How VCs Are Coping With the Downturn

Not only have consumers embraced the iPhone, but every major device manufacturer is looking to up the ante. Prediction: Smartphones on the market in early 2010 will make the current iPhone seem dowdy by comparison. And as these devices emerge, packed with processing power, ultra-sharp and larger viewing screens, and an ability to access this open bandwidth, a new era will likely emerge. Whereas the majority of email, social applications (Facebook, MySpace, etc.), various contact lists and collaborative shared applications are currently used in a PC environment, these smartphones will soon emerge as the dominant computing platform. PCs won't disappear, but they will no longer be the dominant computing platform.

And Google's Android, which currently looks like just a stab at another growth vertical, will turn into the growth driver, for which the company's current search business is just one component. In that light, it's easy to see why Motorola (MOT Quote) trashed its whole development effort and is now making one big bet on Android.

In a recent chat with an acquaintance who has hooks into the zeitgeist of the VC world, he noted that a few ancillary trends have emerged that will shape this smartphone experience. First, companies will need to build truly mobile-based Web sites, and not simply tweak their existing Web-based sites.

In addition, the steady proliferation of personal lists, from Facebook friends, Outlook contacts, IM monikers, etc., will all need to reside on one interface. Platforms that pull all this together could be a home run for start-ups focused in this area, if Microsoft (MSFT Quote) or Google don't get there first.

To be sure, most companies in this space have yet to file for an IPO, so it's hard to handicap eventual winners in the public sphere. And some of the start-ups in this area will be acquired by rivals or run out of money before the IPO market reopens.

But you have to like Google's positioning in the context of these trends. If Microsoft, Apple or other public tech giants want to blunt Google's expected momentum, they may need to start to roll up some of these smaller companies.

This was originally published on RealMoney in two parts (Nov. 13 and 14, 2008). For more information about subscribing to RealMoney, please click here.