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Technology initial public offerings (IPOs) are like sunny summer days in San Francisco: more infrequent than you think. In sharp contrast, the technology mergers and acquisitions (M&A) market continues to be on an upswing, giving investors much-needed relief. Sure, there’ve been some signs of life in the IPO market — 39 listings during the second quarter of 2010 — but ask anyone on Sandhill Road (the epicenter of tech money), and they’re all busy calling on their banker pals.

According to a report prepared by PriceWaterhouseCoopers (PWC),  during the second quarter of 2010, there were 36 technology transactions worth $ 11.37 billion, vs. the first quarter of 2010, when 34 deals totaled $ 18.96 billion. Year-on-year volume during the second quarter of 2010 was up 50 percent, and values up nearly 400 percent. According to PWC data, if you excluded the $ 2.8 billion HP paid for 3Com, and $ 1.1 billion paid by Bain Capital, Berkshire Partners and Advent for SkillSoft, the average deal during the second quarter was around $ 200 million. The numbers for the third quarter are only going to be higher.

As we pointed out earlier, large tech companies have managed to come out of recession relatively cash rich and innovation poor. This is precisely the reason why they’ve revved up their M&A engines. Even during the summer, typically a slow season, companies have been out shopping. There is Google buying Slide and Jambool, Hewlett Packard buying Fortify and IBM snapping up Unica Corp. From Zynga to Apple, there is no stopping the buyers it seems. PWC forecasts:

M&A as an innovation accelerator has firmly taken hold, as evidenced by the large number of venture- backed deals in the first half of this year. This will continue to drive mid-market transactions, which have historically dominated technology deal volumes. Software transactions at both ends of the size scale will continue as incumbents round out their offerings or acquire industry- specific applications, and as major hardware players expand into end-to-end solutions. Finally, consumer technology and Internet majors will continue to work their way along the value chain to capture market and mindshare as mobile computing, entertainment and communications markets converge on intelligent and user- friendly devices.

GigaOM

I would rather compete with Sony than compete in another product category with Microsoft.

Steve Jobs said that to Time magazine soon after launching the iPod  in 2001. We didn’t pay much attention back then; after all, Apple was considered a dying vendor. But a decade later, the statement reads as prophetic. It signaled the start of a trend Gartner would later call “consumerization of technology,” or “the growing practice of introducing new technologies into consumer markets prior to industrial markets.”

Of course, it wasn’t just Apple; Google, Facebook, and a wide range of mobile, GPS, gaming, entertainment and social startups all have contributed to the scenario where consumers in many markets have better technologies than corporate employees. Indeed, if Cardinal Richelieu were alive today he would be tempted to write “The pen den is mightier than the sword board.” Silicon Valley has been in the middle of all this glorious empowerment of the consumer.

A decade later, though, the consumer focus means the antenna problems of the iPhone 4 or privacy flip-flops at Facebook dominate conversation. This when the “Grand Challenges” facing the world continue to mount.

Don’t get me wrong; the Valley obviously does more than just consumer tech. In a recently published book, I showcase Kleiner’s cleantech portfolio companies like Bloom Energy and Silver Spring Networks, cloud vendors like salesforce.com, Netsuite and Workday, genome-focused firms like 23andMe, and many other Valley companies.

But the overriding contemporary image of the Valley is it is focused on “light” innovation. It’s gone Hollywood: focused on the glitz and the superficial, maybe because that’s where the media focus is. Valley-based new media, and bloggers and even older media covering tech like the New York Times and Fortune mostly write about consumer tech. It could be because the grown-up Valley companies like HP and Oracle aren’t innovating much in the enterprise space. It could be because Valley VCs have given way to “super-seed” funds that parcel out much smaller rounds, and by definition, fund “lighter” innovation.

In the meantime, more complex innovation has been moving elsewhere. The book describes a number of technologies coming out of GE. A GE executive is quoted as saying:

In sector after sector, we find that technology suppliers sometimes lack deep domain knowledge when it comes to vertical technology solutions. That has opened the door for GE Healthcare, GE Transportation and other units to become technology leaders in their markets. We are a multi-billion dollar software and technology company in our own right.

The book describes BASF bio-engineering new strains of rice, BMW pioneering haptic and other user interfaces, and Hospira — a manufacturer of IV fluids — creating an infusions system with elaborate scanners, monitors and alarms. These companies have been long-term customers of the Valley, considered “buyer” organizations. This new trend of complex innovation coming out of unexpected places sets companies like these up as competitors.

Complex innovation has been moving overseas. Germany is investing significantly in its “Solar Valley,” and China’s state investment in everything from a high speed rail network to massive wind farms is funding a number of startups there. In a survey Kleiner commissioned, only six U.S. companies were listed among the top 30 global green technology vendors. Ray Lane of Kleiner is quoted in the book as saying:

The United States is clearly the biggest market for green technology. But there is a scenario in which the other countries become our largest suppliers. And of course, that means they would also be the suppliers to the rest of the world.

