into the game too. While it’s easy for a consumer to ignore by just sticking to their platform of choice, developers and content distributors need to figure out WTF they must do next to make their “app” look the same on Windows or some other new platform, like yep, Apple Lion.

Yes, the diversity in platforms is also needed and welcome. It’s in the best interest of the world overall to have many choices. There are many examples of wants-and-needs not being met by just one development platform. Special tasks require alternate solutions. But for TV content, distributed to the living room, none of this really matters because the place to be is not necessarily on the phone, and its not in an app store, its on the web, via HTML.

HTML5

Apple’s Steve Jobs on HTML5, April 2010:

HTML5, the new web standard that has been adopted by Apple, Google and many others, lets web developers create advanced graphics, typography, animations and transitions without relying on third party browser plug-ins (like Flash). HTML5 is completely open.

Google on HTML5, October 2010:

Your GoogleTV site can look great with the right mix of video, audio, and visual effects. HTML5 provides this kind of rich content and more, and it’s supported in GoogleTV’s Chrome browser. For ideas, tutorials, and guidance, check out HTML5 Rocks.

H.264

Meanwhile, while it may be frustrating that Apple TV doesn’t support Flash, and Google TV doesn’t support Quicktime, they do both support H.264 video playback. Apple says “H.264 is the base format” of it’s Apple TV while Google says the “hardware in the GoogleTV supports…H.264 decoders”

You have to ask yourself, if you are looking for scale, what is the lowest common denominator here?

For TV on the web, it pretty much comes down to H.264 video in HTML5. The future of TV is not your mom’s app, it’s the browser. Unless of course the magnets keep us pinned to the vortex due to the effects of a fragmented market. Right now, all of us are unable to discover what we want, forcing Web video developers (and all others too) to tweak their apps for a hundred different versions of Android, on hundreds of different hardware platforms, plus all the iPhone, iPad, and Mac versions, plus Windows, plus this, and plus that, oh my. Jobs was right, what a mess.

Unless you develop for HTML5 with H.264.

Web First

For a publisher, the idea of charging for apps can certainly lead to a nice revenue stream. But giving away 30-50% of your revenue stream to someone for selling the app is not all that nice. In the long run, I’d rather have you come to my website, and I can just sell it to you there. If Apple has a store, and Android has a bunch of stores, and Nokia has one, and Sony and Windows, and everyone else under the sun has one, your business can have one too, no big deal.

The challenge then shifts from app building and revenue-share issues to discovery of your website. Yet the problem isn’t a new one, it’s a problem you face with apps anyway. As a distributor of TV content, if you want to get your content to the living room TVs, especially the ones on the market right now like the new Sony-Google TV or a nice new Apple TV, and you want to bypass the bureaucracy of others’ stores, and setup costs, and revenue shares, even as you want it to work great for the Apple TV experience and for the Google TV experience, and for any other living room TV integration—Boxee, Roku, you name it—format your website to detect the device and present the right display from your website. It’s that simple. Control the entire situation.

And even though you know you are going to develop apps for various TV platforms and other platforms anyway, especially because it’s a great way to get front and center, make them free and use them as a simple browser to get the apps built quickly and inexpensively. Consider developing for the web first so everyone can gain access and you can remain in control. There is a frenzy of “mobile first, web second” development philosophy in fashion right now, and rightfully so, but the living room TV isn’t mobile. It’s stationary. So when creating your apps, you can keep it simple and just point them to your own website where you can manage your own community, special features, distribution, promotion, advertising and sponsorship through a unique, centralized, cross platform environment called the web.

The beauty of HTML TV is that it’s a fancy protocol which everyone loves, it’s open, and it’s free.

Written by Andrew Baron, Guest Blogger at TechCrunch

Cramer Contradicts Himself About Sirius XM (NASDAQ: SIRI)

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Once again, Jim Cramer has decided to bash Sirius XM (SIRI) and further seperate himself from reality. In front of the student body of Tulane University, Jim Cramer decided to humiliate himself not only on National Television but to a captive audience of tomorrow’s investors. While recommending that investors do homework on stocks they own, Jim Cramer apparently did not heed his own advice. Once again referring to Sirius XM as an overhyped stock, Jim Cramer pointed out that there are still no firms with a sell rating on Sirius XM. One of those happens to be Jim Cramer’s own TheStreet.com, which most recently upgraded Sirius XM from Sell to Hold, and reaffirmed its rating on October 17, 2010.

