Big corporate executives expect to be off pillaging some other company in just months, but you, the small business manager, need to plan 5, even 10 years out - because you'll likely still be stuck in the same business.
Most small business information systems weren't planned - they just got plugged in to do specific jobs - but in today's increasingly competitive markets, that isn't enough. Carefully planning an information strategy is critical when your competition is worldwide.
This article is a guide to trends that are already in full motion and well known by technology specialists, but are far from obvious to most business managers. I can't tell you what to do about them, without studying your particular business, but it will cast some light on what you should be looking at.
Much of this article deals specifically with Microsoft and Microsoft's future. This is inescapable, because Microsoft is a huge part of the information industry - and aspires to being all of it.
Throughout this work are numerous references to substantial articles from major on-line and print sources, so you can see I'm not just blowing smoke - I'm talking about real trends well known in the industry .
The Information Technology Industry
The Technology Industry is currently in a deep slump, and will come back slowly and very selectively. PC manufacturers and most PC software publishers will not be among those recovering.
Corporate technology spending is expected to increase only marginally during 2003. A good part of that increase will be consumed by increased license costs for Microsoft products and will do little for the rest of the industry.
Much of the recovery will be led by the critical small business market (the bulk of business and employment in the U.S.), and that's a problem for big technology companies. Every time the corporate market slumps, the big guys declare their new small business initiatives, which always fall flat and are abandoned the moment the corporate market starts to recover.
Small businesses are adopting technology rapidly, by necessity, but products and services for small businesses become ever more diverse and more customized in response to intense competition. That means companies that successfully serve small business must themselves be small and very flexible. This does not favor the well-known industry leaders.
A big factor dragging down many technology companies is the increasingly
tight relationship between computers and the telecomunications industry,
as even voice starts being carried as Internet traffic (VoIP - Voice over
Internet Protocol). The entire telecom industry, from top to bottom, is
saturated with fraud, corruption, monopoly politics, heavy debt from unwise
mergers and excess capacity. All this contributed to the current collapse,
and will continue to affect big name network equipment makers like Lucent
and Nortel, and even Cisco, through 2003.
Technology stock prices will stay depressed through 2003, and will not approach the highs of the Dot.com boom any time soon - not until the next tulip craze comes along (oh, maybe 6 or 8 years). There will be solid, though highly selective, investment opportunities, along with significant risks, but for most investors, consumer industries will be less trouble and a lot safer.
Wireless data will be a fast growing field, but with few pure plays. Wireless equipment will mostly be side lines by the same network equipment companies wired network equipment is made by, and you know they're depressed for a while.
Keep in mind that "Telecom = Fraud", so avoid anything that has to do with telephones and phone lines unless you think you're sharp enough to play with the big guys who get paid to invent and perpetrate those frauds. Better to invest in wildcat oil wells.
Internet Technologies, "Web Services", are another major growth area, but this field pretty much already belongs to Microsoft, IBM, Sun Microsystems, and other giants, as far as the corporate world is concerned.
Technology investors may start finding that participating directly
in selected small businesses provides much better return than trading on the
stock market, and will be a lot more productive for the economy. This is
just about the only way to take advantage of the small business technology
The technology employment picture has been completely transformed by the Internet. The large number of corporate jobs that used to absorb entry level tech workers are being exported to India, Russia, Poland, and other places with high education and low pay - and those jobs aren't coming back. The bigger the company, the more jobs they'll be exporting. Most manufacturing and assembly work has already been sent to the Orient.
Highly skilled jobs remain, and pay well, because basic design, prototyping and pilot production will still be done here, but even if you have skills, there are problems getting hired. Human Resources departments haven't one clue in Hell how to evaluate skilled technical workers. They try to match exact experience and training to exact job requirements, and demand 3 years experience for specialties that have only existed for 18 months. Thousands of technical jobs go unfilled, while thousands who could do those jobs are asking, "Do you want fries with that?".
If you're over 40, the technology employment picture becomes really grim. You have abilities far beyond a 28 year old's, but he's the one that's going to get hired. For over 40s, there are many opportunities in consulting, especially in small and medium business, but that takes social skills and above all, selling skills, exactly what many chose technical careers to avoid.
So what does all this mean to the small business manager? Simple - whether you're looking for a consultant or an employee, you have a large pool of experienced over 40 technology workers to choose from, and you won't have to compete tooth and nail with corporate employers. Look for a track record of flexibility, and let the corps pay for the young ones' experience.
Oh, if you do want to pursue a technical career - one word: XML.
Actually, a bunch of words, because to use XML effectively, you are going
to have to learn a lot about business processes and methods too, and that
means talking to a lot of non technical people.
The PC Industry
The PC industry was once thriving, driven by rapid innovation. It's now down and it's not coming back. Microsoft's monopoly enforces the "Uniform Windows Experience" to the extent innovation and product differentiation to attract new computer purchases are simply impossible, even compared to nameless "white box" products.
IBM wisely withdrew from the general desktop PC market, while Hewlett Packard and Compaq merged out of desperation. Dell alone thrives by being just an assembler, well tuned to commodity markets. The other majors are weighted down with design engineers and manufacturing facilities. The few remaining second tier vendors like Gateway are struggling and may fold, as Everex, AST, ALR, Packard Bell and others did in the last big shake-out.
All the major PC brands have moved to low end servers as their profit center, but the same "commoditization" is happening there. They all use the same Intel chips (because Windows won't run on anything else) and the same designs, and they all paint their boxes black. Essentially, they compete on price, which guarantees ever thinner profits. Meanwhile, Sun and IBM manufacture high end (non Windows) servers, which remain profitable.
"White Box" PCs by local builders are now the leading brand, having captured at least half the desktop market worldwide (I16), and now cutting into the low end server market. Declared dead by industry pundits a few years ago "White Box" has continued to grow its market share.
Why such success for the "no names"? To the "Local Brand" builder, PCs aren't a product, they're just part of a service offering, and that service is far beyond what the "Name Brands" could hope to offer. The quality is often higher, product consistency better, and if something does fail, it's usually fixed within hours with minimum hassle, often less time than you'd spend on the phone with HP or Dell..
With little possibility of regaining White Box territory, and unable to differentiate their products due to the "uniform Windows experience", name brand makers are locked in a pricing battle. Ever lower margins have forced them to cut heavily into customer support, and even Dell's once legendary support has been shaved to near worthlessness(I1). This makes them even more vulnerable to high support White Box products.
Competition for the business market may become even more intense, because I expect Microsoft branded "PCs" to take much of home market within a couple of years. There's already XBox, Home Gateway coming soon, and XBox 2 will be much more like a fully functional PC. A lot of other Microsoft branded hardware is appearing. Microsoft will use "security" and "Digital Rights Management" to force competitors out of the home market.
What does this all mean to the small business manager? It means the market has been turned upside down. If you want cheap, buy major brand computers. If you need support and effective service, buy your computers from a local service provider who provides White Box PCs and servers as part of his service offering.
Access builds servers and PCs as part of our services for customers, but
market figures are from major industry publications.
The peripherals business, led by printers, is in better shape than the PC industry, but there are significant downside risks, especially for HP (formerly Hewlett-Packard (I11)).
Dell, described by Sun's McNealy as a "grocery store that sells bananas as fast as it can", is master of commodity markets. Having already pushed PC giant HP into an ill-considered attempt to imitate Dell's marketing methods, now Dell is after the printer market too. They've signed a major deal with Lexmark to supply Dell branded printers and consumables. HP is very dependent on its profitable "imaging" business unit for income.
