Feb. 26 2001

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Seattle's Experience Music Project, a museum built by Microsoft cofounder Paul Allen to honor Jimi Hendrix, was deluged by Microsoft employees, partners and the press when the official launch party for Windows XP was held there on February 13. The launch party was a bit premature since XP isn't scheduled for release until fall, but nonetheless Bill Gates was trotted out to demonstrate the new system and its "life changing" new features. He described XP as the most important release since Windows 95 (the same thing he said about 98 and 2000), then demonstrated the user interface that supposedly cost them $1 billion to develop. (Not much of a bargain, considering it looks identical to the candy coated mess MSN Explorer has been using for over a year now.) Chairman Bill went on to say "Windows XP is at the center of the digital media revolution" - a direct ripoff of what Steve Jobs said in January about Mac OS X being the center of "the digital lifestyle." Jim Allchin, director of platform development, then joined Gates on stage to described Windows XP as being "almost a lifestyle upgrade." (Mr. Allchin apparently spent a bit too much time in the sun during his recent year long vacation.)
Most people who saw Gates' performance were unimpressed at the obvious lack of new features in XP, despite Microsoft's claims of its significance. While Gates and Allchin discussed revolutionary new features, they only demonstrated ho-hum options already available in Windows 2000 and ME. And although XP is supposedly a 'critical piece' of the .NET puzzle, the only part of .NET in XP is a yearly software licensing fee. Yes, now Microsoft will charge a fee upon the purchase of XP, then send a bill every 12 months to force users into paying to use the same software for another year. It brings in new revenue for Microsoft beyond pushing users to upgrade to a new system, and it also means outdated versions will disappear almost immediately once their replacements ship. But that's actually the whole point of .NET, so perhaps it's fully functional in XP afterall.
Some parts of XP highlighted by Gates are causing controversy among even loyal Windows users. First, there's the mandatory Product Activation anti-privacy ID number system we've already discussed here at length [see Jan. 15, 2001]. That invasion of security will be joined by a new feature of the Windows Media Player that adds irritating noise to any unapproved media files, thus preventing people from accessing music or other content without first paying for it. Microsoft is leveraging its rights management plan into Windows the same way it did with Internet Explorer, doing significant damage to other companies that provide superior technology.
ALSO SEE: TechWeb, CNET, InfoWorld, The Register, WinSuperSite, Wired News, The Register, Wired News

Three days after Gates demonstrated Windows XP to the gathered masses, internal Microsoft memos were released showing that Beta 2 of the operating system will be two weeks later than originally scheduled. Two weeks is actually impressive by Microsoft's development standards (Windows 95 was two years late, 2000 was originally planned for late 1997), but it still puts pressure on the company to get WinXP to retail stores and system builders before the back-to-school buying season begins. According to the memo written by Windows XP product manager Iain McDonald, development targets were not met, so the beta freeze date was moved from February 28 to March 14th. McDonald claimed the delay will not affect when Beta 2 actually gets sent to testers, nor would it make an impact on the final release tentatively scheduled for late-July. But when one date slips, the others start sliding too - unless Microsoft built at least two weeks of wiggle room into the development schedule.
At the same time Windows XP was being delayed, Office XP was confirmed to be almost exactly on schedule with Release Candidate 1 of that software sent to beta testers on February 20. According to those who have seen it, the test came on five CDs (language sets and a product guide were included), and featured the 'Tahoe' document management server and Sharepoint Team Services, a .NET function that was previously declared dead. RC1 is the last pre-release version of Office XP intended for a widespread test, since RC2 and 3 are only for Microsoft's internal testers. OXP will be sent to manufacturers sometime in the next three weeks, with retail release sometime in early June.
ALSO SEE: TechWeb, The Register, ZDNet, BetaNews

Steve Ballmer, Microsoft's President and CEO since 1998, gave up one of his jobs on February 14 when he named Rick Belluzzo as Microsoft's new President and Chief Operating Officer. Belluzzo has worked as a Microsoft VP for only 18 months, overseeing the consumer division (or whatever they call it now) that contains MSN, WebTV, X-Box, and other money-losing projects. Before joining The Behemoth, Belluzzo nearly destroyed Silicon Graphics as that company's CEO, and oversaw HP's printer division for several years previous to that. Little Ricky B. will replace current COO Bob Herbold, who decided to retire from the position he has held since 1994 and work part-time as an advisor to the company - the same fake job now held by over a dozen other recently departed executives.
According to stock analysts, Belluzzo was promoted because his experience with MSN will come in handy as Microsoft charges towards .NET. But those of us who analyze more than just stock already know job titles at Microsoft actually mean very little and the 47 year old executive's promotion is just an increase in salary and a ceremonial move to satisfy industry observers. Since Belluzzo still has the same MSN nursemaid duties he had as VP and most of Herbold's former underlings now report to Ballmer, the whole thing looks like just a PR move to appease people who were becoming concerned over a lack of experience (or sanity?) towards the top of Microsoft's org chart.
ALSO SEE: InfoWorld, TechWeb