Without naming names, Cramer took a shot at me and those of us with a bullish position in Sirius XM. Unfortunately for Cramer, his poke at Sirius XM gets even more embarrassing on a number of levels in that he recommended BUYING Sirius XM right up until the merger was approved. At just over 3.00 a share, Cramer stated that Sirius was a BUY on his Mad Money program while telling viewers they would have a FIVE DOLLAR STOCK when the merger was approved. Cramer failed to own up to his own shortcomings and placed the blame on anyone and everyone else. If that is not bad enough, it gets a lot worse for Jim.

For those Mad Money fans out there, you know that Jim’s style includes the buying and selling of various positions. Cramer is averse to holding any stock and recommends taking profits and cutting losses when appropriate. In his blatant attempt to bash Sirius XM investors and those of us that may seem to promote the stock at times, Cramer actually went back and used an example of how astronomical the losses to investors had been since he recommended BUYING it! He explained how holding the stock, that he himself recommended, turned a $2000.00 investment into $440.00. A whopping 78% loss of principal!

Missing the mark yet again, Cramer decided to mock the investment of John Malone’s Liberty Capital, stating that it was a good deal for Malone but not retail investors. Cramer failed to point out that since the bottom in 2009 when John Malone took a stake in Sirius XM, a $2000.00 investment in SIRI would now be worth nearly $45,000 today! For the bulk of these gains that Sirius XM investors have realized, Cramer has maintained his position on Sirius XM, while his company TheStreet.com rated Sirius XM a SELL.

Honestly…Why does anyone continue to give this man an audience?

Article courtesy of SatwavesPro

Apple (NASDAQ: AAPL) 4Q net income soars 70 pct; iPad falls short

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Apple Inc. said Monday that net income for the most recent quarter soared 70 percent on strong sales of iPhones, though iPad sales fell short of expectations.

Shares fell in after-hours trading. Apple’s stock had been breaking through record-high prices for more than a week on high hopes for the iPad.

Apple sold 4.2 million of its new tablet-style computer during the fiscal fourth quarter, fewer than the approximately 5 million that analysts, on average, had expected.

The company sold 14.1 million iPhones from July through September, more than the 12 million or so analysts were looking for. Apple Chief Financial Officer Peter Oppenheimer said in an interview that had the company been able to make more iPhones, that number would have been even higher.

Sales of the iPad might have been constrained by supply issues. Oppenheimer said the company was able to increase production of the iPad toward the end of the quarter.

Apple’s net income rose to $4.3 billion, or $4.64 per share, from $2.5 billion, or $2.77 per share, in the same period last year.

Revenue jumped 67 percent to $20.3 billion from $12.2 billion last year.

Both revenue and net income were record amounts for Apple. The company also did significantly better than Wall Street analysts expected. Analysts polled by Thomson Reuters expect Apple to earn $4.08 per share on $18.9 billion in revenue.

“When you’re shipping the best products ever, these are the results you expect to see,” Oppenheimer said.

Apple CEO Steve Jobs made a rare appearance on a conference call with Wall Street analysts after the results were released. He noted that Apple sold more iPhones than Research in Motion Ltd. sold BlackBerry phones in the most recent quarter.

“I don’t see them catching up with us in the foreseeable future,” Jobs said.

Jobs also spoke disparagingly of the new tablet computers built on Google Inc.’s Android software.

“The seven-inch tablets are tweeners, too big to compete with a smart phone and too small to compete with an iPad,” which has a nearly 10-inch screen, Jobs said.

Apple said it expects to earn $4.80 per share during the holiday quarter on $23 billion in revenue. Apple is known for issuing low guidance and then sailing over. Analysts are currently looking for $5.06 per share in net income on $22.3 billion in revenue.

Shares of Apple, which is based on Cupertino, Calif., plunged $20.69, or 6.5 percent, to $297.31 in extended trading after the release of results. In the regular session earlier, the stock rose $3.25, or 1 percent, to $317.99.

For the full fiscal year, Apple’s net income jumped 70 percent to $14 billion, or $15.15 per share, from $8.2 billion or $9.08 per share.

Revenue jumped 52 percent to $65.2 billion from $42.9 billion.

Microsoft’s (NASDAQ: MSFT) Bing Gets a Social Lift From Facebook

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Facebook and Microsoft announced a partnership on Wednesday that will give the results on Microsoft’s Bing search engine a social twist — and could help both companies compete against a common adversary, Google.