The threat to HP is not so much printers as consumables (ink and toner cartridges). Volume market printers are already sold at a loss, and the money is all made on overpriced consumables. Dell has stated they will be competing on the price of consumables (I4). Lexmark, the #2 printer manufacturer won't be impacted as much, as it will "make it up in volume" as Dell's major supplier. Lexmark already manufactures HP compatible toner cartridges, so the competition may go beyond just the Dell printer / consumables value package.
What does this mean to the small business manager? It means careful
selection of products may soon yield significant savings in TCO (Total Cost
of Ownership) of printers when consumables are taken into account.
The Software Industry
The PC software industry is in the final days of being destroyed by Microsoft. Having leveraged a monopoly it was handed by IBM into multiple monopolies, with complete control over the PC manufacturers, and with an "Ethics? We've heard of it" attitude, Microsoft is preparing to drive the few remaining significant software publishers out of the Windows market.
Soon there will be Microsoft, Intuit, and Symantec. While Intuit will put up a strong fight, its popularity is not something Microsoft will tolerate for long. Revenue plans for Microsoft Great Plains do not allow for the existence of accounting software competitors. Microsoft will use Longhorn and .NET to bash and batter Intuit (see below). Symantec will continue because someone has to publish antivirus software, and it isn't going to be Microsoft (liability issues).
A few years ago, venture capitalists wouldn't fund a software startup if its product wasn't for Windows. Now they won't fund anything that runs on Windows either. Making a big splash and going public gave way to making a splash and selling out to Microsoft, but now Microsoft just tells companies, "Sell at our price or die", leaving little room for return on investment,
Ironically, the impossibility of commercial software competing against Microsoft's monopoly has spurred rapid growth in non-commercial software under the banner of open source. While much open source software runs on Windows, the majority runs on Linux, an operating system that is itself open source, thus available for free.
Linux has already taken big bites out of Microsoft's server sales and has blocked Windows from key accounts. Research firm IDC (the same firm Microsoft hired to "prove" Linux cost more than Windows) expects Microsoft's server market share to start to decline by the end of this year. Even more serious is the Linux threat to Microsoft's desktop monopoly, which becomes more credible by the month (I5).
Paradoxically, a strong open source alternative is the best hope for a revived commercial software industry. Much software needed by businesses is simply of no interest to open source developers. As Linux becomes a mainstream business operating system, the market for commercial software running on Linux expands.
The market for commercial software running on Linux is, however, a market for small companies to serve, and will not spawn a "new Microsoft". Microsoft has only two profitable products, Windows and Microsoft Office. open source equivalents of both are already free (Linux and OpenOffice) or very inexpensive (commercial Linux and StarOffice).
Microsoft sees the danger very clearly, and is already spending millions of dollars to fight open source, but their most effective weapons are ineffective against such low cost products that are available from many sources, none of which are dependent on Microsoft for their success.
What does all this mean to the small business manager? It means
you need to start preparing now for the "All Microsoft" future - or start
preparing now to move away from the Windows environment. This decision may
look to you like a "no brainer" right now, but it shouldn't look at all easy
by time you've finished this article.
The Internet is transport for a number of completely separate services (ftp, email, gopher, newsgroups, chat, dns, etc.), but to businesspeople, the Internet is "the Web" (World Wide Web service). Actually, they do use other services, but these are now integrated into the Web browser, so they appear to be part of the www service.
Web pages are rapidly becoming the essential master communications center for every business. For most businesses, the Web site will never produce income, directly, but will be critically important to generating revenue through established business methods.
A recent Sears study (I7) confirmed for retailers what the Internet industry has known for some time. Customers who use Sears' appliance Web site generally travel to stores to purchase, but when they get there it is to buy, not to shop. They've already used the Web site to research products, compare value and make buying decisions. I'm sure you can see the potential for reducing sales staff this implies.
This trend is solid - people want to buy in the presence of the physical product, or talk to a real sales person on the telephone, but people don't have time to go to stores to shop any more. They can't afford to travel to stores except to buy. Shopping, research and price comparison can be done on the Internet quickly, conveniently, and at any time of day or night.
What does this mean to you, the small business manager? Without an effective, well designed and well promoted Web site, your business, products or services, aren't going to be considered at all. If people can't effectively gather the information they need before visiting your store or picking up the phone to acquire your services, they aren't going to bother, because they can get all that information from your competitors.
This bodes well for consultants, hosting services, and others who prepare and maintain commercial Web sites and Internet strategies, especially those that service small and medium business - in the long term. What's holding it back in the short term is that so many business people have yet to realize the critical importance of the Web site, and many more think they can do a fine job themselves in a couple of hours with Microsoft Front Page.
Increasingly, if the first impression made by a business' Web site is wanting, that will be the last impression that business will get to make. Speed and ease of finding information count for everything, and a slow Web site, or a Web site that offers pizzaz instead of content, will be the death of many businesses. Evolution is a harsh and unforgiving process.
At the other end, once hugely profitable Web consulting firms serving large business will continue their decline. Large businesses can now hire most of the expertise they need in-house at more attractive rates. There's plenty of "Dot.bomb" refugees desperate for jobs.
Profits go to companies that proceed carefully and with due consideration to all traditional business practices. Amazon has lost 2 billion selling books, while Powell's Books (I2) has been profitable all along.
Yes, there will still be room for "Web only" retail businesses, and perhaps Amazon.com will someday recoup its massive losses. Right now, Web sales are working best for highly specialized products and services with a very scattered clientele. If S&M gear is what you sell (I12), for instance, e-commerce could be your best bet for reaching your customers (it took me just a minute to find these WartenbergWheel guys).
The Internet will also be very strong in B2B (Business to Business) commerce, but not the way investors originally presumed. All the high profile customer / product / vendor match making sites and clearing houses went face to pavement, hard, and huge amounts of venture capital evaporated without a trace. Finding the lowest price vendor turned out to be unimportant compared to serving established business relationships.
The Internet will increasingly replace current EDI (Electronic Data Interchange) non-standards, handling document interchange between established business partners using XML and other Internet syntax standards.
Once again, things look good for modest sized consultants, integrators and
contractors who can do highly customized work, but there will also be major
opportunities for big consultancies like EDS and IBM Global Services. In-house
staff can't do your customers' or vendors' systems, so substantial third parties
will be essential to integrate larger businesses.
Not long ago, there were three network domains: LAN (Local Area Network), WAN (Wide Area Network) and "The Internet" (a very large peer-to-peer WAN). Today, there is only one: "The Internet". WAN traffic has become largely VPN (Virtual Private Network), encrypted traffic carried over Internet transport. LANs have become just local Internet subnets.
Protocols that were superior for LAN traffic, such as Novell's IPX/SPX have been dropped in favor of the Internet protocol, TCP/IP (except in organizations that want a very sharp demarcation between LAN and Internet for security reasons). The good news is that protocols that were inferior for any traffic, such as Microsoft's NetBEUI, are also being pushed aside.
Given this situation, we can talk of Internet technologies as if they applied equally to the LAN, because they do, even if the LAN isn't actually attached to the Internet (though that is becoming rare).
Not yet under monopoly control, Internet technologies are a seething hotbed of innovation - with one exception. Once Microsoft's Internet Explorer reached 70% market share, the once blazing hot evolution of Web browsers came to a sudden screeching halt. The only features being added to Internet Explorer now are features that allow Microsoft greater remote control of your network and computers.
The biggest things going on in Internet technologies are Web Services
and XML. Both of these will deeply change the way your business does
business in the future.
Web Services - XML, Java and .NET
Web Services is becoming a very big thing, with the bulk of new system development within the corporate environment being rapidly moved to Web Services (I10).
