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Apple's iPad represents a thin, 1.5-pound wrecking ball aimed at the division between netbooks and smart phones. But it may also do collateral damage to another long-crumbling barrier: the separation between work and play. And if that happens, IBM wants be ready to help tear down the wall.

Earlier this week at the Macworld conference in San Francisco, IBM ( IBM - news - people ) announced new business-focused apps for the iPhone operating system, including Lotus Connections tool for social networking inside companies and Lotus Quickr software for sharing documents. Those releases follow Big Blue's launch last month of a Lotus Notes app for the iPhone that includes e-mail and calendar tools, as well as an app known as Lotus Notes Traveler that allows encrypted e-mail.

While those programs are partly aimed at tapping into the small but growing number of iPhones in the enterprise, IBM's manager of Lotus software, Alistair Rennie, says they're also timed to give Big Blue a foothold on the iPad, which will use the same software platform.

"Our customers are looking at the iPad and they're excited about it," says Rennie. "No one quite knows its use patterns yet, but it's our intention to deliver as much of our portfolio as possible on it as fast as possible."

Rennie says IBM will also design applications targeted specifically at the iPad, which it hopes to release "very close to the delivery date" of the device. "The screen real estate and the touch interface should give us the opportunity to do some very interesting things," he says.

Apple's ( AAPL - news - people ) iPad seems squarely targeted at consumers, not BlackBerry-wielding suits. But Rennie says that the tablet, like the iPhone, will likely be used by executives who blend their home and work life and want to use their own personal gadgets to do work securely. "Peoples' lives don't segment neatly between work and home. The iPad gives people what will probably be a home device, but they're still going to want to access a full suite of business software on it," he says. "It'll be a device our customers will own, and they'll expect us to support it."

Apple's products represent one of the strongest forces in the so-called "consumerization of IT," the influx of gadgets into companies without regard for which technology is meant for use inside or outside the enterprise, says IDC analyst Stephen Drake. While IDC estimates that there are only about 4 million iPhones being used in an enterprise setting today, the firm expects that number to reach 9 million by 2013. IDC also predicts that the number of iPhones bought and maintained by companies will grow the most dramatically, quintupling over the next four years to total more then 3 million devices.

As IBM attempts to ride that wave of iPhones into the enterprise, adding software specifically for the iPad is a low-risk bet. "It makes a lot of sense for IBM to get its solutions onto the iPhone and into the mobile space," says Drake. "Given that the iPad uses the same software infrastructure, porting their software to that platform is relatively painless."

Unlike Microsoft ( MSFT - news - people ) and Google ( GOOG - news - people ), which compete with IBM in collaboration and messaging software, IBM doesn't have its own mobile operating system to promote. That platform-agnostic approach means that IBM may be freer to develop Apple-focused software than the two other warring tech giants. "Anything Microsoft does will be first focused on Windows mobile, and Google will push apps for Android," says Drake. "For IBM and others that aren't tied to a particular environment, this is a good opportunity for them."

Smart phone maker Palm is doubling down on its new Pre phone by saying it plans to raise $83.9 million with a new stock offering to bolster the product's launch.

Palm (nasdaq: PALM - news - people ) said Monday it boosted a previously announced public offering to 23.125 million shares, from 18.5 million, and priced the stock at $6.00. The company's stock opened at $6.50 Tuesday and recently traded at $6.85, up 83 cents, or 13.8%.

Analysts have questioned whether the Sunnyvale, Calif.-based company's cash flow could sustain the rollout effort for the widely anticipated Palm Pre, a new smart phone set to launch in the first half of the year. Shrinking demand for Palm's older models has battered the company's sales.

Matthew Thornton, an analyst with Avian Securities in Boston, said Palm exercised a clause that forced its largest shareholder, hedge fund Elevation Partners, to remarket the 49.0% of stock it already owned.

Elevation, which bought shares at $3.25, will end up getting $49.0 million back. According to Thornton, it has already reinvested that money in more Palm shares -- a vote of confidence for the future of Palm. Elevation now owns a 33.0% stake in Palm.

Elevation Partners also has an investment in Forbes.

Palm has been navigating troubled waters of late. The smart phone maker last week warned investors that its sales for its fiscal third quarter fell more than 70.0%, based on preliminary estimates. The company blamed falling demand for its older phones, the weak global economy and late shipments of its Treo phone. (See "Palm Slapped By Dwindling Sales.")

Palm also said its next quarter will be tough, as sales of existing products continue to fall and profit margins thin.