The new feature allows people who use Facebook to see Bing search results that incorporate information from their friends, like restaurant recommendations.

When a user searches for something like a movie, place or product on Bing, information about how many of their friends “liked” that item on Facebook and related links they have shared will appear alongside the results. The Facebook data will help determine how prominently these will appear, said Yusuf Mehdi, a senior vice president for online business at Microsoft.

“It isn’t just about the common connections between data and the offline world, it’s about the connections between people,” Mr. Mehdi said.

Mark Zuckerberg, a founder and chief executive of Facebook, said the move was a deepening of the company’s current partnership with Microsoft.

In 2007, Microsoft paid $240 million for a 1.6 percent stake in Facebook. Since then, the two companies have worked together to introduce advertisements on Facebook and incorporate Bing Maps into Facebook’s location application, called Places.

Facebook and Microsoft appear to be forming a united front against Google, a rival to both in several ways.

Despite heavy investment by Microsoft, Bing still greatly lags Google in terms of market share. Google has made several attempts to strengthen its social networking offerings and compete with Facebook.

At stake, analysts say, is the ability to know more about users, and to charge more for ads that are more effectively aimed at those users.

“Making search more social is ultimately going to drive more targeted advertising, which you can charge a premium for,” said Mukul Krishna, a digital media analyst at Frost & Sullivan. “Search hinges on that business model.”

Report by Jenna Wortham

Sharing Online, but With More Than 140 Characters

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The singer and guitarist John Mayer, whose prolific posts on Twitter drew nearly four million followers, shocked fans in mid-September by closing his account.

But Mr. Mayer hasn’t gone away. He’s switched from Twitter to Tumblr, a free blogging service that has become a hit among Internet enthusiasts. Tumblr, based in New York, says it is drawing 30,000 new members a day. Mr. Mayer, whose heavy Twitter use was said to have upset his girlfriends, posted that “I have an even larger Tumblr addiction.”

The allure of Tumblr and a similar service called Posterous is in their social features and their simplicity. They are only slightly more complicated than Twitter to figure out. Yet they allow you to go well beyond 140 characters of text per post, and to include photos, videos and excerpts from other users’ posts. Mr. Mayer, for example, used Tumblr to share a touching fan letter.

Tumblr’s ad hoc community of users includes Robert Reich, the former labor secretary, who is now a professor of public policy at the University of California, Berkeley. “Tumblr is incredibly easy to use, wonderful to navigate,” Mr. Reich said in an e-mail. His Web site, robertreich.org, is actually a Tumblr blog, or “a Tumblr” or “tumblelog” in online jargon.

But the undisputed king of Tumblr is Anthony De Rosa, who has collected nearly 11,000 followers at his SoupSoup page. Mr. De Rosa, a 34-year-old resident of Hoboken, N.J., posts a hard-to-categorize jumble of other people’s blog posts, photos and videos he finds interesting. A picture of Lady Gaga before she became famous. A news item about Internet wiretaps. A parody of bad science reporting. You could easily imagine Stephen Colbert pawing through SoupSoup for joke fodder.

Mr. De Rosa said in an e-mail that when he started using Tumblr in 2007, he saw it as little more than a way to upload photos from his phone.

“Not long after that, I discovered following other people on Tumblr, which means you get all their posts sent to you in your Tumblr dashboard,” he said. “And reblogging, which allows you to take posts from other Tumblrs and place them on your own, usually adding your own commentary on the post. It didn’t take long for it to occur to me that there was a lot of depth that other platforms, like WordPress, were lacking.”

Well-known publications including Newsweek, The Atlantic and Politico have set up their own Tumblrs.

Getting started with Tumblr is easy and quick. As Mr. Mayer wrote, it “takes all of 25 seconds to sign up” and begin posting. Go to Tumblr.com and fill in the three boxes on the home page: e-mail address, password and an address for your Tumblr, like Mr. Mayer’s jhnmyr.tumblr.com. Type in the gibberish “captcha” code displayed on screen to prove you’re a human and not a spamming robot. You’re in.

The first time you log in, Tumblr will also prompt you to upload a profile photo, and will suggest some other Tumblr users to follow. Don’t think too hard; just follow the easy instructions.

Tumblr’s dashboard has the friendliness and simplicity of a Fisher-Price toy. There are seven big buttons at the top for different kinds of posts: text, photo, quote, link, chat, audio and video. Click one of these, and Tumblr will present an input form optimized for that post type.

