By Yi-Wyn Yen

If you can’t track down a Nintendo Wii this holiday season, you’re not alone. Nintendo has not been able to keep up with the demand for its mega-hit console. Now thousands of desperate consumers who can’t find the Wii on store shelves have turned to web outlets like Amazon (AMZN) and eBay (EBAY), where they’re paying a premium to get one.

“We’re seeing an unprecedented demand for a console,” says Billy Pidgeon, a gaming analyst with IDC Research. “This is the killer gift this season. And if you’re lucky enough to get a Wii with Guitar Hero III, that would be the ultimate.”

• Nintendo braces for more Wii shortage

The Wii’s popularity and shortage has not only made it harder to find, but also more expensive to buy than the Xbox 360 or PlayStation 3. Since Black Friday, almost 5,000 Wiis were sold at an average price of $420.50 on eBay and some with extra games and controllers have been purchased for more than $600. On Amazon, new Wiis are starting at $490 plus shipping. The console retails for $250. Both Microsoft (MSFT) and Sony (SNE) dropped prices for their consoles to boost sales this year. Microsoft lowered its entry-level 360 by $50 to $349 while the PS3’s low-end line retails for $399.

“Price alone won’t move hardware,” says John Taylor of Arcadia Research. “This isn’t about price or what’s available, but what people are willing to play.”

The Wii’s fun factor has made it a hit among the mass market compared to its more technologically-advanced rivals. The Wii uses a controller that requires players to simulate swings and punches to play video games. “Clearly, consumers place a higher value on accessible, fun games such as Wii Sports or Carnival than on high-definition graphics and leading-edge processing power,” says Lazard Capital analyst Colin Sebastian.

Though Nintendo increased production by 80 percent since its November 2006 launch, executives warned in October to expect a holiday shortage. Last week the company sold 350,000 Wiis, which gave Nintendo its highest one-week U.S. sales total since the console was released. Nintendo of America president Reggie Fils-Aime said that the company would not be able to keep up with demand until “early next year.”

“The challenge is in demand, not supply,” Fils-Aime told Fortune in October. “We planned optimistically for the launch, but no one could have foreseen how much more popular Wii would be than any other system in memory.”

Taylor says the best way to find a Wii without paying above retail is to contact store managers at gaming shops like GameStop (GME) or box retailers like Wal-Mart (WMT) and Best Buy (BBY) early in the week. “You want to call on a Tuesday or Wednesday and find out when the new Wiis are coming in,” he says. “Usually new games arrive on the trucks Monday night or Tuesday. If you wait to the weekend, you’ll find those shelves empty.”

By Stephanie Mehta

A visitor on Thursday pointed out a startling fact that provides some interesting context to the news of Ed Zander’s unsurprising departure from Motorola (MOT). Motorola, which makes dozens and dozens of models of cellphones, equipment for cable operators and public-safety equipment — and last year had sales north of $43 billion — has a market capitalization today of about $35 billion. Research In Motion, (RIMM) which basically makes a handful of BlackBerry e-mail devices and smartphones, boasts a market value of $65 billion. The Motorola board probably wasn’t too happy with that $30 billion difference.

To be sure, RIM is more than a phone maker: it is as much a software company that controls an incredibly popular, proprietary operating system for wireless. The company gets high marks from many users, who can’t live without their BlackBerries, and from some CEOs, who admire its ability to stay ahead of the curve. Comcast (CMCSA) CEO Brian Roberts, recently told me: “I give BlackBerry tremendous credit for continually reinventing itself. It just added GPS and voice-activated navigation. Telephony wasn’t even a feature several years ago, now (my BlackBerry) is the principal cell phone for me.”

So how does Motorola, under new CEO Greg Brown, capture some of the RIM magic? It won’t be easy: Motorola has long positioned itself as all things to all users: It makes phones for first-time users in developing countries. It makes devices, such as a Dolce & Gabbana RAZR released a few years back, aimed at luxury buyers. And it tries to serve everyone in between. RIM addresses just the high end of the market.

