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Monday, November 26, 2012

Study Finds Rise in Cellphone Texting Even as Revenue Drops

A new report finds that certain activities that people do on a cellphone, like taking a picture and shooting video, have increased significantly in the last few years. Texting, in particular, has grown considerably - but not texting in the traditional sense.

The Pew Research Center published a study over the weekend that showed that the number of cellphone owners who text on their phones has grown to 80 percent from 58 percent in 2007.

As I reported this month, traditional text messaging - the kind where you pay to send messages over the phone network - recently declined for the first time in the United States, following a trend in countries around the world, like the Philippines and Finland, according to Chetan Sharma, an independent mobile analyst. As a result, the money that carriers earn from text messaging has been dropping, too.

So how could texting be on the rise? Instead of sending traditional text messages, cellphone owners are shifting toward Internet-based messaging services, like Apple's iMessage, Facebook messaging and WhatsApp, Mr. Sharma says. These services are popular because they don't charge per text; they are gradually redefining what we think of as text messaging.

The Pew study also found that the number of cellphone owners who use phones to send e-mail has jumped to 50 percent from 19 percent in 2007, and the number of cellphone owners using phones to shoot video has risen to 44 percent from 18 percent five years ago. The number of cellphone owners who use their phones to download apps is 43 percent, up from 22 percent in 2009. All these factors are directly correlated with the rise of the smartphone - more than 50 percent of American cellphone owners own one, according to Nielsen.

“Cell users now treat their gadget as a body appendage,” said Lee Rainie, director of the Pew Research Center, in a statement. “There is striking growth in the number of people who are taking advantage of the growing number of functions that these phones can perform, and there isn't much evidence yet that the pace of change is slowing down.”


Nintendo\'s Wii U Starts Strong

In its first week on the market, Nintendo's new videogame console, the Wii U, sold about as well in the United States as the original Wii did at the same point in its life, according to Nintendo.

In an interview, Reggie Fils-Aime, president of Nintendo of America, estimated that the company sold more than 400,000 Wii U's here from the product's introduction on Nov. 18 and last Saturday. Mr. Fils-Aime said that figure was based on sales data Nintendo collected electronically from retailers. He said total American sales for the product were likely higher.

A more complete sales figure for Wii U will come soon when NPD, a research firm that estimates retail sales, releases data for the product's first week on the market, Mr. Fils-Aime said. He said 475,000 of the original Wiis were sold during the product's first week on the market in 2006, citing NPD data.

The results are a good sign for the company's latest product. The Wii was an enormous hit that outsold competing systems from Microsoft and Sony, but its sales have faded in recent years, putting pressure on the Wii U to help lead a turnaround at Nintendo.

“We are essentially sold out at retail,” Mr. Fils-Aime said. “As soon as we replenish product to retailers, it sells out immediately.”

It's important to keep in mind that supplies of new game consoles are often very limited when they first go on sale, as manufacturers ramp up production. Nintendo has a very dedicated audience that craves almost anything new the company has to offer, not unlike Apple's fans. The real test of the Wii U's durability will come when the product is in better supply and more casual gamers, who don't dream about Mario and Zelda in their sleep, can more easily buy it.

Mr. Fils-Aime said another of Nintendo's more recent products, the handheld Nintendo 3DS, was also selling well, racking up sales of 6.4 million units in the United States during its first 21 months on the ma rket. He said Nintendo had sold one million more Nintendo 3DSes than it did an older handheld, the Nintendo DS, during the comparable time period.

Justice Department Expands Hunt for Data on Cellphones

Fans of “The Wire,” the HBO series, will recall what a gold mine cellphones turned out to be for police investigating a drug ring in Baltimore. Detectives in the show used them to construct a map of who called whom at what time and how often.

Indeed, a list of incoming and outgoing calls on an individual's cellphone can provide a robust trail of evidence.