Link, for example, contains only two text input boxes: one for the link address, another to give your post a title. There’s a third box you can open to add some descriptive text about the link, but the genius of Tumblr is that by default, this box is closed. You’re not under any pressure to write something clever.

Click Publish, and the post is live. If you are logged into Tumblr and viewing someone else’s Tumblr post, a Reblog button appears at the top right of the page. Click that, and Tumblr will jump to another custom form, with the correct title, HTML code and attribution to the other Tumblr already filled in for you.

Tumblr’s president, John Maloney, said the site’s premise was that much of what people wanted to share online was not content they had created, but snippets from somewhere else: a photo, a quote, a link, a video. By simplifying and customizing the input page for each type of post, Tumblr makes this sort of reblogging much less daunting.

To make your Tumblr more personal, you can choose a custom visual theme. Go to your dashboard and click the Customize link on the right-hand side of the page. On the customization page, click Theme at the upper left. Tumblr will pop up a list of 89 different themes. Click one, and it shows you what your site will look like, without making you commit to the theme. The Atlantic has made its professionally designed theme available for everyone.

Most themes are free, but some, like the Scaffold theme Mr. Mayer uses, are on sale for prices that range from $9 to $49. To apply Scaffold to your site, click it and then look for the Purchase Theme button at the upper right of the page. Click that, and a small window pops up to accept your credit card number. For $9, Scaffold makes your Tumblr look as if you hired your own designer.

If blogging on Tumblr still feels like too much work, you can literally phone it in to Posterous, another free blogging service. To begin, send an e-mail to post@posterous.com from your smartphone. Posterous will automatically set up a personal account for you and reply to your e-mail with its Web address. No login or password is required. Instead, everything you send in from the same e-mail account — text, photos, video — will be posted for you in a user-friendly layout.

You can attach as many photos as you want to one message, up to 100 megabytes at a time. Posterous will take an e-mail with multiple pictures attached and create a photo album. Don’t worry about file formats. Posterous can automatically embed videos from 50 sites like FunnyOrDie.com, documents posted on Scribd and interactive Google maps. Mail the Web address to Posterous and it will create a post out of the content it finds there.

The service’s winning feature is that you never need to log in to your Posterous dashboard to use the site. All you have to do is alert friends and family to bookmark your Posterous address to see your latest updates.

Both Tumblr and Posterous let you send notifications of your updates to Twitter, Facebook and other social networks with a little configuration work. But what if you want to become a popular blogger read by thousands? Brian Solis, a social media marketing consultant, said that SoupSoup’s success is built upon Mr. De Rosa’s heavy reblogging, plus his own comments.

“You have to follow to be followed,” he said. “You have to comment and respond to earn support.”

That’s the one thing no site can automate: your own words.

Written by Paul Boutin

Surf Canyon Adds “Fully Dynamic” Instant Search

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Capitalizing on the “everything instant” trend, relevancy based search startup Surf Canyon launches their “Fully Dynamic Search” today in order to make searches on its site and more importantly on its browser extension more pertinent to users.

What’s unique about Surf Canyon as opposed to search engines like Google and Bing is that it serves up results based on user interaction, so if you click on a specific link while you’re searching (or the little Surf Canyon icon next to each result), the Surf Canyon algorithm takes your click into account and modifies the results on the page to be closer to the result that you looked at.

From CEO Mark Cramer on why Surf Canyon’s “Fully Dynamic” isn’t just another played out iteration of Google Instant:

“Dynamic” is the future of search and we feel we have a critical element to add to that. Instant makes the page faster (dynamically updating SERP after every key press), however, our innovation makes it more relevant (dynamically updating the order of results after every mouse click). The two together (Google Instant + Surf Canyon) make the search experience “Fully Dynamic.”   

At the moment users on Firefox, Internet Explorer and Chrome will be most comfortable with trying out Surf Canyon’s “Fully Dynamic” Instant search as a browser plugin, as the Surf Canyon site itself can be quite clunky. As an added bonus the plugin lets you manually add or delete preferred sites, even further increasing search relevancy.

 Oakland based Surf Canyon currently has $1.1 Million in funding and is working on improving search navigation on its own homepage and well as moving search “away from statelessness to something more resembling a conversation.”

 

Written by Alexia Tsotsis

Is Android Google’s (NASDAQ: GOOG) Next Gold Mine?