Perhaps it is more appropriate to compare Motorola to rival Nokia (NOK), which also makes devices for every type of consumer worldwide. Then again, Nokia, which has managed to maintain its No. 1 position in mobile devices (a position it grabbed from Motorola in 1998), has been on a tear lately: The stock has basically doubled this year, and so Nokia now boasts a whopping $157 billion market cap. Does that mean Motorola actually has to answer the $122 billion question?

By Yi-Wyn Yen

Google has confirmed speculation that it will apply to participate in an upcoming  multibillion-dollar auction of wireless spectrum.

“We believe it’s important to put our money where our principles are,” Google CEO Eric Schmidt said in a statement Friday morning. “Consumers deserve more competition and innovation than they have in today’s wireless world. No matter which bidder ultimately prevails, the real winners of this auction are American consumers who likely will see more choices than ever before in how they access the Internet.”

Google (GOOG) is ultimately a winner too. In July, it convinced the FCC to make the successful bidder for the valuable 700 MHz C-block spectrum open its network to allow customers to download any applications they want on any mobile phone. Google has also made open standards the centerpiece of its Android platform initiative. “That’s meaningful progress in our ongoing efforts to help transform the relatively closed wireless world to be more like the open realm of the Internet,” wrote Chris Sacca, who leads Google’s special initiatives, in a blog post.

• Why Google isn’t bidding to win the auction

Google has been the most vocal about its intentions to enter the highly-anticipated 700 MHz band auction. The Mountain View-based company, which is required to set aside $4.6 billion to meet the auction reserve, will likely go up against AT&T (T) and Verizon Wireless (VZ),  which are seeking more spectrum to run broadband wireless services. The top two carriers have not publicly stated if they plan on participating in the auction.

To make the auction more fair and competitive, the FCC has  shrouded it in secrecy. Bidders have until Monday to submit an application but once they do they’re not allowed to publicly state if they have applied. The FCC will release a list of the bidders in mid-December once applicants have been approved. When the auction begins Jan. 24, participants will bid anonymously and the FCC will not reveal which company has made a bid.

“In previous auctions, you were allowed to know who was behind each bid. Now they’ll be flying blind,” says Jonathan Cohen, an attorney with Wilkinson Barker Knauer and a former FCC attorney who helped write the new spectrum rules. “Larger entities will have to do some educated guessworks as to what others are doing in this blind environment.”

By Yi-Wyn Yen

Google’s official declaration today that it will submit a solo bid for the upcoming wireless spectrum auction has prompted speculation that the Internet giant is planning to launch its own mobile network. After all, the whole point of bidding on the wireless airwaves is to run a broadband network, right?

Not if you’re Google.

Google may play the part of a serious bidder, but the company isn’t necessarily looking to become the next national wireless provider, according to analysts and telecom experts. The U.S. consumer mobile market is already saturated, they say, and Google’s inexperience combined with the complexity of building and managing a new wireless network makes winning the Federal Communications Commission’s Jan. 24 700 MHz auction too costly a proposition.

• Google to bid in wireless auction

The consensus on the Street is that Google (GOOG) is unlikely to bid to win. Co-founder Larry Page concurs. “I don’t think we feel like there is a desperate need for us to have to bid to win or anything like that,” Page told analysts during the company’s quarterly earnings call last month. “We have many, many different options available to us as a company in terms of spectrum.”

Verizon’s announcement this week that it is opening its network also makes it less crucial for Google to win the auction for the so-called C-block spectrum. Verizon will let consumers use any phone on its network as well as allow third-party developers to develop software for those devices. Google has made open standards the centerpiece of its Android initiative.

• Verizon switch is a win for Google

“Their incentive is arguably less because they’ve already achieved that victory,” says Blair Levin, a telecom analyst with Stifel Nicolaus and former FCC chief of staff. “They can bring an Android device onto the C-block and not deal with operating the network. I can’t imagine Google wants to change its business plan to be the last-mile pipe and start selling service subscriptions.”

By Yi-Wyn Yen

Verizon Wireless’ move Tuesday to open its mobile network to any and all cell phones marks a victory in Google’s campaign to knock down the carriers’ wireless walls.