Cellphones seem to be increasingly attractive to the Department of Justice, documents obtained by the American Civil Liberties Union show. Agencies affiliated with the department used more than 37,600 court orders in 2011 to gather cellphone data, a sharp increase from previous years. They were almost equally divided between “pen register” data, which captures outgoing phone numbers, and “trap and trace” orders, which refer to incoming phone numbers, which means one phone could have two separate orders associated with it.

The total number has roughly doubled since 2007, when cellphone commu nications were more limited.

By law, the data can be obtained without a search warrant establishing probable cause, though the authorities do need to tell a court that it is relevant to an investigation. To get a wiretap that allows authorities to actually listen in on the contents of a call has higher legal barriers; law enforcement officials have to convince an impartial judge of probable cause.

The lower legal threshold allows law enforcement agencies to capture crucial information, including the time and date of calls and their length, helping law enforcement officials deduce important associations among callers. Each order, the A.C.L.U. pointed out, could affect one or more individuals.

Pen register orders can also allow law enforcement number to obtain data about e-mails, like the “to” and “from” fields, though not the content of those communications.

Among the total orders, the United States Marshals Service led the pack, with more tha n 16,000, followed by the Drug Enforcement Agency and the Federal Bureau of Investigation. The Justice Department, unlike local police, is required to report how many such orders it seeks. Still, the A.C.L.U. said it had to file a Freedom of Information Act request to obtain the latest figures.

Daily Report: Law Enforcement vs. Cellphone Privacy

Judges and lawmakers across the country are wrangling over whether and when law enforcement authorities can peer into suspects' cellphones and the cornucopia of evidence they provide, Somini Sengupta reports in Monday's New York Times.

A Rhode Island judge threw out cellphone evidence that led to a man being charged with the murder of a 6-year-old boy, saying the police needed a search warrant. A court in Washington compared text messages to voice mail messages that can be overheard by anyone in a room and are therefore not protected by state privacy laws.

In Louisiana, a federal appeals court is weighing whether location records stored in smartphones deserve privacy protection, or whether they are “business records” that belong to the phone companies.

“The courts are all over the place,” said Hanni Fakhoury, a criminal lawyer with the Electronic Frontier Foundation, a San Francisco-based civil liberties group. “They can't even agree if there's a reasonable expectation of privacy in text messages that would trigger Fourth Amendment protection.”

The issue will attract attention on Thursday when a Senate committee considers limited changes to the Electronic Communications Privacy Act, a 1986 law that regulates how the government can monitor digital communications. Courts have used it to permit warrantless surveillance of certain kinds of cellphone data.

A proposed amendment would require the police to obtain a warrant to search e-mail, no matter how old it was, updating a provision that currently allows warrantless searches of e-mails more than 180 days old.

As technology races ahead of the law, courts and lawmakers are still trying to figure out how to think about the often intimate data that cellphones contain, said Peter P. Swire, a law professor at Ohio State University. Neither the 1986 statute nor the Constitution, he said, could have anticipated how much information cellphones may contain, including detailed records of people's travels and diagrams of their friends.

“It didn't take into account what the modern cellphone has - your location, the content of communications that are easily readable, including Facebook posts, chats, texts and all that stuff,” Mr. Swire said.

Building Start-Ups via Stars\' Ties to Fans

Building Start-Ups via Stars' Ties to Fans

J. Emilio Flores for The New York Times

Brian Lee and Jessica Alba at the offices of The Honest Company in Santa Monica, Calif. It sells eco-friendly baby supplies.

You might have heard Jessica Alba on daytime TV talking about her new e-commerce company, which sells diapers and other baby supplies, or seen Kim Kardashian pitching her online shoe store in the tabloids.

The man behind the companies, Brian Lee, is far from a household name. Yet in the world of tech start-ups, he is an emerging force.

Mr. Lee, a lawyer turned entrepreneur, has a simple formula: partner with a celebrity that fans associate with a certain product, whether stilettos or baby supplies. He first did it in 1999, when he cold-called Robert Shapiro, O.J. Simpson's lawyer, and persuaded him to join him at his first start-up, LegalZoom, for creating your own legal documents.