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After years of searching, developing, acquiring, plus a few flops along the way, Google (GOOG) seems to have finally found the next big revenue stream–in addition to its web search. Eric Schmidt, Google CEO, claims that Android is making money and that android-based phones already generate enough new advertising revenue to cover the cost of its development. And according to Newsweek:

“Schmidt envisions a day when there are 1 billion Android phones in the world and notes that if Google could get just $10 from each user per year, it would be a $10 billion business.”

Google’s Android is currently trailing behind Research In Motion (RIMM) and Apple (AAPL) in the smart phone platform market share. But according to research firm IDC, Android will have 25 percent world market share in smart phones, more than double Apple’s 11 percent share, while Piper Jaffray and Gartner also issue similarly bullish projections on Android’s eventual world domination. A CNNMoney article even concluded that “….with Android, it looks like Google is sitting on a gold mine.”

It is true that the free open-source model gives Google an advantage, enabling handset makers like Motorola (MOT) and Samsung (SSNLF.PK) to develop rival units to iPhone, RIM and Nokia’s Symbian, and Google is rumored to have been cutting in Android carriers, manufacturers on ad revenue. All this, of course, has helped boost the number of Android handsets.

However, despite the impressive Android number, keep in mind that the free open source means zero revenue for Google. So in order to evaluate if Android will be the next big revenue stream for Google, one needs to get past the initial excitement arising out of the handsets growth projection.

According to Schmidt’s vision, Google will make money with ads displayed on Android handsets, and possibly with Android Market (Google’s answer to Apple’s online store). However, his one billion users and $10 billion market remark sounds overly “optimistic”, if not somewhat arrogant.

First of all, the number of Android handsets / users worldwide is currently estimated at around 8.5 million. So, to reach one billion users, we are talking about a compounded annual growth rate (CAGR) of 61.09% for the next ten years, or a CAGR of 37.42% for the next fifteen years. Both numbers seem lofty (although Schimdt might disagree) considering the fierce competition (name brands as well as “gray market”) in the handset market.

As for the mobile ad and search revenue, it is certainly an incremental income for Google, but I’m not quite sure about the “gold mine” status due to the small screen space and possible cannibalization from the desktop, which is also dwindling.

Ok, let’s say Schimidt’s statement is just a figurative speech to highlight the rapid growth and adaptation of Android. But I’d imagine China has to be factored into Schimidt’s equation… somewhere, somehow, despite Google’s de facto exit of China. After all, China was the world’s second largest smart phone market in Q2 2010 for the sixth consecutive quarter, according to Canalys, and In-Stat projects Smartphone shipments in China is to triple by 2013.

Some (I suspect Google as well) might think Android would provide a “back door” into China, as Android is the “behind the scene” operating system on many different handset brands ranging from HTC, Motorola to China Mobile, just to name a few examples. And China did say Google’s Android operating system will not be blocked if it follows local regulations.

Well, unfortunately there’s new confirmation that access to the Android Market has been blocked, and many Google mobile services–including GTalk and Gmail—are also unavailable to China consumers. This most likely will greatly diminish the ad revenue potential despite Android’s growing market share, unless Google and Beijing somehow manage to kiss and make up (Well, let’s just say it will be a long and winding road for Google).

Contrasting with Google’s predicament in China, Apple seems to be in a much better place. iPhone 4s have been selling like hot cakes after the Sept. 25 release in China. More than 200,000 phones have been snapped up within just a few days, and AFP reported that iPhone 4 now has a waiting list until the end of October.

Meanwhile, quite interestingly, Apple’s new prosperity in China apparently has come with a compromise–the Google map that comes along with the new iPhone is censored to comply with the official stance of the Chinese government on border divisions. Given the ongoing tiff between Apple and Google, I guess it is an easy decision for Steve Jobs to rig Google’s map on his flagship iPhone 4 for a smooth sailing in China.

And according to Shanghaiist , this is not the first time Apple has changed its products to please Beijing, and the company has also done similar modifications to phones sold in Egypt and the United Arab Emirates to fit in with each government’s restrictions.

This not only highlights the contrasting styles of the two companies when it comes to “Doing Business in China”, but also, Google will increasingly feel China’s wrath far beyond just the web search portal. I think Google’s little spat with Beijing would prove to be a lot more costly than expected, even if just temporary (a big if), setting the company back considerably against its rivals.