The iPhone's lead over smartphone upstart Android may be short-lived, according to an industry watcher's predictions.

Android smartphone sales will outstrip iPhone sales by 2012, market researcher Informa Telecoms & Media has predicted in a new report.

Last month, Telefonica Europe said that sales of the iPhone topped 1 million in the U.K. Although T-Mobile UK--the exclusive carrier of the first Android device, the G1--wouldn't say exactly how many of the devices had been sold, it did say the handset now accounts for 20 percent of its contract sales.

Web behemoth Google released the first beta developers kit for its Android open OS platform in August, with the first handset--the G1 smartphone--launching the following month. A second handset, the Magic, is expected to arrive next month.

Apple's iPhone has a slightly longer heritage--with the first device arriving in the U.S. in June 2007. However, the iPhone 3G hit stores last July, giving it only a few months' head start on its Google rival.

Both Android and OS X are eating into the market share of the best-selling smartphone OS maker, Symbian. Last year, just under half of smartphones sold were based on Symbian--a drop of 16 percentage points from the year before when it had 65 percent market share. BlackBerry OS, Linux, and Windows Mobile are also gaining popularity and eating some of Symbian's share, according to Informa.

However, London-based Informa believes Symbian's switch to open source will help the Symbian Foundation maintain its leadership over Android, Linux, and Microsoft over the next few years.

Nearly 162 million smartphones were sold last year, surpassing laptop sales for the first time, according to Informa. The market researcher forecasts that smartphone penetration will reach 13.5 percent of new handsets sold this year and that the figure will reach 38 percent by 2013.

Informa also suggests smartphone sales will be immune to the global economic downturn, maintaining a prediction of "robust growth" of 35.3 percent year over year.

Total handset sales, by contrast, won't be as resilient and are set to fall 10.1 per cent year over year, Informa predicts.

Natasha Lomas of Silicon.com reported from London.

Careful, iPhone users: Your smart phone may be smarter than you think.

On Thursday researchers at Finnish cybersecurity firm F-Secure said they have spotted the first known instance of iPhone "spyware" called Mobile Spy, a piece of commercial software that sells for $99 a year.

Mobile Spy developer Retina-X Studios says the software can invisibly track the call logs, text messages and even the GPS data of any iPhone it's installed on, allowing the eavesdropper to track the user's whereabouts on a Web site that hosts the stolen data.

"Mobile Spy will reveal the truth for any company or family," the company's site advertises. "You will finally learn the truth about [your family members' or employees'] call, mobile-Web and text-message activities by logging into your Mobile Spy account from any computer. The world's first iPhone spy software!"

Smart phone spyware for other platforms isn't new: Commercially available spyware for Windows Mobile and Symbian operating systems have existed for years. But Mobile Spy's software is the first spyware vendor to target Apple's (nasdaq: AAPL - news - people ) growing marketshare in the telecom world.

While Mobile Spy currently targets only iPhone 3G users, another vendor known as Flexispy advertises a similar program that is compatible with both iPhone versions launching Dec. 21. Both programs require the user to "jailbreak" their targets' iPhone, a simple software hack that allows applications not approved by Apple to be installed.

Since before the iPhone's 2007 launch, cybersecurity researchers have been warning about the potential for malicious software that could secretly install itself to steal passwords or use the iPhone to send spam--just as cybercriminals have long been hijacking PCs (see "Hacking the iPhone"). While hackers have demonstrated those kinds of exploits in theory, "in the wild" threats have yet to appear. And cybercriminals aren't likely to use commercially available software like Mobile Spy and Flexispy to infect victims via the Internet.

Verizon is a standout cell-phone carrier for most people, based on our exclusive best cell phone service survey of readers in 23 cities. The company received high marks from survey respondents in overall satisfaction and customer service, and service is available in most of the country.

Overall, cell-phone service has become significantly better, judging by the annual survey conducted in September by the Consumer Reports National Research Center. Contract terms for cell-phone service are less onerous, and there were fewer problems with call quality in this year's survey. The best carriers even came through after a hurricane hit one of our survey cities.

Sixty percent of readers were completely or very satisfied with their service. That appears to be a substantial improvement over 2007, even though we made some changes to our survey this year, including expanding the number of cities we rate and the coverage areas within them.

The improvement means cellular satisfaction is now closer to the average among all services we rate; it had previously been among the worst.