Jim Allchin has returned from a year-long vacation from his job as director of Microsoft platform development with new thoughts about the "risk" open source software (specifically Linux) poses to the software industry. According to Mr. Allchin, the mere existence of community software is a massive threat to the very concept of intellectual property and results in reduced corporate R&D budgets and stifled innovation. (Corporate innovation anyway.) He went on to condemn government acceptance of open sourced software (not an issue in the US, but it's becoming the rule in Germany) since community developed programs are apparently incompatible with freedom and democracy. He is using that line of argument to push the government to restrict open source software - a move that would actually do more to restrict innovation than anything else in recent history. Allchin concluded his muddled attack by claiming "we can build a better product than Linux" - but he never took time to explain why Microsoft has yet to do so.
Allchin's statements didn't exactly help Microsoft's standing in the open source and Linux community, and the outrage over the attack spread until even mainstream news outlets were questioning his judgment. To water down the inflammatory remarks, Microsoft's PR machine kicked out a press release 'clarifying' what Allchin really meant, but that may have actually made matters worse. According to Microsoft's statement, Allchin was not misquoted but merely misunderstood - his comments about open source were only referring to the GNU General Public License that most open software is released under. Apparently Allchin is concerned about paragraph 2B of the GPL, which prevents groups like Microsoft from using open code in their own software without releasing it for free under the same license. In other words, no software developer would ever want to innovate again because they are required to release that innovation to the public free of charge. Of course, the GPL doesn't apply to original software - so anyone wanting to make money can still do what Microsoft does and lock it down with a license that's anything but open.
ALSO SEE: CNET, The Register, ZDNet

The Department of Justice recently confirmed rumors of an investigation of Microsoft's investment into Corel, one of its few surviving competitors in the office and productivity software market. Back in October Microsoft paid $135 million for 25% of Corel and an agreement to drop all potential lawsuits between the companies [see Oct. 09, 2000]. Corel's decision to sell its Linux division after the investment drew government attention to the deal, which could have actually been an illegal act under the terms of the Sherman Antitrust Act - especially considering Microsoft's special status as a confirmed monopolist. Other rumors, denied by the DoJ, concern unrelated investigations into Microsoft's pending buyout of Great Plains Software and its large investment into Borland.
Microsoft's Jim Cullinan confirmed the investigation the next day, and then only a week later Microsoft surprisingly began the process of selling its entire investment. On February 21, Corel filed with the SEC to change Microsoft's 24 million nonvoting class-A shares into common stock that could be sold on the open market. If sold at current market value, the shares will bring in about $62 million - less than half of what Microsoft originally paid for them. Still, even with the investment gone, Corel is committed to the deal it made with Microsoft: sharing technology between the companies and adding .NET functions to Corel products. But that may not be a problem for long - when Microsoft unloads 24 million shares of Corel stock on the open market, the company's value will be so diluted that it won't be able to survive the rest of this year without selling out to another company or filing for bankruptcy.
ALSO SEE: ZDNet, The Standard, ZDNet, CNET, The Register

Microsoft ended one of its long running legal battles on February 21 by settling a lawsuit with Bristol Technology. Bristol originally sued Microsoft back in 1998 after a dispute over licensing the NT source code [see Aug. 24, 1998], and eventually won the case - but was only awarded $1 by the confused jury. Late last year U.S. District Judge Janet Hall, who oversaw the case, reversed the jury decision and ordered Microsoft to pay Bristol $1 million in damages plus $3.7 million in legal expenses - but Bristol still planned to appeal the original decision and go for a larger award. The exact amount of the settlement was not disclosed, but Bristol VP Jean Blackwell indicated that it exceeded the amount Judge Hall had ordered - meaning Microsoft expected Bristol to win its appeal. Mr. Blackwell said the settlement by no means indicates Bristol changed its position about the original charges, and would still file the lawsuit again under similar circumstances.
ALSO SEE: CNET, The Register

On St. Valentine's Day, Microsoft released its first network insecurity product in the form of a network firewall. The Microsoft Internet Security and Acceleration (ISA) Server replaces Proxy Server 2.0 in the company product lineup, providing intrusion detection, proxy services and other related features. Microsoft claims that the product was three years in development and spent the last eight months guarding their own corporate intranet - a fact that may explain last year's infamous security breach [see Oct. 30, 2000]. (In that case, the touted intrusion detection features allowed Russian crackers get in Microsoft's network for over a month without being noticed.) Microsoft sent out a press release bragging about ISA Server being security certified by ICSA Labs, but that doesn't really make it special since every significant player in the firewall market has similar certification. The server is available in two configurations, a $1500 per-CPU standard version aimed at medium business and a $6000 per-CPU setup intended for larger operations with slow-thinking IT departments. But it won't have much of an impact on sales of existing firewall solutions, since ISA only runs on 100% Windows networks.
ALSO SEE: The Register, CNET

Several news outlets have recently reported on rumors of Microsoft trying to purchase EarthLink, the #3 US Internet service. The rumors have been fueled by EarthLink's recent abandonment of a deal to provide service for Sprint. If those tales hold true, Microsoft is probably most interested in EarthLink's broadband deal with AOL TimeWarner's cable systems. We'll keep an eye on this and do a full report if any rumors bear fruit.
Application Center 2000, Microsoft's product for load-balancing and server clustering, was sent to manufacturing on February 13. The software, which competes against commercial packages from the usual vendors and a completely free open-source solution, will cost around $3000 per processor and won't run on the high-end Windows 2000 Datacenter Server.
MSN HomeAdvisor, a joint venture between Microsoft, J.P. Morgan, Chase Manhattan Mortgage, and GMAC-Residential, is selling its home mortgage software division. A Microsoft spokesman said the sale is intended to help HomeAdvisor focus on its core audience of people purchasing real estate and doing home maintenance. Potential buyers have not yet been identified.

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