Web Services is a system where programs run on Application Servers and are accessed by client Web browsers. Parts of the program may download and run on the local client, but the main program stays running on the server, takes requests from the clients and hands back results.
Web services clients may be PCs, but don't need to be, they just need to support a standards compliant Web browser. Communications is by XML, SOAP and Java. Whether you're running Windows, or OS/2, or OSX, Linux, PalmOS, or what have you, is irrelevant (in theory).
You can access your Web services environment from anywhere you can get a network connection, and from any standards compliant platform. That network connection can be on the local network, or across the Internet (using a VPN, we hope, for security).
While doing any particular task, a client may be accessing Web services from several servers simultaneously, and application servers can even access services on other servers. This makes programming very modular - stuff needs only be written once and needs run only in one place to be accessed everywhere. This makes maintenance, upgrading and control very easy.
Web services can also be offered over the Internet by ASPs (Application Service Providers) for a fee, and these services will appear to be local to the client. Most Web services will be hosted on a company's own high speed network for best performance.
XML (eXtensible Mark-up Language) (I13), a critical key to Web Services, is an open standard syntax by which communication channels between very different computer systems can be established for exchange of documents containing data. For instance, a PC based accounting system could transmit an XML document that described a purchase order to a mainframe system, which could read and interpret the document and enter the information directly into its own order entry system.
XML is similar in principle to the HTML (HyperText Mark-up Language) so familiar for presenting and displaying Web pages, but XML is designed to handle data instead of page presentation. Web Services applications will take requests by XML document and return XML documents containing the requested response. Many expect XML to eventually replace EDI (Electronic Data Interchange).
XML is not a magic bullet that puts programmers out of work. It allows dissimilar computer systems to communicate with much greater ease than they traditionally have, but it does nothing to simplify the business logic within the system at either end. XML schemas have to be developed and interfaced with the business logic.
Numerous trade groups are developing XML schemas specific to the unique needs of the industries they serve. Interfacing these schemas to the business logic of individual participating companies will be done on a case by case basis by programmers, it'll just be a lot easier than with EDI, and use the Internet as a transport (in most cases, but proprietary networks can still be used with XML).
Java (I14) is a programming language well suited to implementing Web Services, and is actively promoted by three of the major proponents of Web Services, IBM, Bea Systems, and Sun Microsystems. Java programmers are in high demand now, and the language is being used especially on the server side of the Web Services equation.
Interaction among very dissimilar systems is a major goal of Web Services and XML. Java is available for all significant computing systems, so strongly supports this goal.
Obviously, Java, XML and open standards provide too much freedom,
flexibility and local control to be at all acceptable to the fourth major
proponent of Web Services. We'll cover Microsoft's
.NET Initiative (pronounced "DotNet") in detail in the
Microsoft section. For now, .NET services may talk to other systems (yet to be
demonstrated), but development must be done under Windows using mostly
Microsoft tools, and .NET based services will run only on Windows.NET servers.
Wireless networking is the hottest item in the technology press today, and is touted as the savior that will raise technology markets (especially hardware) from the dead. The implication is that if your business is not converting to wireless, it's falling way behind. The truth is a bit different.
Wireless has been around for some time, but only recently has it been able to overcome its traditional value proposition, "We're a lot more expensive, but we're a lot slower". Today, the price and performance differential is still there, but wireless is fast enough and cheap enough for a variety of uses. You use wireless where it is impractical to use wire, and nowhere where it is practical to use wire.
Even those magazines pushing wireless most heavily are replete with articles on wireless security, or more accurately, on the lack of wireless security. Securing a wireless network is possible, but more difficult, and it tends to go insecure if not monitored very carefully. Wireless has already been ordered pulled out of places it has been installed due to security problems, both in business and government.
In many businesses, wireless links are being installed by users for their own convenience, often to connect a laptop computer or to avoid the hassle of stringing a cable to the next room. In their competition to make installation easy, manufactures ship their product with all security features turned off.
The proliferation of uncontrolled wireless access points has spawned the practice of War Driving, cruising the streets with simple detection equipment and marking buildings with graffiti indicating open access points for "free" Internet access. Industrial spies and thieves are doing the same, but without the graffiti.
Wireless in the home is growing quickly in popularity, because homes are
relatively difficult to wire neatly, and the security risks are lower. Most
home wireless systems are for shared Internet access, and with broadband
access methods all less than 1.5-MB per second, low cost 11-MB/sec wireless
networking is more than adequate.
Accelerating the application of Wireless Networking is the rapidly rising sophistication and falling cost of mobile devices, ranging from cell phones up to Microsoft's "Tablet PC".
Microsoft will be pushing the Tablet PC very hard because its similarity to a full function PC means they can expect a monopoly position with these devices. Tablet PCs will probably find strong early adoption in medical facilities where users move around a lot, but are never far from the electrical power needed to recharge the devices.
Short battery life is the bane of devices that approach full Windows PC function, and also plagues smaller PDA (Personal Digital Assistant) devices running Microsoft's Pocket PC version of Windows. Battery life, and the shortcomings of handwriting recognition, will limit general acceptance of the Tablet PC.
Opposite the move from PC down to Tablet PC is the expansion of cell phones upward, adding text and photographic features as well as computing, data communication and Internet access. Microsoft has entered this market with its SmartPhone version of Windows (formerly code named "Stinger" (and popularly known as "Stinker")), but it faces very tough going.
Most handset manufacturers are highly suspicious of Microsoft's intentions, and those that aren't are idiots, as Sendo has proven so well. Motorola has selected Linux and Java for its phones (A10), while Nokia and Sony Ericsson have selected Symbian and Java (A11, A12), other devices will use Palm OS and Java. Due to misbehavior, Microsoft is forbidden by court order from implementing Java.
Designed from the start for small size and non-mouse operation, Opera is the leading Web browser for Internet access on mobile devices (A13). Microsoft, unable to compete using its bloated Internet Explorer, attempts to sabotage Opera where it can (R11). Opera's entertaining response to the latest attack has become a public relations classic (R12).
Because Microsoft will not be able to gain a dominant position and crush innovation as it has done elsewhere, this will be a very dynamic field, allowing innovative companies both large and small to prosper, but there are dangers to be avoided.
A large number of VARs (Value Added Resellers) will develop specialized applications around devices using Microsoft mobile software, because that's an easy sell to clients so familiar with Windows. These VARs will stay small and specialized as a survival tactic - if their product's success results in a wide market, Microsoft will copy it and put them out of business.
Microsoft has become an extremely dangerous mobile integration partner, since it has acquired major accounting (Microsoft Great Plains), POS (Point of Sale - SMS QuickSell) and CRM (Customer Relations Management (B9) products, and no longer depends on third party business software products for integration. More ambitious (and smarter) VARs will select alternative environments and learn to deal with the selling issues.
Large scale mobile device integration by major vendors will increasingly
deploy the Linux operating system, which is not only
royalty-free and more flexible, but gives the developer complete control of
their own future.
Since 9/11, network and computer security has become the hot topic of discussion. Other than huge amounts of discussion and thousands of column inches by "experts", formation of high level government committees and papers issued by them, nothing substantial has been done.
Further, nothing substantial is going to be done until there is a major disaster. When that happens, that disaster will be fixed and little more. Columnist Peter Stephenson relates the situation to Y2K ( I8). So much money was spent fixing Y2K problems that no disaster actually happened, so business executives feel they were ripped off (some of my clients weren't fixed in time and learned firsthand how serious the problem could have been). Now they think Network Security is just the latest rip-off.
