Mar. 12 2001

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COURT NOTES: Attorneys representing Microsoft and the government were back in court on February 26 and 27, presenting their oral arguments to a panel of seven judges from the U.S. Court of Appeals. The session was primarily just the judges asking questions to the attorneys from both sides, with inquiry centering around the original charge that Microsoft broke the law by preventing Netscape from distributing its products to consumers. Microsoft's lawyers defended their client's actions, claiming Netscape was able to distribute some 160 million copies of its Web browser in 1998. The defense at one point called Netscape a pressing threat against Microsoft, then later on said the same company never presented a serious risk because of its inferior technology. Microsoft's contract restrictions on modifying Windows by removing the browser were also defended as being permissible under US copyright law. One attorney tried to convince the judges that Microsoft is not a monopoly, but that one went nowhere - as did a claim that Internet Explorer is easily removed from Windows.
At the same time the Justice Department's own reasons for the case were questioned, and one judge asked if Sun or Netscape/AOL could create their own monopoly if Microsoft's is removed. They went on to question Judge Thomas Penfield Jackson's original finding of fact, conclusion of law, and remedy decisions, with focus on Microsoft's accusation that the he was biased against them from the beginning. Several of the appellate judges attacked statements and interviews Jackson gave before the trial was completed, agreeing with Microsoft about it showing bias. But that may not matter if Jackson was only biased against Microsoft because of what he saw during the trial, not before it began (as the government pointed out). All that notwithstanding, another judge commented that it would probably be impossible to have all of Jackson's findings dismissed no matter how biased his comments may have been, because they were not released until the appeal had already been applied for.
When the Court of Appeals releases its final decision in a month or two they'll likely remand the trial back down to another judge, who will hear the entire proceeding again from the beginning as if the last three years of courtroom antics had never occurred. If that happens, the DoJ will probably settle or drop the case to avoid spending more years and more millions on a decision that ultimately won't make a difference anyway.
ALSO SEE: The Standard, The Register, Wired News, InfoWorld, Wired News, Court Site

Final code for Office XP was sent to manufacturing on March 5, ending development of the upgrade-for-upgrade's-sake office suite that offers no clear advantages over its predecessors. Office XP is scheduled to go on sale May 31 at a price not yet determined, but if history is any indicator the software will retail at a price beyond what any sane person would pay for it. The high price, along with a lack of compelling new features and the slowing economy, may give users of Office 97 and 2000 no reason to upgrade. As with Windows, Microsoft is competing for sales against itself more than with an outside company.
One week prior to the RTM, Microsoft announced its 'Office XP Corporate Preview Program' to provide a pre-release version of the software for customers to test. The preview software is available on CD for $19.95, the only difference between it and the final release of Office being that the preview expires on August 31. But with the code already declared 'gold' and sent to manufacturing, feedback from those customers won't make any difference to the final product - so Microsoft is obviously using the preview program to entice people into using Office. $20 at the start, then it expires and older versions of Office won't install over it so buying the full upgrade is necessary - a trick that may result in more Office XP sales than would be seen otherwise.
ALSO SEE: InfoWorld, WinInfo, CNET, WinInfo, The Register

Red Hat, the largest commercial vendor of open source software, has publicly responded to Microsoft VP Jim Allchin's attack on Linux and the GNU open source license [see Feb. 26, 2001]. In his comments, Allchin hinted that Microsoft is planning to approach congress to explain how community developed software is damaging "The American Way" and killing innovation. Red Hat CEO Matthew Szulik said he and other open source advocates would be more than happy to go before congress along with Microsoft and make their own statements about those topics to "take the debate up a notch or two." He admitted pride that Linux and other open source products have gotten large enough to become Microsoft's #1 enemy as-of late, a sentiment expressed by Microsoft CEO Steve Ballmer a few months ago. Capping his statement off with a priceless quote, Szulik added that he would argue "that a worldwide monopoly, enforced by business practices that a federal judge has found to be predatory and anti-competitive probably has more to do with killing innovation than anything the open source movement could ever do." We couldn't have said it any better ourselves, Matt.
ALSO SEE: ZDNet, Wired News

The IDG research group on February 28 released a new study showing operating system market share. The report showed a few small changes to the server-side operating system market, with Windows growing to 41% market share in 2000, compared to 38% the previous year. Linux went from 25 percent to 27 percent in 2000, while Unix fell from 17% in 1999 to 14 percent last year. Novell's NetWare also dropped last year, to 17 percent from 19 percent in 1999. Overall, server OS sales went up by 13 percent to 6.1 million systems. Notably, while Linux held down 27 percent of the market, it accounted for less than one percent of the total amount companies spent on server OSes last year since it can generally be obtained for free. On the other side of the coin, Windows continued to dominate desktop OS sales with 92 percent of that market - a 3% gain over 1999. Apple's Mac OS slipped down to 4% of desktop sales, while Linux increased to slightly under two percent.
ALSO SEE: CNET, The Register, PC World

Like any other Internet service, MSN's cash flow is being hurt by recent downturns in online ad spending. So, to fix the income problem (not that Microsoft is hurting), MSN is reportedly preparing to charge for extra Web services. That subscription plan, which fits into the .NET software-as-service model, could possibly include advanced filtering and encryption tools for Hotmail, music subscriptions, pay-per-view streaming video, Web storage space, and tech support. Microsoft is currently surveying customers about the kinds of services they might be willing to pay for, but history has proven that very few people will pay for anything online unless it involves nude photography or specialized financial information - especially when Yahoo and a dozen other companies still offer the same services for free.
ALSO SEE: ZDNet, CNET