Along with AT&T (T), Verizon (VZ) had declined to join Google’s Open Handset Alliance to develop a mobile platform called Android that would work on all phones and networks. Verizon still hasn’t signed up, but in practical terms it’s taken a big step toward accepting Google’s vision.

“We think this is a great step forward,” said Google CEO Eric Schmidt in a statement. “As the Internet has demonstrated, open models create better services for consumers and stronger businesses for providers. We are excited to work with Verizon and other industry leaders to achieve this vision.”

Verizon executives insist that customer needs, not Google’s recent mobile moves or an upcoming broadband spectrum auction, drove the No. 2 carrier to open its network. “We’ve been looking at this for a very long time,” said Verizon CEO Lowell McAdam during a press conference Tuesday. “We constantly monitor market forces and have seen that the accelerating pace of innovation and expanding need of customers demands multiple business models.”

The wireless carrier had previously opposed Google’s push for more network openness and consumer choice. But last summer the Internet search giant successfully petitioned the Federal Communications Commission to change the rules of the Jan. 24 wireless spectrum auction to require the winner to create a more open network. Verizon saw the move as a way to weaken the control carriers maintain over the phones and services consumers can use and complained to the FCC about Google’s (GOOG) open-access rules.

Now Verizon’s trying to turn its sour grapes into wine. “The takeaway is that Verizon is at least acknowledging the approach that Google is advocating,” says Forrester Research analyst Charles Golvin.

• Google wireless bid could be a bluff

It’s no coincidence that Verizon’s announcement, which will also allow consumers to run third-party applications on their phones as long as they meets certain standards, coincides with the FCC’s ruling on the upcoming 700 MHz auction. Verizon’s new move to give consumers more phone options makes bidding for the chunk of the valuable so-called C-block spectrum more competitive.

“One thing Verizon’s expressed is that the C-block was worth a lot less to them because they didn’t want to have all their networks open. Now they’re reversing that position,” says Blair Levin, a telecom analyst at Stifel Nicolaus who is a former FCC chief of staff. “If they’re going to open up everything anyway, suddenly the business strategy makes sense and the value of the C-block isn’t diminished.”

Both Verizon and Google are expected to submit applications to participate in the auction by a Dec. 3 deadline. The timing of Verizon’s announcement and its policy reversal suggests a warning to Google that it’s serious about winning the auction. Google, which has yet to decide if it will partner with another bidder, ultimately wants to see an open network no matter who wins.

Google generated a great deal of fanfare earlier this month when it announced Android and the Open Handset Alliance. A loose federation of 33 mobile companies has signed on to use Google’s Linux-based operating system.

Though Verizon appears to have no current plans to hop on the Google bandwagon, it’s shown that it’s at least embracing a similar model to allow third-party developers to write software for its platform. A Verizon executive said that mobile operating systems from Google, Microsoft (MSFT) and Palm’s (PALM) could work on the Verizon network.

“I think Google had a view that the market would force the players to be more open, but that it might take several years to get there,” says Levin. “Now that Verizon is opening up, AT&T will have to do it, too.”

By Michael V. Copeland

Here’s the math problem facing early-stage venture capitalists today. The vast majority of “exits” for venture-backed software companies, those happy events where everyone gets paid, are acquisitions valued at less than $50 million. All those large companies that go shopping for startups — Google (GOOG), Microsoft (MSFT), Cisco (CSCO), eBay (EBAY), Yahoo (YHOO) and AT&T (T) — may be buying up dozens of companies every year, but mostly they arent paying out-sized prices and venture firms consequently aren’t getting out-sized returns.

As an entrepreneur, you might be very happy with someone buying your company for $10 million or $20 million. But if you are the VC who invested $2 million in the first round of financing, a return of 2x or even 3x the venture firm’s money doesnt move the needle much on a fund that might be anywhere from $250 million to $600 million. To compound the problem for venture capitalists, many startups these days simply don’t need much money to get off the ground, thanks to cheap hardware and software tools.