For now, my suspicion is that for Schmidt to make such a big splash about Android, Google most likely does not have other good prospect in the pipeline. On that note, Google could be on its way moving from “Growth” into the “Mature” phase of its business cycle—i.e., a stagnant Microsoft in the making–whereas Apple might be able to stretch out its Growth phase just a bit longer.

The stock price comparison chart of Google (GOOG), Apple (AAPL) and Baidu (BIDU) seems to tell a similar story as well.

Article courtesy of Dian L. Chu
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The Impeccable Timing of the Verizon (NYSE: VZ) iPhone Rumors

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The Verizon iPhone rumor is as old as the iPhone itself. So whenever anyone trots it out, you take it with a grain of salt. It’s like The Beatles coming to iTunes. It will happen eventually, but who knows when. That said, today’s Wall Street Journal report about Verizon readying to launch the iPhone in early 2011 has all the makings of a good old Apple-controlled leak once again. And so it may be time to really believe.

Now, I of course don’t know for sure that Apple fed WSJ this story — but let’s look at the recent history. In January, as rumors were swirling about the iPad, the WSJ had a story suggesting the tablet computer could run around $1,000. At the time, I pointed out why this reeked of Apple setting expectations low so they could blow them out of the water. A few days later, a former Marketing Manager at Apple backed this up. The result? Steve Jobs on stage announcing the iPad would start at just $499. Boom.

This past July, rumors were swirling that Apple would have to recall the iPhone 4 due to its antenna. When Apple called a surprise press conference, these rumors only intensified. But one day before the event, there was the WSJ again with the story that Apple would not be recalling the device. Again, this seemed to be all about setting expectations. The next day, did Apple recall the device? Nope. But no one panicked because everyone knew they weren’t going to.

If you go back to last year, on June 19, Apple had their most successful product launch ever (at the time) with the iPhone 3GS. That night, after the stock market had closed, WSJ broke the news that Apple CEO Steve Jobs had undergone a liver transplant months earlier while on his medical leave of absence. The timing of such a scoop was curious at best — and there’s no denying that the timing was advantageous to Apple. Jobs was said to be fine, and returning to work shortly.

What did all of those stories have in common? Each was authored or co-authored by WSJ reporter Yukari Iwatani Kane. And guess who co-authored today’s Verizon iPhone story as well? Yep.

So why would Apple want to leak such news? Well that’s obvious. News of a Verizon iPhone would quickly quiet all the talk of Android’s momentum against the iPhone in the U.S. marketplace. That talk, backed up by report after report after report, is louder than it has ever been. Android is clearly outpacing the iPhone in terms of sales in this country. And the media is latching on to that story big time.

Considering the disproportionate amount of money Apple makes from the iPhone (billions) versus what Google makes so far from Android (next to nothing), you might think Apple wouldn’t care about this. But indications are that they do. Jobs takes thinly veiled shots at Android all the time (often in response to not-so-thinly veiled shots from Google). And his leaked talk with employees at the beginning of the year makes it clear that he feels threatened by Android.

Again, given Apple’s success and proven model, they probably shouldn’t care. It’s simply not really a fair fight. But they do. And the Verizon iPhone is proof of that.

And today marks a particularly interesting day because there is a tidal wave of new Android devices that have been announced at or around CTIA here in San Francisco. In the mobile world right now, it’s Android, Android, Android. And it’s not just consumers that are sensing this — it’s the all-important developers too. And considering that Apple only puts out new phones once a year, in the Summer, they have nothing to counter with. Except the Verizon iPhone.

The WSJ story also notes that a fifth generation iPhone is in the works as well. But that’s obvious. That’s on the same schedule as all of the previous iPhones. In fact, this fifth generation iPhone has probably been in the works for two years now. The key to the story is that Pegatron will be mass-producing a CDMA iPhone by the end of the year, and Verizon will be selling it.

This is actually the second Verizon iPhone rumor Kane has reported in recent months. But the first one, in March, was careful not to specifically say that Verizon would be getting the iPhone — just that Apple was working on a CDMA version of the device. All indications are that this is true, and has been true for some time — we’ve heard the same thing. But that story may have just been to whet people’s appetite with the hint of Verizon. Today’s is the meat.

And interestingly enough, the original version of today’s story said the exact same thing: just that a CDMA version of the iPhone was coming. It was later changed to specifically name Verizon as the provider it would appear on. Some people weren’t getting the message clearly enough, it seems.