In truth, the problems are very real, and will result in serious economic loss, and ruin for some businesses. Major avenues for disaster are:
Once the specialty of a very few highly skilled hackers, data theft and destruction is now an entertaining pastime for thousands of unskilled "script kiddies" and a standard tool for industrial spies, saboteurs, and even law enforcement. Losses will continue to climb out of control.
Spending on data system security will increase as companies try mitigating sharply increasing losses from worms, viruses, espionage, crackers and data theft, but this spending will be ineffective, because top management won't commit to the resources and sweeping changes required to secure their data systems effectively. They'll instead buy "band aid" fixes with big promises and little effectiveness.
The potential for massive destruction is shown by the recent spread of the W32/Klez.H worm (which is still raging out of control). Had Klez.H carried a destructive payload timed to go off about 15 days after release, the economic damages would have been stunning, and many business would have failed. Instead, it's only cost $9 billion to clean up (so far), because the Klez.H perpetrator disarmed it before release.
The potential for espionage is exemplified by the recent conviction of a prominent loan shark based on evidence from a "trojan" program (X9). Such programs are easily available to the public, and conveniently email the information they collect to the perpetrator (X10).
Don't think not being connected to the Internet will protect you either. Multi-gigabyte storage devices with the size and appearance of a key fob are now economically available, and plug into any convenient USB port. Not only can your critical data walk out on a ring of jingling keys, spy programs can be easily injected by anyone with brief access to your internal network.
While all systems have vulnerabilities, as recently demonstrated by
the Slapper Worm (X42), the vast breadth and extent
of vulnerability is a uniquely Microsoft problem, and for very specific
reasons, which we'll cover in detail in the Microsoft section.
The Microsoft "Road Ahead"
With over 90% of the desktop PC operating system and office suite markets, "proven in court" monopolies yielding 85% and 79% profit margins (R2), $43 billion in the bank, the highest capitalization (stock value) of any company, and having just been let off a major antitrust conviction with no punishment whatever, you might think Microsoft would be worry free.
Actually, Microsoft has something of a siege mentality, and that mindset is increasingly justified as the company fights too many battles on too many fronts. Expansion into new markets is meeting heavy resistance, and the old monopolies face unexpected threats. Open-source software and Internet protocols are leading concerns, as iterated by departing executive, David Stutz (R10).
In a recent shareholder meeting, Microsoft executives stated the company would pay no dividend from its $43 billion because it still faced legal and other challenges, and needed all that money to defend itself (R3). In actuality, Microsoft faces many very real challenges of such magnitude that $43 Billion may be a bit thin.
Other threats proved greater, however, so two months later, Microsoft announced a dividend. It's just 16 cents / share ($850 million) (R6), a token dividend, but it's a dividend just the same, and another step on the path from "high growth" to "granny stock".
Why the dividend? There appear to be several reasons. For one, it served as a distraction from poor earnings projections, and the fact that Windows Desktop (Client) sales actually fell by $10 million vs. the same quarter in 2001 (R8). Microsoft Office (Knowledge Worker) sales rose, but only by 8%, far from the 20%+ growth Microsoft is noted for.
Some have suggested the dividend was to get Bill Gates another $100 million per year, which will be tax sheltered if Bush's "stimulus" plan prevails, but this seems an unlikely consideration for so major a policy change,
Most important was probably Microsoft's stock price, which has trended down for three years. Paying even a tiny dividend allows funds that require dividends to buy Microsoft shares for the first time. Microsoft hopes more buyers will bring the stock price up.
At the same time, Microsoft announced a 2 for 1 stock split. Now this looks really strange. Companies normally split their stock on the way up to make it more affordable by the share. Why is Microsoft splitting a stagnant stock? Apparently it's a desperation move to make the stock look cheaper, so "bottom feeders" will buy and move the price higher.
At the root of Microsoft's problems is its financial structure. Leveraged by stock options and other financial tricks (R7), it depends heavily on rapid revenue growth and increasing stock value. When you've saturated your market (over 90%), and that market is stagnant, rapid revenue growth becomes difficult. Should future growth look poor, holders of stock options are likely to cash out, and much of that $43 Billion evaporates.
By necessity, Microsoft must expand into new markets. Problem is, they've never been particularly successful in entering any markets where they could not leverage their monopolies. As is true of other monopolies, they simply aren't competitive in open markets. While Windows has a profit margin of 85%, and Microsoft Office has a margin of 79%, every other Microsoft division is losing money in reams (R4).
Even where they can leverage their monopolies (corporate data centers, on-line services) Microsoft is meeting unexpectedly heavy resistance. Part results from serious weaknesses in Microsoft's products, part from battle hardened opponents now familiar with all Microsoft's tricks, In markets they already control, customers are becoming very reluctant to upgrade anything, because experience has proven it's a lot of expense for very little gain.
Another really big item is open source software. Open source products like Linux are rapidly locking Microsoft out of the midrange server market and are even becoming a threat to Microsoft's desktop monopoly, especially outside the U.S.. Microsoft's 10K filing with the SEC reflects this with warnings Microsoft could be forced to lower prices (R9).
Outside the PC arena, Microsoft faces entrenched adversaries with management far more astute and aggressive than anything they saw in the PC market. XBox for example, is taking heavy losses on each unit, but still not selling enough of them to create the critical mass needed to generate interest among top game developers and gamers.
In the market for Interactive Television, Microsoft expected to dominate, and invested heavily in potential customers "just to make sure", yet they have been almost completely defeated there. The market has become dominated by companies like Liberate, OpenTV, and TiVo, with mostly Linux based products. Microsoft was unable to deliver an acceptable product, on time, and at competitive cost.
To compensate, Microsoft is squeezing ever more revenue from current fully saturated markets by raising costs to their customers, mostly by changing licensing terms. This is creating resentment in formerly docile customers, many of whom consider the new terms extortion, and has them seriously looking at alternatives for the first time. It is also generating resistance to Microsoft's .NET initiative, now seen by many as a "vendor tie-in", ripe for exploitation.
Microsoft's public image, carefully crafted through billions (literally) spent with PR firms, continues to erode under the weight of license extortion, anti-trust action, license compliance raids, buying political influence, endless lawsuits over stolen products and patents, insecure and unstable products, obvious astroturf (fake grass roots) media campaigns, and much more
Innovation is another place where Microsoft is under-performing. They are fond of boasting about how much money they are pouring into R&D (Research and Development), yet not much new comes out of R&D. Some suspect the R&D efforts are financed simply to keep talented people away from startups and competitors, but it's probably simpler than that. Any innovation has to be retrofitted back onto the obsolete and hopelessly overcomplex Windows platform. This is highly limiting.
Some expect a combination of Microsoft's financial situation, market difficulties and erosion by open source software to result in an Enron style meltdown. This is highly unlikely. Microsoft management is too smart and not nearly corrupt enough to do an Enron, and they are coming up with many innovative ways to leverage their PC monopolies and squeeze more blood from any handy turnip.
Given a huge company that must grow rapidly, but which is encountering
severe limits to growth, you can expect a lot of major changes in both
products and policies, and that's what you are going to get.
Longhorn - Big Changes for Windows
The very disappointing uptake of Windows XP has convinced Microsoft they must force upgrades. License 6 does force customers to upgrade on Microsoft's schedule, whether they want to or not, but a majority of the market has not adopted License 6, despite Microsoft's threats. Clearly drastic changes are needed to Windows to generate renewed upgrade revenue.
The successor to Windows XP (due in 2004, and rapidly slipping to 2005) is currently code named Longhorn, and it will not be compatible with your existing software, hardware or methods. Microsoft has already stated that backward compatibility will not be a design feature.