So if there is a tension between the needs of a typical software startup and the needs of a venture capitalist, what do you do? If you are Sequoia Capital, you don’t do anything. Of any early-stage firm on the planet, Sequoia gets first crack at the best ideas and the best entrepreneurs –- everyone wants to work with Sequoia — so the odds of them finding the next YouTube or PayPal along with the big returns they bring are as good as they get. If you are Kleiner Perkins Caufield & Byers you start focusing a good deal of your energy on areas like alternative energy which, unlike software, do need boatloads of cash to get products developed and to market.

The other option is to tweak the traditional VC model. Firms like Union Square Ventures, and First Round Capital size their funds and investments so that a relatively small exit is still a meaningful return. In the past few years, “super angels” like Ron Conway have used a shotgun approach putting small amounts of money into dozens of companies a year. The startup boot camp Y Combinator, and the knockoffs it has spawned also fall into this category — put a little money into a lot of companies. These might be seen more as institutional seed funds.

The latest twist on the VC model is Tandem Entrepreneurs. Started by three former big company guys who cut their teeth at places like Oracle and Xerox Parc and then went on to found their own companies, Tandem is putting small amounts of money, $850,000 per company over two years, into just six companies.

By Josh Quittner

One of the rallying cries of the Web 2.0 movement, during its sensational rise over the past five years, is openness. Open systems (Linux, Wikipedia, any phone you can hack from T-Mobile) are good. Closed systems (Windows, The Wall Street Journal Online, any locked-down cell phone you buy from Verizon) are bad.

The basic idea is that the Web itself, that Shiva of the business world, is built on HTML and Javascript — code that’s as open and free from any one company’s control as, say, the United Nations. Smart companies are Zen-like: They give away the store and yet manage to make fortunes. Google, (GOOG) which opens up everything from its data streams (Google Maps, for instance) to the bidding process for advertising keywords is the typical example. Google is Web 2.0 and Yahoo, which has had a tortured time trying to accommodate itself to the new social web, is considered very Web 1.0 — and on the ropes because of it.

Amazon.com has always embraced openness. Launched in 1994, it’s a classic Web 1.0 company by definition. And yet it’s also at the forefront of the social web. It allowed its customers to write reviews of products before anyone else, its enormous affiliate program lets everyone sell its products and it was among the first to make its APIs (application programming interfaces) available to developers.

So it was fun, therefore, to watch some of the smartest Web 2.0 thinkers make sense of Amazon’s (AMZN) move to a closed, proprietary world last week with the launch of its e-book reader, Kindle. This was a rollout that, on first blush anyway, made the Microsoft Zune look downright innovative in its openness. (At least you can play MP3s on the Zune. For free.)

What’s going on here?

Here’s my guess: Emboldened by Apple’s (AAPL) success, some of the most innovative companies in the tech world are starting to shift back toward closed systems.

Apple, of course, is about as closed a company as we’ve ever seen. It is what makes the company great and what makes it a horror show. It’s why people love and hate it. On the one hand, Apple products are typically so far beyond those of the competition, a visitor from another planet might think that the former is made by humans and the latter by monkeys. (A techie pal, upon picking up his new iPhone some months ago, waved it at me and gushed, “This is like something from the distant future.”) On the other hand, virtually nothing about Apple is transparent and open, from it’s ghastly press relations to the way it handles customer complaints. The recent incident with the tech pundit Robert Scoble is a great example. He downloaded an Apple update to OS 10.4 and couldn’t restart his computer. I had exactly the same problem when I updated my laptop last week. So did many, many other people, judging from the thousands of views at the relevant area of Apple’s own support site. Yet, talk to Apple support and they deny there’s even a problem. It’s about as open as North Korea.

And yet, its success speaks volumes. The stock is up over 100% during the past 52 weeks. The company maintains such tight control over the products it sells you that you aren’t even allowed to use them in unauthorized ways. Remember the whole episode when some people tried to unlock their phones, Apple updated its software and bricked the rebel phones? Talk about closed systems…

Steve Jobs has become something of the alpha pack leader of the CEOs in Techland. While many people point to the similarities between Mark Zuckerberg and Bill Gates — affluent suburbanites, both dropped out of Harvard to pursue their big-picture tech dreams — its clear that Zuck’s role model is Jobs. (Zuck uses a Mac, dresses in his own Jobsian uniform, and tends to make grandiose statements about launching movements whenever Facebook holds an event.) While Zuckerberg’s most famous move was opening up Facebook to developers (”Today, we’re starting a movement…”) so far, he’s resisting Google’s call to create a truly open platform. Developers writing applications for Facebook must use its own proprietary language, called FBML. Google, and the rest of the OpenSocial alliance of competing social networks, use HTML and Javascript.