Some of the Verizon-specific additions:

Apple Inc. is making a version of its iPhone that Verizon Wireless will sell early next year

Verizon Wireless has been meeting with Apple, adding capacity and testing its networks to prepare for the heavy data load by iPhone users, according to one person familiar with the matter. The carrier is seeking to avoid the kind of public-relations hit that AT&T took when the boom in data-hungry iPhones overtaxed its network, especially in New York and San Francisco.

Apple originally decided against developing a phone for Verizon to focus on a version based on GSM, a more prevalent mobile technology used by AT&T and most mobile operators in the world, people familiar with the decisions have said.

Verizon, in those earlier discussions, balked at Apple’s requirement that Verizon not allow its retail partners to sell the phone, people familiar with the discussion said at the time. Verizon also declined to give up its ability to sell content like music and videos through its proprietary service, these people said.

That last part in particular scares me. While I will absolutely be the first person in line to buy an iPhone that runs on Verizon’s network. There’s a difference between that and a Verizon iPhone. The iPhone that Verizon wants to sell undoubtedly is loaded up with the same crap they now load on their Android phones. Since Verizon has leverage now with Android’s popularity, will Apple have to give in to some of Verizon’s demands? I hope not, but I’m worried.

If Apple really does care about U.S. market share — and again, indications are that they actually do — they need Verizon more than Verizon needs them. And that’s a bad place to be in — and one Apple isn’t used to in recent years.

Is it possible that if this is a leak, Apple is simply using it as a negotiating ploy once again? Maybe. But it seems like there’s too much smoke — all the CDMA reports, AT&T saying dumb things about how they’re not scared to lose the iPhone, and the fact that Apple really does need another carrier if it wants to continue growing in the U.S. — for there not to be truth to the rumors this time.

So I’m cautiously optimistic now that come January I’ll have a phone that actually works as a phone. It just better not have that V CAST crap on it. And it better come in white.

Update: Here’s the WSJ comment on the matter:

The notion that the Journal only relies on Apple’s strategic leaks is risible.

I’m honestly not sure how to read that. Did they misread what I wrote and think I said WSJ only relies on the leaks? Or are they implying that they do get leaks but that those aren’t the only thing they rely on?

Written by MG Siegler

Google Cars Drive Themselves, in Traffic

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Dmitri Dolgov, a Google engineer, in a self-driving car parked in Silicon Valley after a road test.

MOUNTAIN VIEW, Calif. — Anyone driving the twists of Highway 1 between San Francisco and Los Angeles recently may have glimpsed a Toyota Prius with a curious funnel-like cylinder on the roof. Harder to notice was that the person at the wheel was not actually driving.

The car is a project of Google, which has been working in secret but in plain view on vehicles that can drive themselves, using artificial-intelligence software that can sense anything near the car and mimic the decisions made by a human driver.

With someone behind the wheel to take control if something goes awry and a technician in the passenger seat to monitor the navigation system, seven test cars have driven 1,000 miles without human intervention and more than 140,000 miles with only occasional human control. One even drove itself down Lombard Street in San Francisco, one of the steepest and curviest streets in the nation. The only accident, engineers said, was when one Google car was rear-ended while stopped at a traffic light.

Autonomous cars are years from mass production, but technologists who have long dreamed of them believe that they can transform society as profoundly as the Internet has.

Robot drivers react faster than humans, have 360-degree perception and do not get distracted, sleepy or intoxicated, the engineers argue. They speak in terms of lives saved and injuries avoided — more than 37,000 people died in car accidents in the United States in 2008. The engineers say the technology could double the capacity of roads by allowing cars to drive more safely while closer together. Because the robot cars would eventually be less likely to crash, they could be built lighter, reducing fuel consumption. But of course, to be truly safer, the cars must be far more reliable than, say, today’s personal computers, which crash on occasion and are frequently infected.

The Google research program using artificial intelligence to revolutionize the automobile is proof that the company’s ambitions reach beyond the search engine business. The program is also a departure from the mainstream of innovation in Silicon Valley, which has veered toward social networks and Hollywood-style digital media.

During a half-hour drive beginning on Google’s campus 35 miles south of San Francisco last Wednesday, a Prius equipped with a variety of sensors and following a route programmed into the GPS navigation system nimbly accelerated in the entrance lane and merged into fast-moving traffic on Highway 101, the freeway through Silicon Valley.