Some expect the name Windows will be dropped completely. The antitrust agreement with the Bush DoJ specifically states "Microsoft Windows" throughout. By maintaining incompatibility (already planned due to design considerations), making it look different and calling it something else, Microsoft can free itself from antitrust oversight. "It's not Windows, it's a different product - the agreement doesn't apply."
The most important feature of Longhorn is replacement of the familiar DOS/Windows filesystem with an object database (W0). You will no longer copy files to a floppy or CD-ROM or attach them to an email, because there will be no files. Database records will be copied from one database to another, probably through a .NET server. Large organizations will have their own .NET servers, but everyone else will use one of Microsoft's, a service for which you will pay a fee.
The Longhorn filesystem will be based on the technology of a re-thought and expanded SQL Server database (the project coded Yukon) (W8). Obviously, SQL Server being so tightly integrated with the filesystem (W19) will have a negative impact on publishers of other database engines for Windows. Not strange then that market leaders Oracle and IBM are heavily pushing the Linux platform and barely mention their products run on Windows any more.
Current Windows based software will not be compatible with the Longhorn filesystem. Microsoft has already stated that all their own software has to be rewritten for it - so will everyone else's. This will eliminate a huge number of software titles which are useful, but not sufficiently profitable to justify rewriting them. Others will fail because their conversion won't be done in time to compete with Microsoft products.
Coming with Longhorn is a new user interface, code named Sideshow (W5), so if you're currently trying to make sense of the new Windows XP user interface, 2005 is when Billy intends to yank your chain again. If you're a Windows programmer, you get to learn a new API framework named Avalon (W6) too.
Given Microsoft's enthusiasm for "rich data formats", I expect Longhorn is going to eat disk space at an alarming rate. Perhaps this is why Microsoft has suddenly taken a strong interest in storage technology and services (W9). It's also going to be a major backup problem, so watch for Microsoft to start offering .NET backup services (for which you will pay a fee). Others already offer ASP backup service, but expect incompatibilities with them that "assure security and data integrity" (unless, of course, they pay a large license fee to Microsoft).
I find it probable Longhorn will largely end the use of reliable, low cost servers (Linux, NetWare) for Windows users. This will set the stage for serious increases in licensing costs for already costly Windows server software.
Of course, Longhorn is going to be very late, so Microsoft is already hinting, then denying, they'll bridge the revenue gap with a Windows XP "Second Edition" upgrade (W10), or simply redefine "Longhorn" so they can get a partial product out in time. License 6, practically promises a major upgrade every 3 years or so, so I wouldn't even be surprised if they issued another all but unusable "end of the line" screw up like Windows Me.
The biggest risk to Microsoft is that the Longhorn effort falls apart, as did its "universal filesystem" predecessor, Cairo (W22), still an embarassment to Microsoft. Cairo became later and later, was then "repositioned" as a "suite of technologies", and swept under the carpet. Failure of Longhorn would be more serious, because that would severely impact Microsoft's upgrade revenue stream.
Already, "Longhorn Server" has been dropped. The Longhorn filesystem will instead be an update to Windows Server 2003 (formerly Windows.NET Server 2003) and other features have been shoved down to "Blackcomb" (W21), the next scheduled Windows upgrade.
Microsoft Office, not Windows is Microsoft's true cash cow, and it is Office, much more than Windows, that ties customers to Microsoft's expensive licensing plans. Currently, Office Pro costs about $500 per computer, but some research firms expect it to reach $700 per computer by the end of the decade. This will be combined with tough "one license per machine" enforcement measures.
Microsoft simply cannot allow inroads on Office's market share, yet the high and increasing cost of office, especially in view of License 6 (see below) has many businesses looking very hard at Sun Microsystems' low cost StarOffice and its "no cost" sibling, OpenOffice. Both run on Windows and Linux, and OpenOffice is being ported to Apple Macintosh. Both have excellent compatibility with Microsoft Office files, and native integration with XML.
Microsoft is also having a very hard time getting users to upgrade to the latest Office versions. Office 97 has long been replaced by Office 2000, which in turn has been replaced by Office XP, yet a huge number of Office users are still on Office 97 and show no signs of upgrading.
Microsoft's answer to both these problems is Office 2003 (formerly named Office 11), currently in beta release and scheduled for final release in mid 2003. Office 2003 features a degree of tight integration with other Microsoft products that is impossible for other software vendors to achieve. It is also a degree of tightness Microsoft's customers will find nearly impossible to escape once committed. These features will be required by .NET and other Microsoft initiatives.
Office 2003 and Windows Sever 2003 will include a Rights Management Services feature for document security (W25). If Microsoft can convince businesses to use this feature, Office 2003 documents will be completely unreadable by OpenOffice / StarOffice, WordPerfect Office, Lotus, and by all older versions of Microsoft Office, forcing a total upgrade of Windows, Office and the computers it runs on.
Office 2003 will not run on Windows 95, 98, 98SE or Me. Microsoft is very clear that it will run only on Windows XP and Windows 2000 with SP3 (Service Pack 3) applied (W17). Currently over 60% of Microsoft's business customers are still running Windows 95/98, and would have to purchase all new computers for an XP upgrade - new computers soon to be obsoleted by Longhorn and Palladium.
Note that applying SP3 for Windows 2000 requires you to accept a license
that allows Microsoft to enter your computer systems, examine their contents
and make changes without your knowledge or permission. Some companies are
refusing to apply SP3 even though it includes important security patches. The
Windows XP license also includes these terms.
Palladium, a chip based "security" initiative, is another major part of Microsoft strategy. Since Microsoft has seized control of PC design from Intel and the PC manufacturers, they are in a position to dictate how PC hardware will integrate with Windows.
Microsoft promotes Palladium as a boon to user privacy, security, and a stopper of worms and viruses. They claim it has nothing at all to do with unpopular DRM (Digital Rights Management), which prevents playing, displaying or copying copyrighted content (music, videos, documents, etc.) on a PC.
That is a lie. Truth is found in Microsoft "help wanted" ads: "Our technology allows content providers, enterprises and consumers to control what others can do with their digital information, such as documents, music, video, ebooks, and software. Become a key leader, providing vision and industry leadership in developing DRM, Palladium and Software Licensing products and Trust Infrastructure Services" (W7).
You can be sure the primary "digital rights" Palladium protects will be Microsoft's. You will find it impossible to run Microsoft software on any computer other than the one to which it was originally registered - or anything else Microsoft doesn't want you to run.
Palladium requires computers to have a special chip, which both Intel and AMD have already agreed to incorporate. "Protected content" will not run on a computer lacking the chip, or with the Palladium features turned off. You will have to buy all new computers to run Palladium enabled software.
Of utmost interest is Microsoft's statement that Palladium will allow creation of content that has an expiration date, and which cannot be used or viewed after that date. We will look at this again in the section on Licensing and Ownership.
Palladium has been highly controversial from the very first announcement (W3), because many, including many security specialists, feel it allows Microsoft excessive control over what software you will be able to run on your PC, and the company has already stated they will not allow it to be ported to non-Windows platforms. Academics fear it will hinder the flow of ideas and destroy the doctrine of "fair use" (W24)
In fact, Palladium has become so controversial, Microsoft has done exactly what they always do when the image of one of their products becomes tarnished, they changed the name. (W32). It's now "Next-generation Secure Computing Base". The name has obviously been chosen to be unsuitable for slogans and titles of articles such as this one. Unfortunately for Microsoft, it's just too cumbersome, so everyone's going to stick with "Palladium".
Palladium is not, of course, technology Microsoft originated. As usual, they have commandeered technology developed by others (W4) and reinterpreted it in a way that gives greater advantage to Microsoft.