Hiring a famous face to represent your brand is the oldest marketing trick in the book. But Mr. Lee is doing it with an Internet twist. He uses celebrities' social media connections with fans, coupled with recent innovations in e-commerce, to sell things in ways that were not possible just a few years ago.

The Honest Company, Ms. Alba's start-up selling eco-friendly baby supplies, has raised $27 million from investors, including Lightspeed Venture Partners. ShoeDazzle, Ms. Kardashian's shoe company, has raised $66 million from Andreessen Horowitz, Lightspeed and others. But despite this investment, it has recently struggled, replacing its chief executive, laying off employees and raising bigger questions about the new breed of subscription e-commerce companies.

E-commerce is going through a shift, as retailers move beyond publishing print catalogs online to creating new business models for the Web. According to the National Venture Capital Association, venture capitalists invested $2.2 billion in e-commerce start-ups last year, almost three times as much as the year before and more than they have invested since the first Internet boom, which created Amazon.com and eBay.

Mr. Lee's companies tap the latest e-commerce trends, including selling monthly subscriptions, using software algorithms to determine personal style suggestions and eliminating middlemen by designing products in-house and selling them directly to consumers.

“Given the choice between shopping at a boutique or warehouse, if the styles were right, which would my wife choose?” Mr. Lee said, describing the strategy behind ShoeDazzle and Honest. “A large group of women would choose that kind of curated boutique.”

At Honest, customers sign up for monthly deliveries of diapers festooned with anchors or hearts as well as items like shampoo and detergent, each formulated in-house to reduce chemicals. Ms. Alba conceived the idea, along with Christopher Gavigan, former chief of the nonprofit Healthy Child Healthy World, and turned to Mr. Lee for a business model.

When ShoeDazzle was founded in 2009, it was the first of a flurry of subscription e-commerce start-ups. The shoes, generally $39.95, are suggested based on the results of a style quiz the customer takes. They are designed by ShoeDazzle and manufactured at the same factories that big shoe brands use.

But ShoeDazzle has been struggling with that model, and analysts say that could foreshadow problems for its many imitators, which, in addition to Honest, include Birchbox for cosmetics, Wittlebee for children's clothing, JustFab for shoes and handbags, and BeachMint, which has sites for jewelry, T-shirts, skin care, shoes, home décor and lingerie. Earlier this month, Walmart joined the trend, introducing a monthly subscription box of food called The Goodies Company.

“Subscriptions were the hot trend in the last year, but I think some of that energy has really flattened,” said Sucharita Mulpuru, an e-commerce analyst at Forrester.

While subscriptions have worked well at companies like Amazon.com and Diapers.com for necessities like toilet paper and diapers, shoppers might find it harder to justify a recurring credit-card charge for colorful suede booties.

ShoeDazzle switched to a nonsubscription model this year, so shoppers log on whenever they are in the mood to shop instead of receiving monthly boxes. In September, the company replaced its chief executive, Bill Strauss, with Mr. Lee. He laid off 20 of its 220 employees and cut expenses like corporate apartments. Both Honest and ShoeDazzle are capital-intensive because they design, store and ship their own inventory.

“We lost our way,” said Jeremy Liew, managing director of Lightspeed Venture Partners. “But there's real value in this company and customers love the product.”

Mr. Lee said ShoeDazzle would approach $100 million in revenue this year and become profitable next year. Honest is not yet a year old, but its founders say it has proved popular with shoppers. Mr. Lee is the right person for the job, Mr. Liew said, because he has a Hollywood sensibility that Bay Area executives lack.

A version of this article appeared in print on November 26, 2012, on page B1 of the New York edition with the headline: Building Start-Ups Via Stars' Ties to Fans.

Autonomy Founder Challenges H.P.\'s Claims

Autonomy Founder Challenges H.P.'s Claims

SAN FRANCISCO - Mike Lynch was growing bored in a business meeting in London on Tuesday when his phone buzzed.

Mike Lynch, who founded Autonomy, blamed internal foot-dragging by Hewlett-Packard for problems after H.P. bought his firm.