Travel across Africa, and you see Ray’s concern come to life. You see Chinese engineers in Ethiopia and Chinese farmers in Zambia deploying products coming out of their own fledgling technology industry, not from Silicon Valley.

Of course, Silicon Valley is the ultimate chameleon. It has amazing regenerative powers. Every few years, it transforms itself. It’s time for the Valley to move beyond Twitter and Foursquare.

In his inspiring foreword to my book, Marc Benioff, CEO of salesforce.com says:

I see less disease. I see less poverty. I see new sources of energy, amazing advances in healthtech, and a planet on which the next generation can still breathe. I am looking forward to enjoying the future that we create.

I too look forward to that future – and I hope Silicon Valley has a dominant role in shaping it.

Vinnie Mirchandani, a former Gartner analyst, is the author of “The New Polymath,” which is about a new generation of “compound” innovation where 3,5, 10 strands of infotech, cleantech, healthtech, nanotech and other tech and talent pools around the world are being leveraged to create new algorithms, new energy and new medicine.

Photo courtesy Flickr user LaMadrileña.

GigaOM

Today’s compromise between Verizon — one of the nation’s largest ISPs (and largest wireless provider) — and Google on network neutrality is a big story, not necessarily because it’s going to change the policy discussion much, but because it marks Google selling out the tech and startup community so it can advance its own economic interests. If you weren’t aware of it by now, Google’s going to play the regulatory game for itself, not for the broader tech community.

Even if the Federal Communications Commission can muster up the political will to ignore this agreement — which is really just a highly amplified (and influential) comment in the net neutrality proceedings and probably won’t have any impact on policy unless the FCC or Congress decides its the optimal way to go — it’s worth looking at the implications were such an agreement to be made law. Why? Because this agreement is a perfect example of self-regulation, whereby those with the most to gain (and lose) present a proposal that’s not terrible in the present, but has huge implications when it comes to the future.

First, go read the seven principles of the proposal, then come back. The three biggest items that will affect technology firms and consumers are:

• Taking wireless out of the equation for network neutrality regulations and inserting “transparency” as a salve
• The proposal allowing for “advanced network services”
• The utter emasculation of the FCC in the section headed “case-by-case enforcement”

I hit on the first two in my story earlier today, but the wireless compromise will likely have a huge impact on firms like Skype, Pandora and mobile video services that are relying on the growth of the mobile Internet to boost their businesses. The inability to enforce network neutrality on wireless devices opens the gateway for carrier blocking of certain applications delivered via the web to wireless handsets. Sure, the framework notes operators have to be transparent, but firms have been transparent about blocking VoIP services like Skype from their networks for years.

Another possibility is that operators could seek deals with certain service or app providers to get paid for delivering certain traffic on their handsets, but not others. If you’re Pandora and AT&T has a deal with Slacker, you may see your stunning growth slow. Consumers may or may not realize what’s going on depending on how many layers of legalese is wrapped around the transparency this framework requires.

This brings us to the issue of managed services, or as the framework labels it, advanced network services. This is a real issue for startups because it creates a dual-class system for the Internet. As I wrote earlier:

This is theoretical today, and is where the potential for big controversy lies. Google’s Eric Schmidt stressed that Google wouldn’t send its traffic over an additional online service, and suggested that if Verizon did end up degrading the “public internet” that competitors would arise to address the problem, something that’s pretty hard to believe given the costs associated with building a network. However, when Verizon’s Siedenberg said on the call, “Who knows what new services technology will bring in the future?” and suggested that 3-D content or any other service needing certain quality of service guarantees might be delivered over such a specialized service, it doesn’t take a lot to see Verizon angling to protect its ability to profit over its control over its pipes.

This is a big issue for startups. Google isn’t worried because it has both the brand and economic ability to ensure that it’s infrastructure is optimized to deliver its traffic via the public internet without resorting to becoming an advanced service. But what about a fledgling 3-D startup that wants to become a broadcaster of 3-D content online as Break Media does? Break, which nominally competes with YouTube’s 3-D efforts, might suddenly find consumers complaining about its service, with ISPs reluctant to help out because it’s not an advanced network service partner. Or maybe a company can’t establish itself as a provider of content because consumers have no way to see its content without paying extra for 3-D broadband.

This brings me to the final aspects of this framework worth exposing: it utterly strips the FCC of power to regulate violations of network neutrality or to even act as a watchdog for consumers. From the framework:

The FCC would enforce the consumer protection and nondiscrimination requirements through case-by-case adjudication, but would have no rulemaking authority with respect to those provisions. Parties would be encouraged to use non-governmental dispute resolution processes established by independent, widely-recognized Internet community governance initiatives, and the FCC would be directed to give appropriate deference to decisions or advisory opinions of such groups.