The Federal Trade Commission is investigating Microsoft once again, this time because of PocketPC advertising that apparently exaggerated the handheld computers' capabilities. The advertising in question is the 'Can Your Palm Do That?' magazine campaign Microsoft ran a few months ago, touting the advantages of PocketPC over devices from Palm Computing. But the ads claimed that Microsoft's handhelds could access the Internet and do various things that Palm devices couldn't - without mentioning that wireless modems for PocketPC would add to the units' base price. Microsoft claimed that the investigation is only over the size of fonts and graphics used in the ads, and says it has reached a settlement over the issue. A spokesman added that the current PocketPC ad campaign is completely different and makes no mention of competing products.
ALSO SEE: The Standard, WinInfo

Adding more experience to its organizational chart, Microsoft has picked IBM-lifer Cliff Reeves out of retirement to run future marketing campaigns for Windows 2000. 51-year-old Reeves, who replaces disgraced Jim Ewel [see Jan. 15, 2001], spent his entire 30 year career at IBM doing everything from being a Vice President of Lotus to mismarketing OS/2 against Windows back in the day. (But don't ask Microsoft about that part.) Reeves retired from IBM last December when his pension matured, expressing a desire to work for more than one company during his career. His duties at Microsoft will consist of convincing people to purchase Windows 2000 servers and sending reports to Windows Development VP Brian Valentine.
ALSO SEE: CNET, The Register

Stock analyst Henry Blodget, who recently took over Microsoft coverage for Merrill Lynch [see Feb. 12, 2001], has issued a report about how the XBox will affect Microsoft's profits over the next few years. According to Blodget, Microsoft will have to sell the XBox for less than $299 to make it competitive with Sony's PlayStation 2, even though manufacturing the device will cost more than $375 per unit. He estimated around 15 million XBoxes will sell in the next two fiscal years, making Microsoft's total loss for the time period somewhere between 1.14 to 2 billion US dollars - depending on exact pricing. And that's not counting the $500 million-plus Microsoft has budgeted for XBox advertising and bribery. Other console developers Nintendo, Sony, and Sega have traditionally sold their hardware at a loss as well, making up the difference by selling title licenses to developers. It's worked out well for Sony with 88 million PlayStation and PS2 units sold, but Sega nearly went out of business when its own Dreamcast console sold poorly and developer demand dissipated.
ALSO SEE: CNET, The Register, WinInfo

A major security hole in Microsoft's ActiveDirectory software is being fixed. Unfortunately, it won't be fixed until 'Whister' servers go on sale a year from now. The problem, first identified last spring, is fairly simple. Essentially, the list ActiveDirectory uses to keep up with attributes given to individual network users isn't 'locked' - so if two network administrators modify it at the same time the changes made by one of the admins will be overwritten. That becomes a security problem when employee accounts that one person deleted are kept intact and usable with changes made by someone else. Microsoft has admitted the problem and advises network admins to avoid it by using the same server to make all permission changes. Fortunately, the security hole in ActiveDirectory isn't much of a risk since a recent study shows very few organizations have so far chosen to use it [see Feb. 12, 2001].
ALSO SEE: InfoWorld, The Register

On February 6th Microsoft released a beta of Visio 2002, its entry into the flowchart and diagramming software space. Microsoft released a version of Visio's design tool under its own brand after purchasing Visio Corporation and its product line in early 2000 for $1.4 billion [see Sep. 20, 1999], but this will be the first Visio tool designed inhouse by The Behemoth. The final product is scheduled to go on sale this May, in standard and professional versions. Beta testers say the new release will have clearer diagrams and brighter colors, and will integrate tightly with Microsoft's Powerpointless slideshow software. And although there are no plans to include Visio with any version of Office, it also implements the controversial new 'Product Activation' anti-privacy scheme that will plague users of Office and Windows XP when they are released.
ALSO SEE: TechWeb, CNET

Microsoft recently threatened to sue NetworkWorld magazine over a report revealing SQL Server runs nearly twice as fast on NT as on Windows 2000. NW reportedly did the test and contacted Microsoft thinking that it was a error, only to have Ms cite a "no publication without authorization" clause in the SQL license and threaten to sue if the results were published. NetworkWorld briefly took the report off its Web site, but returned it after Microsoft shifted blame for the problem onto faulty Intel network cards.
The server versions of Windows XP, still being developed under the codename Whistler, have apparently hit a few bumps on their road to completion. According to our sources, the original RTM date of October 1 for Whistler server has been moved back by at least a month. Internal schedules for Windows XP remain unchanged, as do the dates for Whistler betas - but Whistler Embedded will be affected by the delay and won't see daylight until next spring.
Iain Morris, head of Hewlett-Packard's recently created 'Embedded and Personal Systems' unit, recently suggested that HP may soon abandon Windows CE on its Journada handhelds in favor of Palm OS or a handheld version of Linux. Morris wouldn't firmly commit to any OS changes - yet - but HP is probably going to start offering at least one, if not all three, systems as options for Journada.
The Seattle Times recently reported Bill Gates is seeking permission from the city of Merdina, Washington, to remodel and expand his infamous mansion, which spans 37,000 square feet and was recently appraised at $109 million. It includes 24 bathrooms, six kitchens, parking space for 28 cars, a movie theater, and a dining room that can seat 120 - but apparently only four bedrooms. The expansion has led to speculation that the Gates family is expecting a third spawn in the near future.

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