And really, why should he? Just because it’s open?

Apple is successful because Apple is Jobs. And Jobs believes in an almost pathological control. That is, after all, how a visionary gets results.

Will that work for Amazon and Facebook?

In Amazon’s case, if Kindle flames out, it’s not a big deal. The project is an ambitious experiment, and as Tim O’Reilly points out, even if the device itself fails, Bezos could well have jump started an industry that Amazon, with its enormous collection of e-books, is perfectly positioned to dominate.

Facebook, though, is at a more critical juncture. If it stays closed and starts to stultify as a result, members could easily pack up their tents and move to the next big thing. But if it manages to fight off OpenSocial? Look for more closed systems.

By Stephanie Mehta 

Google, according to Friday’s Wall Street Journal, is getting its ducks in a row to bid on wireless licenses that the FCC will begin auctioning in January. If Google (GOOG) is successful in winning spectrum, it would catapult the search giant into the capital-intensive business of operating a phone network.

We’ve questioned the wisdom of this strategy before, but Google executives continue to intimate an interest in bidding on spectrum in the upcoming FCC bake off, in which a swath of 700 megahertz spectrum known as the C block, becomes available. In August Google CEO Eric Schmidt, told a group of regulators and analysts the company “probably” would bid on the C block. And, as the WSJ notes, Schmidt last month told reporters he was considering joining up with partners to bid on the spectrum.

Does Google really want to get into the distribution business? Blair Levin, who has lived through his fair share of auctions as chief of staff at the FCC under former chairman Reed Hundt, says he thinks Google will prepare the necessary paperwork to participate in the auction, and it will line up the financing. But Levin, who is now a telecom analyst at Stifel Nicolaus, thinks Google wins even if it doesn’t grab any licenses.

“Google wins if there are more and faster networks,” Levin says, noting that content companies in general like more distribution outlets and network operators are happiest if there’s lots of content to ride on their networks. Google may be perfectly happy to have someone else win that license, with the caveat that the spectrum winner operate that network in an open, “Internet-like” way - a requirement that Google helped institute.

So here’s one scenario: What if Google antes up (it has signaled it is willing to spend $4.6 billion on the licenses) but stops short of the winning bid, and allows Verizon, say, to win the spectrum for $4.61 billion.? If Verizon has to build and operate that licence to so-called open specifications, Google doesn’t have it so bad. It gets another, faster network for its applications.

Then it could take its $4.6 billion and do any number of things: Team up with Sprint or Clearwire to build out WiMax services - thus adding another fast network to its potential menu of distributors - or pour that money back into its core search business. Or, if the stock stays below $650 a share, perhaps it could institute a share buyback program.

By Yi-Wyn Yen

In the past year Google (GOOG) has made a concerted effort to open up the rigidly-controlled cell phone industry. It has aggressively lobbied the Federal Communications Commission to provide open access to wireless networks, and this week the company opened its new mobile platform to allow software developers to power mobile phones. Now Google is preparing to make a solo bid for wireless spectrum in the upcoming auction in Washington, the Wall Street Journal reported today.

A serious bid prompts speculation that Google could become the next major national carrier, but some feel that the Internet search king isn’t really after owning a piece of the premium airwaves.

“It’s highly unlikely that they will put in a bid to win the spectrum,” says Lehman Bros. analyst Doug Anmuth. “Google’s trying to push for policies to open up mobile opportunity rather than trying to own and operate spectrum in the long term.”

Adds UBS analyst John Hodulik, “We remain skeptical of a new entrant with the U.S. industry supporting a customer base equal to roughly 83% of the population.”