A text message from a friend informed him that Hewlett-Packard was taking an $8.8 billion charge. A few minutes later, another message said H.P. was putting most of the blame for the write-down on accounting problems at Autonomy, the company Mr. Lynch co-founded and sold to H.P. last year for $10 billion. There was talk of potentially criminal activities.

Since that jolt, Mr. Lynch has been unusually candid and vocal in defending himself and the company he built, rather than hiding out behind a phalanx of lawyers as might be expected. He says he was blindsided by a long-prepared public relations onslaught by H.P., little of which had to do with the substance of its claims about Autonomy.

“It's been a bit of a shock,” said Mr. Lynch, who joined Hewlett-Packard in October 2011 but was fired by Meg Whitman, H.P.'s chief executive, in May. “The last time I talked to anyone there was in June, for about an hour.”

Mr. Lynch was once the face of H.P.'s future, thanks to Autonomy's high-end business analysis software. Last week, he became the public face of what the company said was a vast, systemic fraud.

But in charging gross improprieties at Autonomy, H.P. has attacked a man who may be Britain's most notable and contentious technology executive, and one of Europe's biggest self-made successes. Mr. Lynch, 47, sits on the boards of the British Broadcasting Corporation and the British Library, and was awarded an Order of the British Empire for his service to business.

Before Hewlett-Packard bought Autonomy, it was listed on Britain's major stock index. Its prominence allowed it to hire top engineers, who were worked remorselessly hard compared with their Silicon Valley counterparts, former employees say.

People who have worked with Mr. Lynch note both his accomplishments and his temper. “I don't think I've ever called anyone an idiot in the office, but I'm direct,” he said. “That's part of getting stuff done. I find good people and I value them. That is how I've been able to do what I've done.”

While Autonomy is not well known in the United States, it was considered a pioneer in the booming field of Big Data, and its pattern-seeking algorithms are at work at over 400 companies, including Oracle, Adobe, Cisco and, even before the purchase, Hewlett-Packard. Mr. Lynch personally made about $800 million from the sale to H.P.

Even with all of his money, intellect and a doctorate from Cambridge, what Mr. Lynch says he cannot figure out is how H.P. thinks he has done anything wrong.

Hewlett-Packard has said that its internal investigation, set off by a whistle-blower, uncovered major problems at Autonomy that were present before the merger. Among them were the booking of hardware sales as higher-margin software sales, and resellers reporting sales that did not exist.

Mr. Lynch said Autonomy's sales fell off a cliff after it merged with Hewlett-Packard - not because it suddenly had to account for things legally, as H.P. claims, but because of institutional foot-dragging.

“They drove out the top 100 people from Autonomy, and a bunch of trainees were put in” to sell Autonomy products, he said. “H.P. salesmen got better commissions for selling our competitors' products.”

Mr. Lynch said H.P. told him it could not formally approve Autonomy's software for use on its customers' servers, “when it was already running on thousands of H.P. machines around the world.” He added: “H.P. has core structural problems.”

Hewlett-Packard counters that Mr. Lynch was a singular force of resistance to the merger as soon as his check cleared.

“He was at every strategy session, was in person or on video for every meeting of the executive council,” said an H.P. executive briefed on the investigation who spoke on the condition of anonymity because he was not authorized to speak on the record. “He wouldn't work with anyone. Sometimes he was enthusiastic, but other times he'd say, ‘This makes no sense. I'm going back to London.' ”

On at least two different cross-country flights on an H.P. private jet, the executive said, Mr. Lynch went to the back of the aircraft and refused to talk with anyone for the entire flight.

A spokeswoman for Mr. Lynch, Vanessa Colomar, said he had not been on the corporate jet before and “didn't know the etiquette.” She said he spent the time working.

Michael J. de la Merced contributed reporting from New York.

A version of this article appeared in print on November 26, 2012, on page B1 of the New York edition with the headline: Autonomy Founder Challenges H.P.'s Claims.