The one thing that can slow Palladium is massive consumer resistance to the way it prevents "fair use" (and well as outright theft) of copyrighted entertainment content (videos, music, games). There will be no government resistance to Palladium. Your elected representatives represent money, and their votes have already been counted.
Will consumers resist? Some evidence says they will. Warner Music Group, Sony Music and Universal Music Group have already bent to consumer demand by putting a lot more titles up as singles, for download, free of "protection" schemes, and at lower prices than they original planned.
On the other hand, consumers have shown they will accept almost any level
of abuse to not have to think about alternatives to Windows, so use of
Palladium to protect Microsoft software (and repress competing software) can
Licensing & Ownership
You pay plenty for Microsoft software, but you do not own it - you have a non-transferable license to use the software as Microsoft sees fit. Microsoft owns it and they are not at all shy about exercising their "property rights". Further, the license terms can be changed retroactively (and are) any time Microsoft pleases. It says so right in the license terms.When Kmart filed to sell their Internet unit, bluelight.com, Microsoft told the bankruptcy court the sale could not proceed because bluelight.com held Microsoft property (software licenses), which could not be transferred to a new owner without Microsoft permission, (L14),
Despite the ownership issue, Microsoft has long chafed under the traditional PC software license. Once they license a program, they can only keep revenue flowing by releasing "upgrades" and convincing people the upgrades are worth purchasing. Producing these upgrades is a lot of work, and they are finding it increasingly difficult to convince anyone the upgrades are worthwhile.
Clearly, the solution to this problem is to shift software licensing to a subscription model. Under subscription, Microsoft can continue to enjoy steady income from products they do not need to upgrade at all. Microsoft has long lusted for subscription, but was held back by competition - but now competition has been pretty much eliminated.
On August 1st, 2002, Microsoft's volume license agreements (volume = 5 or more) changed dramatically to a "pseudo subscription". Under License 6 (L0) companies can no longer update their Microsoft software when they please, they must run the versions Microsoft dictates, and must upgrade when Microsoft says to. This is not a true subscription, but it's now just one short step to a true subscription.
Any business that didn't sign up for License 6 by the end of July 2002 is cut off completely from discounted upgrades. Should a business later decide it needs the upgrade program, it must first purchase all new software at retail price to get current. Higher cost Individual consumer license upgrades for home and very small business are still available until further notice, but volume license upgrades outside of License 6 are a thing of the past.
Coming as it did in the depths of an economic downturn, forcing immediate expenditure and increasing the cost of Microsoft software about 30% on average, License 6 has been unpopular (L1). Nontheless, so many companies felt they had no choice, Microsoft's revenue increased 10% for the quarter. Extortion is a wonderful thing!
A side-effect of License 6 was to further depress the already severely depressed PC market as money had to be diverted from hardware purchase to fattening the coffers of Microsoft.
We don't yet know the full results, and probably won't for some time, but in June, surveys by "Microsoft friendly" groups were showing 40% rejecting License 6, and another 30% undecided. Many said they just didn't have the money to comply, even if they wanted to. Many were looking seriously at alternatives for the very first time (L5, L7).
License 6 is certainly not the end of the matter. If you run Windows XP, or have downloaded recent security patches, or the Windows 2000 SP3, you have legally agreed to allow Microsoft to enter your computer systems, examine them, and make changes (which would include disabling software) (L13) without your knowledge or consent, and without liability for any damage that may result from such acts (L6).
If you doubt Microsoft is really serious about these details of license, note that they are the principal financial backer of the push for UCITA (G2 through G6), which is intended to codify these points into state law through the Uniform Commercial Code. UCITA includes the right to enter your computer and disable software for any real or imagined violation of license or payment, and to unilaterally change terms of license after the fact, license terms which apply even if you are not allowed to read the license before purchase.
Eventually Palladium is to take over license enforcement. Palladium supports firm cut-off dates, so if you don't pay your subscription fees, you will not get a new Palladium key and will not be able to use Microsoft programs, or the data you created with those programs. In other words, you pay, or you are out of business.
For small business, the real revelation will be discovering just how horrifyingly expensive it is to run Microsoft software legally. Right now, I can count the number of small businesses I know of that are 100% legally licensed on the fingers of one hand, without using any fingers.
The cost of Microsoft software is already so high, they're offering financing plans (L4) to help small businesses comply with License 6. These plans will be just so easy to convert into subscriptions, once businesses become used to the monthly payments.
An ESL (End User Subscription) license for Microsoft Office XP was test marketed, and withdrawn (L11) after a year and a half because (typical for Microsoft licensing) it was too complex for users to understand, and involved dealers as well as customers. Expect ESL to be back in simplified form and with added incentives in conjunction with Office.NET (Microsoft never gives up on something they really want).
Even subscription is not the true objective. Microsoft's long term goal is "Software as a Service", through the .NET Initiative (pronounced "Dot Net"). Software won't be loaded onto your computer at all, it will run "as a service" from Microsoft .NET servers. Your business data will also reside on Microsoft .NET servers somewhere out on the Internet. For access, you will have to be authenticated by a Microsoft Passport server.
Bill Gates was recently asked if Microsoft software might eventually be available only for rent through .NET, and replied "I believe in the long run things will be architected that way" (L3).
Microsoft Office .NET (N5) is far enough along that Microsoft has been doing focus group marketing studies for it (one of which escaped onto the Internet). Why will businesses sign up for Office .NET? Because it will be a lower up-front cost for each workstation, and Office .NET will offer attractive features not available in the boxed version.
So, why is Microsoft messing around with subscription software at all, instead of just going directly to .NET? That's what they wanted to do, but it's now obvious the broadband Internet access required by .NET will not be universally available in the near term.
Meanwhile, just to make sure you can't use copies of Windows you already
paid for on the new computers you buy, Microsoft has forbidden computer
makers from shipping computers without an operating system, under threat
of "renegotiating" their OEM distribution licenses
Microsoft's .NET Initiative (pronounced "DotNet") is Microsoft's take on Web Services, and is being deeply "integrated" into every Microsoft product to assure its wide distribution and wide adoption.
.NET differs very sharply from everyone else's concept of Web Services. While everyone else concentrates on making Web Services platform agnostic, .NET is designed to force the use of Windows to the maximum extent. While Microsoft pays lip service to "multi-platform", they have yet to demonstrate anything of that kind.
Under .NET, Microsoft provides the key services, running on Microsoft servers and accessed over the Internet. Services not provided by Microsoft will run on ASP partner's servers. Access to any and all is cleared through Microsoft's Passport authentication servers.
Microsoft software products such as Office, Project, Exchange, and Great Plains Accounting will be offered as ASP services, paid by the month, rather than licenses and CD-ROMs sold in a box.
Clients, of course, must run Microsoft Windows if they expect to be anything like fully functional. Any and all .NET services must run on Windows.NET servers - no "platform agnostic" services here, thank you.
Java, used as the main programming language for Web Services elsewhere, is not used with .NET, because Microsoft was a very bad boy and is forbidden by court order from implementing Java. To replace Java, Microsoft has had to write a new Java-like language named C# (pronounced "C Sharp").
Due to problems implementing Hailstorm services (see below), .NET is now loosely segmented into two domains: business and consumer. The version for larger businesses has moved closer to generic Web services, with more control held by the customer (for now). The small business and consumer domain remains truer to the original "Microsoft controls all" vision.
Software as a Service is Microsoft's holy grail, and they are developing .NET enabled ASP versions of all their software as quickly as possible. Microsoft Great Plains, for instance, is on a crash program rewriting all their accounting software in C# to make it .NET enabled.