What's behind this surge in satisfaction? There were fewer problems with connectivity, the ability to widely receive service that's free of static and dropped calls. Overall, 42 percent of readers reported that they had no major complaints about service, up from 29 percent in our previous survey. In particular, they were less likely to cite as a top complaint the automatic extension of their cell-phone contract as a result of changing their service.

Carriers have curbed such practices because of increasing competition and the threat of consumer-rights legislation in Congress. Added pressure came from more than 100 class-action and other lawsuits coast to coast, including one by the Minnesota attorney general, and several key court rulings favorable to consumers.

In apparent response to the legal and regulatory action, all the carriers have stopped automatically extending contracts when consumers make changes to their service plan. And now all but Alltel reduce early-termination fees of $175 to $200 as the contract term progresses.

One of the biggest concerns identified by our survey was the high cost of cell service, the top complaint for 14 percent of respondents. Since we surveyed readers in September, before the onset of the economic crisis, that might not reflect today's heightened concern for reining in costs.

Our analysis of the carriers' pricing uncovered a cost-cutter you might not be aware of: pay-by-the-minute, or prepaid, service. It's offered by all major carriers as well as providers such as Virgin and TracFone. Some prepaid plans could save you a lot, especially if you use your phone infrequently or want unlimited voice calling. (See How to buy a prepaid phone.)

Our Ratings (available to subscribers) show that Verizon ranks among the top carriers in every city we surveyed, along with Alltel where it was rated. (Verizon was awaiting approval to acquire Alltel as we went to press.) T-Mobile was statistically on par with the top carriers in almost two-thirds of the cities where we were able to rate it.

Copyright © 2004-2008 Consumers Union of U.S., Inc.

Back in June 2007, Elevation Partners placed a huge wager on smartphone maker Palm (PALM). In its biggest investment ever, the Silicon Valley private equity firm pumped $325 million into the company. The bet now looks like a bomb. On Dec. 1, Palm preannounced a nightmarish quarter, with revenues likely to come in nearly 50% below Wall Street's expectations. On Dec. 10, Palm's stock closed at 1.69, nearly 80% below the price Elevation paid for its shares last year.

Palm isn't the only problem for Elevation, a high-profile Menlo Park (Calif.) firm whose founding partners include financier Roger McNamee, former Apple finance chief Fred Anderson, and U2 frontman Bono. Elevation has done just six deals since it was created four years ago. It owns a stake in the parent company of Realtor.com, which is struggling through the housing meltdown, and it also owns around 40% of Forbes, which like many magazines faces a difficult media advertising environment. "They're in a tough spot," says an investment banker familiar with the firm. "It's hard to see where they go from here."

Few telecom experts think the Palm investment is leading anywhere good. The Sunnyvale (Calif.) company pioneered the smartphone market in the U.S. with its Treo line of products but has fallen far behind rivals such as Research In Motion (RIMM), Nokia (NOK), and Apple (AAPL). Palm's share of the U.S. market has dropped from 23% to 8% in the past two years, according to research firm IDC. "There's no room for treading water and product delays in this market," says IDC analyst Ryan Reith.

Elevation is in better shape than some others in private equity. It never made aggressive use of debt. It was able to sell one investment, a video game company, to giant Electronic Arts (ERTS) for a solid return. And it still has roughly half of the $1.9 billion that it raised for future deals. But unless Palm recovers, Elevation will struggle to deliver decent returns to its limited partners. That in turn could hurt its ability to raise money for investment funds in the future.

Elevation's partners insist Palm is poised for a comeback, and they point to an engineering effort being overseen by former Apple hardware czar Jon Rubinstein. He joined Palm last year as executive chairman, as part of Elevation's investment in the company. With the help of Dan Walker, Apple's former chief recruiter, Palm has brought in dozens of veteran techies interested in working on breakthrough gizmos. "I'm very confident about our plan," says Rubinstein.

NEW PRODUCT GAMBLE

The moment of truth will come at the Consumer Electronics Show in January. Sources say Palm will finally unveil an oft-delayed new operating system, as well as the first in a new family of smartphones. The company won't discuss details, but McNamee says the products will be different from anything on the market. While RIM's BlackBerrys excel at e-mail and iPhones are tops for entertainment, he says Palm will create devices that help consumers easily meld work and play.

Palm doesn't have to vanquish RIM or Apple to succeed. With smartphones expected to balloon from 10% to 50% of the overall 1 billion-unit cell-phone market, Palm could triple its revenues by winning just a single point of the aggregate market. Indeed, McNamee and Rubinstein say they're modeling their plan on the resurrection of Apple, in which marquee products led to financial success. "We hold Apple up as the example of how to do this," says McNamee.