It drove at the speed limit, which it knew because the limit for every road is included in its database, and left the freeway several exits later. The device atop the car produced a detailed map of the environment.

The car then drove in city traffic through Mountain View, stopping for lights and stop signs, as well as making announcements like “approaching a crosswalk” (to warn the human at the wheel) or “turn ahead” in a pleasant female voice. This same pleasant voice would, engineers said, alert the driver if a master control system detected anything amiss with the various sensors.

The car can be programmed for different driving personalities — from cautious, in which it is more likely to yield to another car, to aggressive, where it is more likely to go first.

Christopher Urmson, a Carnegie Mellon University robotics scientist, was behind the wheel but not using it. To gain control of the car he has to do one of three things: hit a red button near his right hand, touch the brake or turn the steering wheel. He did so twice, once when a bicyclist ran a red light and again when a car in front stopped and began to back into a parking space. But the car seemed likely to have prevented an accident itself.

When he returned to automated “cruise” mode, the car gave a little “whir” meant to evoke going into warp drive on “Star Trek,” and Dr. Urmson was able to rest his hands by his sides or gesticulate when talking to a passenger in the back seat. He said the cars did attract attention, but people seem to think they are just the next generation of the Street View cars that Google uses to take photographs and collect data for its maps.

The project is the brainchild of Sebastian Thrun, the 43-year-old director of the Stanford Artificial Intelligence Laboratory, a Google engineer and the co-inventor of the Street View mapping service.

In 2005, he led a team of Stanford students and faculty members in designing the Stanley robot car, winning the second Grand Challenge of the Defense Advanced Research Projects Agency, a $2 million Pentagon prize for driving autonomously over 132 miles in the desert.

Besides the team of 15 engineers working on the current project, Google hired more than a dozen people, each with a spotless driving record, to sit in the driver’s seat, paying $15 an hour or more. Google is using six Priuses and an Audi TT in the project.

The Google researchers said the company did not yet have a clear plan to create a business from the experiments. Dr. Thrun is known as a passionate promoter of the potential to use robotic vehicles to make highways safer and lower the nation’s energy costs. It is a commitment shared by Larry Page, Google’s co-founder, according to several people familiar with the project.

The self-driving car initiative is an example of Google’s willingness to gamble on technology that may not pay off for years, Dr. Thrun said. Even the most optimistic predictions put the deployment of the technology more than eight years away.

One way Google might be able to profit is to provide information and navigation services for makers of autonomous vehicles. Or, it might sell or give away the navigation technology itself, much as it offers its Android smart phone system to cellphone companies.

But the advent of autonomous vehicles poses thorny legal issues, the Google researchers acknowledged. Under current law, a human must be in control of a car at all times, but what does that mean if the human is not really paying attention as the car crosses through, say, a school zone, figuring that the robot is driving more safely than he would?

And in the event of an accident, who would be liable — the person behind the wheel or the maker of the software?

“The technology is ahead of the law in many areas,” said Bernard Lu, senior staff counsel for the California Department of Motor Vehicles. “If you look at the vehicle code, there are dozens of laws pertaining to the driver of a vehicle, and they all presume to have a human being operating the vehicle.”

The Google researchers said they had carefully examined California’s motor vehicle regulations and determined that because a human driver can override any error, the experimental cars are legal. Mr. Lu agreed.

Scientists and engineers have been designing autonomous vehicles since the mid-1960s, but crucial innovation happened in 2004 when the Pentagon’s research arm began its Grand Challenge.

The first contest ended in failure, but in 2005, Dr. Thrun’s Stanford team built the car that won a race with a rival vehicle built by a team from Carnegie Mellon University. Less than two years later, another event proved that autonomous vehicles could drive safely in urban settings.

Advances have been so encouraging that Dr. Thrun sounds like an evangelist when he speaks of robot cars. There is their potential to reduce fuel consumption by eliminating heavy-footed stop-and-go drivers and, given the reduced possibility of accidents, to ultimately build more lightweight vehicles.

There is even the farther-off prospect of cars that do not need anyone behind the wheel. That would allow the cars to be summoned electronically, so that people could share them. Fewer cars would then be needed, reducing the need for parking spaces, which consume valuable land.

And, of course, the cars could save humans from themselves. “Can we text twice as much while driving, without the guilt?” Dr. Thrun said in a recent talk. “Yes, we can, if only cars will drive themselves.”

Written by John Markoff