News story calls out the dogs on high-profile startup

General Magic, Silicon Valley’s latest high-profile startup, has attracted lots of unwanted attention in the past few weeks. Started a year and a half ago by Marc Porat, who’d handled business development for Apple’s Advanced Technology Group, and original Macintosh team wizards Andy Hertzfeld and Bill Atkinson, the firm has been a favorite target of industry rumor-mongering since its founding.

Widely known to be developing a personal communication device, General Magic just got nailed by Nihon Keizai Shimbun (Japan’s version of the Wall Street Journal) with a report that it was receiving a hefty new round of investments from Sony, Motorola and maybe even Toshiba, Matsushita and AT&T. (Apple Computer already owns a sizable chunk of the firm.)

The report even speculated that General Magic’s product would blossom into a full-scale U.S.-Japan joint venture, and that an official announcement was not far off. Follow-up reports in U.S. newspapers didn’t contradict the original story, though no confirmation by Sony or Motorola was forthcoming.

All those U.S. startups look the same. Jane Anderson, General Magic’s spokesperson/gatekeeper, not only says the report was “highly inaccurate,” but claims that the Japanese newspaper got General Magic mixed up with Kaleida, the Apple/IBM joint multimedia venture.

This is not altogether weird, considering that Kaleida has said it may develop hardware specifications as well as software, and most of the players interested in General Magic are also watching Kaleida closely.

Dave Nagel, Apple’s director of advanced technology, and acting director of Apple’s nascent consumer group, didn’t agree. “The story may not have been accurate about General Magic,” he says. “But it certainly isn’t about Kaleida.”

Even more interesting was industry speculation that General Magic may decide building hardware is too risky, expensive and time-consuming to pursue to its logical conclusion. Besides, the torrential information leaks out of the company are likely to make it increasingly difficult for General Magic to keep its product plans out of competitors’ hands.

Software only? Some speculate the company may decide instead to license its operating system software to others building such devices. (AT&T has done significant work on “smart phones,” and companies such as Sharp are working on “communicating” versions of portable information systems like the Wizard.)

Scrapping a hardware plan is not an absurd strategy in a slumped economy where computer hardware is a commodity. In fact, the only way U.S. hardware manufacture makes sense now is with the very kinds of Japanese partners (or expertise) that Nihon Keizai Shimbun reported were lining up for General Magic.

Denise Caruso