In late January the FCC will host a hotly-anticipated auction that would give a single network provider a stronger signal over long distances and offer advanced, technological services through a virgin spectrum. This will also be the first time that the FCC, under pressure by Google and Democratic congressional members, will host a frequency auction that requires the winning bidder to have an open platform that does not disable features on handsets and allows consumers to download any software application they choose. Verizon (VZ), which believes that more control offers better quality for features and services, vigorously opposed the FCC’s move.

• Google offers $10 million for best phone programs

Though Yahoo (YHOO) and Apple (AAPL) have also been mentioned as potential mobile operators, analysts say the cost for building and operating a brand new network may not be worth it to Google. The reserve that Google must meet to bid on the premium chunk of the 700 MHz airwaves is $4.6 billion, and it will likely be competing with the nation’s top two carriers, AT&T (T) and Verizon for the winning bid. Last month Google CEO Eric Schmidt told reporters that it was considering teaming with another company to bid in the upcoming auction, and now will have to absorb all the costs.

• Google’s new mobile alliance

The infrastructure to build out the airwaves, which will be abandoned by television as it moves from analog to digital, would be steep. The FCC would require that the winner build out enough cellular towers to provide 40 percent of coverage nationwide within the first four years. Based on how much Sprint Nextel (S) plans to spend in the first five years to build out WiMax towers, analysts estimate the costs for Google could skyrocket beyond $5 billion in initial costs. “This is a massive construction process,” says Jonathan Cohen, a lawyer with Wilkinson Barker Knauer and a former FCC attorney who co-wrote the new spectrum rules.

Google launched its Android mobile developer platform on Monday to help change the way the wireless industry operates. It formed an alliance with 33 manufacturers, carriers and other companies in hopes of changing the way carriers keep mobile phones locked and restrict what applications most consumers can use. “Google doesn’t need its own spectrum because the Android platform can help open those conditions,” Anmuth says. “If I’m Google, I’d still care about the openness conditions, but I’d also claim victory from the alliance.”

Google will have until Dec. 3 to submit an application to participate in the FCC auction.

By Yi-Wyn Yen

Gokul Rajaram, a high-ranking Google product manager who helped launch one of the search giant’s most profitable ventures has left to start his own company.

“I’ve been having the itch to do something entrepreneurial for awhile now,” says Rajaram, 33, known by Googlers as one of the “godfathers of AdSense.” “I’m in my early 30s and I have some experience and financial security, so the time felt right.”

“I have some ideas on the consumer Internet side,” he adds. “I’m still trying to flesh that out in the next few weeks. Right now, I’m just trying to get used to not going to work.”

Rajaram, who left Google on Nov. 2., says he’s also interested in pursuing journalism or writing.

Whatever venture he pursues, he has the blessings of top Google (GOOG) brass Eric Schmidt and Sergey Brin. Product management vice president Susan Wojcicki honored him with a large plaque signed by a few hundred Googlers at his farewell party at the Googleplex in Mountain View, Calif., two weeks ago.

When Rajaram joined the company in January 2003, Brin and Wojcicki were cooking up an idea to sell advertising space to run relevant ads on publishers’ websites. They saw huge growth potential for AdSense based on the early success the year before of AdWords, which allows advertisers to bid for prime real estate on Google’s site whenever a person performs keyword searches.

AdSense has revolutionized web publishing by turning blogs and content sites into profitable businesses. In the third quarter, Google generated $1.45 billion from AdSense, a third of its revenue.

“It was a high level concept back then,” Rajaram says. “Google had already understood how to match keywords with URLs, so the next step was building a matching algorithm and create an advertising system around it. Sergey had a mandate to launch it in June 2003. So we had less than six months.”

Rajaram considered staying on to handle the integration of DoubleClick, the display-advertising network that Google announced in April it was acquiring for $3.1 billion. But he says he misses working on a small team and he hopes to recreate the startup environment when he launches his own company. “When we started AdSense, it was just me and four engineers,” Rajaram says. “The night before we launched, Sergey spent five hours with me testing the system and pointing out bugs.”

Rajaram joins a number of top Googlers who have departed recently, including former e-commerce director Benjamin Ling and ex-YouTube CFO Gideon Yu who both joined Facebook.