This may be Palm's last chance to get it right. The company says it will burn through about $33 million in cash this quarter. At that rate, its remaining $215 million will last a bit more than six quarters.

Two major book publishers announced mobile phone initiatives Monday, as a worried industry increasingly banks on a digital future.

Penguin Group (USA) has started Penguin 2.0, which includes Penguin Personalized, a way for customers to add personal dedication pages to digital books, and Penguin Mobile, which enables readers to receive text on Apple Inc.'s iPhone and other mobile devices.

Also Monday, the Random House Publishing Group said it would make some books available for free on the iPhone, including works by Alan Furst and Arthur Phillips. The text can be downloaded through Lexcycle's Stanza reader.

Other publishers with mobile phone programs include HarperCollins, Houghton Mifflin Harcourt and Simon & Schuster.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Handset maker unveils flashy touchscreen phone with full Qwerty keyboard and raft of Web services.

Google added voice recognition technology to the search software it distributes through Apple for its iPhone.

Gummi Hafsteinsson, Google Mobile Applications product manager, offered a demo of the application at Google's headquarters in Mountain View, Calif. Hafsteinsson simply opened the Google Search application on his phone, held the phone up to his ear, and spoke.

The application combines voice-recognition technology with Google's search index and the iPhone's ability to track a user's location to offer results keyed to his or her whereabouts. "This is a completely open-ended query stream, so you can say anything," Hafsteinsson says. "Anything you might want to type into Google.com, you can say to this applciation."

The move helps plug a gaping hole in the iPhone's capabilities--voice recognition--while pitting Google (nasdaq: GOOG - news - people ) against Microsoft (nasdaq: MSFT - news - people ), whose Tellme unit has long sought to bridge the gap between phones and the Web with voice recognition-enabled applications.

"Imitation is the best form of flattery, so welcome to the party," said Dariusz Paczuski, senior director of Tellme consumer services. Tellme's software allows those with BlackBerry's or Samsung's Instinct smart phone to search for information using the company's voice recognition technology. Microsoft acquired Tellme Networks in March 2007.

Expect more to come. Forrester principal analyst Charles Golvin has long argued that voice recognition, while largely ignored by application developers, will become a more common way to connect users with sophisticated data services going forward. "It's the interface that is, after all, the most widely used, the interface that people are most comfortable with," Golvin says. "It makes sense that this would come of age."

Tellme's Paczuski confirmed that his group is working on similar applications for the iPhone and smart phones running Microsoft's Windows Mobile software.

The update to Google's search application for the iPhone, which Apple (nasdaq: AAPL - news - people ) will release through its App Store software distribution service for the smart phone, will allow users to ask a question and get an answer from the Mountain View, Calif.-based company's search engine.

The results will also be linked to a user's location. So asking for coffee or pizza will direct users to a nearby location.

The application is one of a number of voice-friendly third-party applications for the iPhone that have helped close the gap between the iPhone and mobile phones that have long given users the ability to perform basic tasks, like dialing phone numbers, with voice commands.

While Google is best known for its Web search service, it has been pushing aggressively into telephony. In October, T-Mobile began selling the G1, a handset built around Google's smart phone software. In April of 2007, Google launched GOOG-411, a service that allows users to call an 800 number to get information by phone.

On Friday, Google shares fell $2.06, or 0.66%, to $310.02. Google shares are down more than 50% year-to-date.

In Pictures: Your Virtual Presence Is Requested

Sitting in one of Cisco's "telepresence" rooms, it's hard to imagine how the networking giant's high-end version of teleconferencing bills itself as a technology for tight times.

Three 65-inch high-definition screens channel images of Cisco (nasdaq: CSCO - news - people ) execs from the opposite coast with no discernible latency. An array of speakers and microphones catch and project audio in stereo, convincingly mimicking the direction of voices across a conference table. Even the rooms' lighting and wood paneling is designed to eliminate shadows and make users feel as though they're separated by just a few feet.

All those details add up to prices as high as $300,000 along with an extra $10,000 or so a month in bandwidth costs, enough to make telepresence rooms seem less like a cost-cutting measure and more like a World's Fair exhibition. But frilly as it sounds, Cisco's David Hsieh argues--with a straight face--that telepresence is designed to save your company money.