So the FCC has the power to fine violators up to $ 2 million, but anyone with a grievance is encouraged to go before a non-governmental dispute resolution process. IF the person or business with the complaint decides to ignore that encouragement, if the FCC sees a problem, it can fine, but it can’t actually take steps to ensure that it doesn’t happen again by making any rules.And by the way, those case-by-case hearings at the FCC take a long time and it’s possible the courts will find the FCC’s actions illegal, much as what happened when Comcast was blocking P2P files.

So Google sold the tech world out as it hopes to keep one of the largest pushers of its Android operating system happy. Even AT&T doesn’t seem to hate the deal, releasing a short statement that reads:

“We’re not a party to this agreement, but will examine it closely. We remain committed to achieving a consensus solution to the net neutrality issue, either with the FCC or with the Congress. In that sense, the Verizon-Google agreement demonstrates that it is possible to bridge differences on this issue.”

Google gives a little but wins, Verizon gives a little, but wins, and consumers and innovation ultimately lose. That’s usually how these compromises work.

Related GigaOM Pro Content (sub req’d): The New Net-Neutrality Debate: What’s the Best Way to Discriminate?

GigaOM

Skype today added excitement to what is traditionally a slow month in the investment world by filing to raise up to $ 100 million through an initial public offering (IPO). Last week saw Demand Media file for an IPO on Friday and NXP, a semiconductor company, actually go public on Thursday. So is the technology IPO back, or is this just another flurry of activity that will benefit a few companies before subsiding?

IPOs by the Numbers

During the first half of calendar 2010, 21 venture capital-backed U.S.
technology companies went public, raising a total of $ 1.9 billion in
gross offering proceeds, according to research provided by Dow Jones. Of those companies, most did not fare well after their shares had begun trading, which isn’t a positive sign for other companies waiting in the wings.

A successful IPO requires demand, or pull, on the retail side, among large mutual funds, brokerage clients and everyday investors to drive up prices and keep them up. Right now, based on the performance of these IPOs, the public offerings may be more of a push by tired venture firms and shareholders hoping for an exit than pent up demand for technology offerings. However, the immediate performance of firms like Tesla, which rocketed up 40.5 percent on its debut in June, shows that a name brand can help. Tesla hasn’t maintained its high, but is still trading above its opening price of $ 19.

As Om has written, Facebook may be smart to wait for its IPO. Benefitting from its own brand recognition is perhaps one reason that Skype is filing, with the other reason likely the need to prove its value after being bought from eBay by PE investors last September . Digital Sky Technologies, the Russian firm that holds shares in Facebook and Zynga, is also reportedly looking to cash out on recent interest in its dealmaking; In late July, it was rumored to have hired Goldman Sachs in search of an IPO. Incidentally, Goldman is a lead underwriter for both Skype and Demand Media.

So far this year, there have been 22 actual IPOs in the technology industry — the most of any industry when tallying the 81 public offerings that actually made it to market — according to Renaissance Capital. As for filings, there have been 158 IPOs filed, a 444.8 percent increase from last year. However, of the tech IPOs that make it to market, the average first day return is a mere 7.1 percent, and the average total return is actually negative 7 percent, said Renaissance. That’s no Tesla.

The New Normal?

However, when figuring out the fates of the IPO market, it pays to have some context. As this chart from Renaissance Capital shows, the number of IPO filings isn’t anywhere close to the boom that occurred in the late 90s, but it’s approaching the level seen before the market crash in 2008. Given the amount of venture capital funneled into startups after the initial panic from the dot-com bust wore off, however, the return of the IPO market to the levels seen in 2004 and the early part of 2008 won’t be enough to sustain the VC capital invested in the last few years.

This means that even if we have a return of the IPO, we’re not likely to have a return of the boom that made dumping almost $ 27 billion a year into venture-backed startups from 2004 through 2008 feasible. So when Fred Wilson of Union Square Venture says that Skype’s IPO is “a monster” that will “get things going again,” I’m going to hold onto my doubts. Skype’s IPO may open the floodgates for hopeful VCs that need the IPO market — not just for exits, but to boost the valuations for their M&A deals — but I’m not convinced that the demand is there for non-brand name offerings, nor do I think Skype’s IPO has the potential to help sop up years of over-investment by venture firms.

Related GigaOM Pro Content (sub req’d): What the VC Industry Upheaval Means for Startups

GigaOM

Facebook has become the best technology workplace in Silicon Valley, says BusinessInsider, pipping Google for the first time.

According to the updated list, published today by BusinessInsider and based off job review site Glassdoor’s rankings, Facebook now reigns supreme over Google as the hottest place to work (they previously didn’t meet…

Neowin.net