The beauty of the ASP model for Microsoft is that all your business data, as well as the software to access it, resides on .NET servers, not on your own machines. This gives them a single choke point, Passport, and tremendous leverage in raising prices (remember their revenue growth imperative). Very large organizations will have their own Passport authentication (a painful concession for Microsoft) but for everyone else, it's Microsoft servers.
Microsoft is pressuring (and sometimes bribing) Windows software publishers to quickly rewrite all their software using Microsoft's Visual Studio .NET programming tools so it will be .NET compatible. Actually, Microsoft means for many of these publishers to perish in the transition, but right now they need a show of support.
Microsoft is also heavily promoting .NET among prospective ASP partners, because there's no way they can provide a full range of services right from the start. Many will be intoxicated by the smell of Microsoft's money and invest in setting up .NET services to tap into that revenue stream. Their eventual fates are exemplified by RealNames.
RealNames came up with a very useful service allowing regular names of companies and agencies to be typed into Internet Explorer instead of the cryptic http://url names. This was particularly important in Asian countries because they could type in names in their native character sets and RealNames would translate and bring up the site.
In 2002, Microsoft abruptly canceled the RealNames contract and removed the essential link from Internet Explorer. completely ignoring loud protests from its Oriental customers. RealNames was forced to close and all its employees were without jobs (N2, N3).
Why did Microsoft kill a company with such a useful product, a company that was showing solid signs of becoming profitable? Several reasons have been given, but are not convincing, Microsoft had already hired several former RealNames employees, so I expect to see them incorporate this technology into their products without paying for it. They just wanted RealNames too thoroughly dead to sue them,
This same fate has befallen numerous Microsoft "partners" in the past, and awaits those that sets up .NET services. Either your service is not successful and you go out of business, or it is successful, Microsoft commandeers it, and you go out of business.
All is not, however, going as smoothly as Microsoft would like. The key .NET services were bundled together into a package called My Services (code named Hailstorm). Unfortunately, My Services had to be withdrawn, because most of the big retailers and financial services refused to sign up because they didn't trust Microsoft (Yes, even corporate executives learn - it just takes longer). In fact, most of these organizations have signed up with the competing Liberty Alliance (N14), recently joined by the U.S. General Services Administration and the U.S. Department of Defense (N15).
My Services didn't die though. Within a couple of weeks Microsoft had it renamed and the marketing pitch reformulated to present it for in-house use on corporate networks. Now, they're just building it into all their products so you can't escape it (N1).
The FTC (Federal Trade Commission) has already charged Microsoft with deception, misrepresentation of the security and privacy of the Passport service, and with gathering information that was off limits (N6). Caught with its hand in the cookie jar, Microsoft responded with its usual "We didn't do it but we won't do it again" and agreed to compliance audits every two years (N11). Meanwhile, they are canceling the electronic Wallet attached to Passport and setting it up as a separate service so they can pilfer information free of the privacy and security terms of Passport (N12).
"Well, I'm just not going to be part of that", you say? If you run Windows, you probably already are part of it. Hot Mail, MSN, Microsoft Instant Messaging - they all require a Passport account, and they are all being expanded into key parts of My Services. If you are attached to the Internet, your Windows computer is already chatting with Microsoft's servers, and if your run XP or Win 2000 SP3, you have already given Microsoft permission to examine your computer and make changes as they see fit.
Windows XP is substantially integrated into .NET, and future Windows versions will be completely integrated. You won't be able to tell where your network stops and .NET starts. The licenses you need to use the software you depend on will all be authenticated through Passport and Microsoft license servers on a daily basis.
All this sounds awesome, but there are a number of factors that threaten to seriously limit the success of .NET.
All told, I expect .NET to be widely implemented, but ever changing and never completely defined. It will not deliver fully on functionality or performance and will suffer "significant" security problems. Many customers who build their business models on .NET will suffer chronic but generally sub-fatal dysfunction.
Consultants, integrators and contractors will make vast amounts of money
trying to make .NET work right, but Microsoft will rake in the really big
Microsoft is enamored of XML, to the point they try hard to convey the impression that it's a Microsoft protocol, XML is an open standard for communications between systems in a Web Services environment. A subset of SGML, XML is under development by the W3C (World Wide Web Consortium) (N16).
Microsoft was involved in creation of SOAP, a remote procedure call protocol that works with XML, but David Winner of Userland was the principal architect of SOAP. Microsoft has promised complete compliance with the XML standard and did announce that the Microsoft Office file formats will be transitioned to XML.
Many people rejoiced, saying, "Microsoft is converting even Office formats to standard XML, so soon we will be free of all those problems with proprietary Office formats". This is just silly. "Extensible" fits perfectly with Microsoft's traditional approach for destroying standards: "Embrace, Extend, Exterminate".
Even a casual reading of XML specifications will show that you can define data types that require a special parser to interpret them, which could be a parser only available in a Microsoft product. Microsoft has already stated they will do this, "to protect our intellectual property".
Now it appears even that won't be necessary. Microsoft has backed off its earlier statements and now says Office 2003 will consume standard XML, but won't produce it (N8). It'll still be all proprietary formats. No prediction has been made as to when there might be an Office that saves in standard XML format.
A serious probelem with this strategy is that low cost competitor StarOffice and no cost competitor OpenOffice already use standard XML as their native format and will be much easier to integrate into enterprise systems. Further, OASIS, a leading industry standards organization, is developing an XML standard for office applications, using the OpenOffice formats as the starting point (I6, I17).
If Microsoft can get business to go along with their XML schemas, and many businesses will, then business to business, and even business to consumer activity can easily be diverted through .NET services controlled by Microsoft. For that, you will pay a fee.
Intuit is currently showing the way to do this by hijacking the traffic of QuickBooks users using the built in email invoicing feature (N4). This turns out to be an ASP service for which Intuit intends to start charging a fee. Further, Intuit reserves the right to add third party advertisements to your invoices and gather all the data they want to from those invoices, right down to customer addresses and line item prices, and use it as they please.
Expect Microsoft to be watching Intuit's work very closely, since they
share the same cavalier attitude toward their customers (they tried to
merge some years ago, but screwed it up).
Microsoft promised their business management software development "partners" they would never compete with them. I predicted about a year ahead of the fact that Microsoft would purchase a major Windows accounting software publisher, and predicted it would most likely be Great Plains, and that would be the beginning of the end for everyone else publishing accounting software for Windows.
I further predicted that a low end accounting package would be purchased or developed quickly to take market share away from Intuit (QuickBooks), Sage (Peachtree, Business Works, etc.), and other low range publishers. Finally, I predicted they would tack on Point of Sale and other more specialized modules.
Microsoft bought Great Plains, and six months later, Great Plains announced a low end accounting package, Small Business Manager. Later, in June of 2002 Microsoft purchased Point of Sale software publisher Sales Management Systems. The POS products will be integrated with Small Business Manager.
In announcing Small Business Manager, Microsoft made a point that it was higher priced and did not compete with QuickBooks, Peachtree and the like. This was quietly fixed some months later when a reconfigured and re-priced version of Small Business Manager was issued, moving firmly into QuickBooks territory.
Nor does all this stop with just accounting and Point of Sale. Microsoft has announced its entry into the lucrative CRM (Customer Relationship Management) market in direct competition with former partners. SCM (Supply Chain Management) is sure to follow.
For other business models, Microsoft has announced Professional Services Automation (B5), a software package designed for wall to wall control of professional practices, especially engineering, law and others that are "project" based. PSA integrates Microsoft Project, knowledge management, time, expense and project accounting, financial reports and analysis,
Microsoft makes a lot of noise about concentrating on the "underserved midrange market" ($1 million to $1 billion in their definition) and not competing against "established enterprise partners" like SAP at the high end. Translation: "We aren't ready yet, and we still need you to lay the groundwork by converting all your enterprise clients to Windows and .NET".