In Pictures: Your Virtual Presence Is Requested

By creating a real alternative to costly business travel, Hsieh claims that the rooms will often pay for themselves in less than a year. "It's an easy one. In a tight economy, you've got to do more and spend less," says Hsieh. "When customers look at this creatively, the key advantage is that you get that in-person meeting experience along with immediate hard-dollar travel savings."

And Cisco and other vendors' push for the expensive systems as a thrifty measure may actually be working. In September, after the crash of Lehman and AIG (nyse: AIG - news - people ), Cisco announced that it had shipped its 1,000th telepresence unit.

In its August earnings report, the company announced that its telepresence business had quintupled when measured against the year before, even as other parts of the IT sector were already starting to slump. Analysts tracking the young technology agree that despite its price tag, customers are likely to continue buying telepresence systems at a healthy rate through the coming slowdown, and that economic troubles may in some cases even accelerate the technology's adoption.

An IDC report from last March projected that by 2012, the number of deployed telepresence systems like those sold by Cisco, HP, Tandberg and Polycom (nasdaq: PLCM - news - people ) would grow from around 600 to more than 8,000 worldwide, and that revenue from those systems will increase tenfold, from $170 million to around $1.7 billion.

Though IDC now believes that growth may be dampened somewhat by the downturn, the research firm says it will remain far healthier than other IT spending on telecommunications equipment, PCs or servers.

Forrester Research (nasdaq: FORR - news - people ) analyst Henry Dewing is more bullish on high-end videoconferencing. He argues that the economic crisis may actually contribute to what he calls a "perfect storm" of factors that will boost telepresence's growth: Large companies are consolidating offices across the country, travel budgets are shriveling and, significantly, Cisco is pushing a new business model aimed at improving adoption.

Earlier this year, Cisco began offering telepresence "managed services," a pay-as-you-go plan that splits revenue with AT&T (nyse: T - news - people ) and British Telecom (BT) in the United Kingdom. Under the new model, Cisco's partners own and host a telepresence room on a company's own turf. That way, smaller customers can simply rent the equipment from one of those telecom providers for a monthly fee. That drops the cost outlay for such services from a six-figure bill for a full system to a monthly fee of as little as $10,000. Particularly during times like the current credit crisis, that option means companies avoid locking up capital--or seeing favorite projects get sliced out of the budget, says Dewing.

"Initially, companies were saying 'Holy smokes, a quarter-million dollars for a single [telepresence] room?' But a monthly fee makes a huge amount of sense when you've got problems borrowing," says Dewing. "There are a lot more rooms being sold now than anyone expected."

New York-based telepresence vendor Teliris, which sells $250,000 systems without that pay-per-month plan, is also sailing through the downturn, says chief executive Mark Trachtenberg. After two months of customers "freezing up in shock," Trachtenberg says his company has returned to selling at the same brisk rate as late year.

Among Teliris' existing customers, Trachtenberg says financial services users are spending 25% more time in telepresence meetings, with an average of twice as many users in any given meeting. The deeper economic troubles become, the more companies Trachtenberg expects to adopt his technology.

"I hate to admit it, but we do better the longer this downturn lasts," he says. "Long-term cost-cutting is integral to what we're offering."

The focus on high-end systems doesn't mean cheaper video conferencing technologies aren't also in high demand. Cisco and Hewlett Packard (nyse: HPQ - news - people ) both sell smaller versions of their telepresence units for far less, and companies like Tandberg and Polycom offer simpler videophones that provide some telepresence functions for around $1,000. Hackensack, N.J.-based Vidyo sells a software version of telepresence technology that it claims can make basic hardware run as seamlessly as a Cisco setup for around $3,000.

So why would a thrifty company spend six figures on telepresence technology? To purchase a piece of equipment that will actually replace travel instead of merely cluttering the conference room, says IDC analyst Abner Germanow. Older, more complex and clunkier videoconferencing technologies rarely were good enough to stop people from traveling for an important meeting, he says.

"You still see carts with a TV and a camera slapped on top that sit in the back of the room and no one has ever touched it," says Germanow. "If people can't figure it out, they say 'Heck with this, I'm getting on a plane.'"

But the details of modern telepresence, like low latency, high resolution,and realistic audio, mean the technology is reaching a stage where it can finally replace in-person human interaction, he says.

"You can be in a telepresence meeting for three hours, and after about an hour and a half, you forget there's this extra thing there. It largely disappears," says Germanow. "You get that solid, across-the-table meeting that lets you feel like you've actually connected with a person."