Microsoft President Steve Ballmer, while a skilled business manager, is not exactly the most tactful person in the universe. This trait, likely due to his former job threatening OEM's, was never clearer than last week when Mr. Ballmer made the stock market drop like a rock. How did he achieve what two interest rate increases and three earthquakes could not? By telling a room full of reporters how technology stocks are "absurdly overvalued." Traders latched on to this news and the market, looking for an excuse to fall anyway, dropped by more than 200 points. While his statement may have been true, it left stock analysts wondering just how much power Ballmer and Gates have over the market, since their comments had more impact than those of Federal Reserve Chair Alan Greenspan.
But Ballmer's statement wasn't a clever ploy to sink competitor's stock prices; Ballmer lumped Microsoft in with the rest, saying his own company (and his stock options) are as overvalued as eBay and Amazon.com. It was no accident then that Microsoft's own stock dropped by more than five percent that day, costing Baldy himself several billion dollars. In the end, his thoughtless remarks set back market gains by almost 30 percent for the year. As one Yahoo! message board poster said, "If Gates doesn't drag him out back and kick the sh*t out of him, I will."

The latest MSN relaunch, just another in a long line of vision changes, will turn Microsoft's money losing consumer Internet portal into a 'business service' providing professionals with software and other tools. MSN's next redirection centers around the planned bCentral portal, a site for smaller businesses to create their own Web presence (MSN Hosting), reach new customers through promotions and marketing (MSN LinkExchange), and download the latest business software (Microsoft Office). That part of the plan is directly related to Steve Ballmer's recent announcement about Microsoft providing Office over the Internet to compete with Sun's StarOffice [see NewsSource, Sep. 13 (4th report)].
New MSN head Rick Belluzzo announced several other planned new features, including an interface update, domain name registration services, improved search, and the merger of Hotmail and Outlook into a single communications service. He also said the new MSN will have more customization features and will be centered around the Passport login hub that caused several MSN security problems even before being officially launched. On top of all that, MSN Internet Access customers will get their own little present when the new changes are enacted in November: a $2 price hike for monthly Internet service.

At the same press conference Microsoft unveiled a piece of hardware called the MSN Web Companion, a device for accessing the Internet without a computer. The Companion, running on Windows CE, is a simplified computer with a display, keyboard and mouse, but dedicated only to Internet Access. Microsoft wouldn't say if they plan to build the device in-house or license it to other manufacturers as with WebTV, but said it will likely ship in mid-2000. Prices for the unit will probably be included in the monthly access fees, again like WebTV. America Online and several other Internet providers have similar products in the works, most scheduled to ship several months ahead of Microsoft's.

As part of the MSN redesign, Microsoft will apparently do what rumors have said for months and spin off some of its Internet units as separate companies. While rumors said all of MSN would become a standalone unit, Microsoft apparently plans to take some of the most successful individual MSN sites and IPO them for an instant profit. That means each site can have its own worthless stock - making more money for Microsoft in the long run - while unprofitable parts of MSN like the Internet access service will stay part of Microsoft, preventing them from dragging down the new stock's price. And Microsoft won't lose control of the sites, since the total shares will represent less than a third of any one unit.
Microsoft didn't admit to that plan, but revealed it to the public when its travel reservations site MSN Expedia filed with the SEC to register $75 million worth of class-A common stock for an initial public offering sometime this winter. If the request is approved, Expedia's IPO will be co-managed by Morgan Stanley Dean Witter and Goldman Sachs and its stock will trade on the Nasdaq market under the ticker EXPE. Expedia was created by Microsoft in 1996 as one of the original Web-based MSN sites. Its competitors in the travel planning market include Priceline.com and Travelocity.

COURT NOTES: Appearing for the trial's last scheduled court session on September 21, Microsoft and the United States Department of Justice presented their closing arguments to District Judge Thomas Penfield Jackson. Just as in the rebuttal presentation of fact on September 10 [See NewsSource, Sep. 13 (2nd report)], government attorneys accused Microsoft of using ruthless methods to protect its monopoly, while Microsoft denied all charges and accused the DoJ of being a puppet for Microsoft's competitors.
Notably, state attorney Stephen Houck compared Microsoft's denial of an operating system monopoly to the "emperor without clothes." Top Microsoft lawyer John Warden again reminded the judge about Netscape's merger with AOL, and called the government case an "astounding failures of proof." To liven things up and refresh Jackson's memory, Justice also replayed a few key clips from the taped Bill Gates deposition, where the world's richest man squirmed, evaded questions, and eventually said that he never felt Netscape was a threat to his company.
Judge Jackson, unusually quiet during the proceedings, is expected to issue the first half of a two-part ruling sometime before next year. That decision about the facts of the case will give the two sides yet another opportunity to settle, followed by a ruling on punishment - assuming a settlement is not reached. If Microsoft is found guilty, as most people now expect, the case will certainly be appealed and could drag on for several more years as Microsoft takes it to one appeals court after another.

E-mail disguised as a Y2K advisory message from Microsoft is actually a Trojan Horse bearing viruses. The message, identified as 'Microsoft Announcement' from support@microsoft.com, apparently originated from somewhere in Bulgaria and has no official connection to The Behemoth. After opening the message an error message pops up, then after the next reboot a virus is installed. The virus, Y2KCOUNT.EXE, gathers password info, log-ins and user names from the system and sends them all back to an e-mail address somewhere in China. While that virus is harmful, it's one Y2K message more than the majority of Microsoft's customers have received so far.

Microsoft certified technicians, some of whom spent thousands on their training, are in shock following an announcement Microsoft will retire all Windows NT 4 certifications on December 31, 2000. The company traditionally keeps certification on older products for three or more years after their replacement; Windows 3.11 certification was still valid until fall 1998, and NT 3.51 exams won't be entirely phased out until next June. But Microsoft is so concerned about Windows 2000 being accepted that it has essentially forced it upon customers by eliminating anyone certified to install or operate its predecessor. This adds certified professionals to the long list of former supporters Microsoft has alienated this year.

Ford Motor Company and Microsoft's MSN Carpoint site have joined forces, adding a built-to-order feature to the site for Ford, Mercury, and Lincoln vehicles. Ford will also become a minority partner in Carpoint, an arrangement Steve Ballmer said is open to other automakers as well.
To make Windows NT more compatible with Unix, Microsoft last week bought out privately-held Softway Systems, maker of a popular Unix emulator for NT. No terms of the deal were released, but we do know most Softway employees will now be joining Microsoft. No plans for future products were announced either, but don't expect Microsoft to release new versions of Softway's Linux emulator anytime soon.
The third MSN Hotmail security hole in a month was uncovered last week. This new problem, not related to either of the previous ones, uses Javascript embedded in image files to send user passwords to a cracker. Microsoft admits the problem, and says an outside company has been hired to create better mail filters for the service.

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