Microsoft's "development partners" are going through the same three stages we have seen in other markets Microsoft has invaded: denial, desperation, bankruptcy. They'll all get a brief mention on www.fu??ed company.com (you need to fill in those ??s yourself).
Sage (Best) denied any impact on its business, but has already entered the desperation stage with a joint announcement with IBM that it will be a major supporter of Linux. Way too late - they've already forced their customers to Windows versions of their products. Peachtree, for instance, refuses to install if you have a Linux / Samba server on your network, even though it would work just fine (if you could install it). Peachtree support still refuses to talk to you if you have such a server. Sage is toast.
"But," you say, "how can Microsoft displace Intuit? Everybody's using QuickBooks. Intuit is just too popular." Microsoft's "Triple Terminator" is the transition of Windows software to .NET, Longhorn and Palladium. Microsoft will "help" Intuit make these transitions the same way they "helped" WordPerfect and Lotus make the transition from DOS to Windows. Only Microsoft software will be able to take full advantage of the this future world - Intuit is the WordPerfect of the future.
So what does all this mean to your business? When evaluating your management and accounting options, you need to keep these points in mind:
By now, it should be pretty obvious you are going to have to raise
your prices, because 100% license compliance is going to be
expensive, and you can't afford not to make your software subscription
payments because that would be instant Chapter 7. Pray that your competitors
all stick with Windows too.
Software development may seem out of place in this business discussion, but in actual fact, only a small percentage of programmers are employed by companies that produce software for sale. The great majority work for non-software businesses developing software for internal use. Custom programs often yield huge labor savings compared to "canned" software.
A large amount of in-house developed software for Windows is written in Microsoft Visual Basic. While Visual Basic coders and their chosen language are roundly despised by "real programmers", they have given business a pool of relatively low cost developers capable of handling routine business tasks.
The Visual Basic language is very loose and forgiving. Its easy to use "point and click" structure ("point and drool" to the "real programmers") allows fairly complex programs to be created with very little understanding of programming principles.
All this changes with Visual Basic .NET, which requires much of the same planning and disciplined structure the "socially acceptable" languages have always demanded (D1, D2). This, and the fact that Microsoft is pushing very hard for conversion of everything to .NET, has left Visual Basic programmers feeling confused, disenfranchised and concerned about their futures.
The effect on businesses, as they too feel Microsoft's heavy hand pushing them to .NET, is an increase in software development costs. Either the existing Visual Basic programmers will have to be sent off for expensive training in the new methods (and then paid more for their new skills), or "real programmers", will need to be brought in, and they're going to want to write in "real languages" like Java or C++.
Another expense is that .NET automatically recasts all the software already developed into "legacy code" that needs to be rewritten. Microsoft provides conversion software, but the resulting .NET programs suffer a nasty performance hit and will need a lot of hand tuning to overcome that.
After that, there will be a complete rewrite for Longhorn (see above).
All this is threatening to consume the cost advantage Windows development
has enjoyed over other development environments.
Who Do You Call? - Sales & Support
As Microsoft pushes its market toward the enterprise data center, they increasingly encounter IS (Information Systems) departments that have very high expectations of vendor support - expectations born of a long association with IBM. To meet these expectations, Microsoft established MCS (Microsoft Consulting Services).
Very quickly, MCS became as much a problem as a solution. Microsoft's "channel partners", VARs (Value Added Resellers) and integrators, long established in the enterprise market, were finding themselves competing directly with MCS for business from large accounts. These channel partners expressed their concern very clearly.
Now, here's Microsoft's problem - .NET. Microsoft's Web services are still pretty much "vaporware" (often impolitely called .NOT), and .NET has serious competition. Sun Microsystems' Sun One and most especially IBM's WebSphere are more mature, and are backed by companies long established in the data center space. WebSphere is backed by IBM Global Services. a worldwide operation with an estimated 2002 revenue of nearly $40 Billion (after absorbing PWC Consulting).
It would take Microsoft decades to build an organization competitive with IBM Global Services, so they must depend on their channel partners - not only to push .NET, but to convince customers to delay Web services implementations based on competing products available now. An upset channel could easily switch to non-Microsoft products.
"The channel" has indeed always been Microsoft's secret weapon - a huge number of VARs, resellers, consultants and integrators of all sizes and stripes promoting Microsoft products to businesses, and Microsoft has always treated these "channel partners" very well.
Now, in recognition of their intense need for the channel to do the heavy lifting, not just for .NET, but for business management and accounting, CRM (Customer Relationship Management) and SCM (Supply Chain Management), Microsoft has had to revamp their channel partnership program (S2).
A major feature of the new program recasts MCS from a profit center to a "satisfaction center" (without, of course, giving up profit). It has been decreed that MCS will always seek to be a subcontractor behind a partner rather than the prime contractor. MCS will also sell support to the partners in substantially discounted lumps of $68,000/year for up to 400 hours ($170/hr) and $20,000 lumps for SMB (Small, Medium Business) partners.
This new program has a number of strategic advantages for Microsoft.
Yes, Microsoft still covets its channel partners' revenues, and grew its direct sales team by 47% in 2002, and account management staff by 15% (S4, S1), and there's still an imperative to grow MCS to satisfy their largest customers, but they must do all this very delicately, lest upset partners bolt to IBM/Linux and Sun alternatives.
The big question is, can they pull it off? Partners will still be running up against MCS to some extent. Revenue for upgrades is a major item, and is already migrating to Microsoft direct, and that will accelerate as Microsoft moves licensing to a subscription basis. I expect established channel partners to remain concerned enough to build significant capability with alternative products, but not concerned enough to jump off the Microsoft ship any time soon.
What does this means to the small business manager? It means you
will be dealing with your local service providers. not directly with
Microsoft, for some time yet. Yes, "A Microsoft partner is a victim they
haven't gotten to yet", but the channel partners still have a while to live.
Microsoft just isn't big enough to do without them, and may well never be
Home and Entertainment
With its business monopolies saturated, the home PC market stagnant, and heavy resistance in the corporate data center, Microsoft sees the huge home entertainment market as its next big revenue generator. Here they expect they can leverage their PC monopoly effectively. As with any market Microsoft enters, "we only want our fair share - all of it".
Microsoft's expressed intent is for all family entertainment to be delivered through Microsoft controlled channels - both hardware and software, and to charge both the content distributor and the content consumer for the privilege.
The XBox game console introduces the concept of Microsoft manufactured and controlled hardware, but is just the first (multi-billion dollar) step. Having seized complete control of hardware design from Intel, Microsoft is setting the stage for taking over the home market entirely - disk, box and content.
Microsoft's next step is piloting now - XBox Live (H3), an on-line gaming system. Unique to Microsoft's system is that Microsoft owns all the servers, thus Microsoft collects all the money and all the personal information about the players. Sony encourages third party businesses to set up and run gaming servers.
Sony is providing an adapter kit supporting both modem and broadband (H4) connections, while Microsoft supports only broadband. Remember how important broadband is to .NET and you see why they discourage modem use. Consider also that Bill Gates and Microsoft co-founder Paul Allen have invested heavily in cable companies.
Next up is the XBox Home Gateway through which all family entertainment will filter. It will, for instance, contain the TV schedule (updated daily from Microsoft.NET) and will select the channels for your new digital TV. This will enable Microsoft to sell "positioning" to TV shows the same way they sold icons on the desktop to Internet services. Any content critical of Microsoft will be pretty hard to find.
Following Home Gateway will be XBox 2, which has been described as much more like a full function PC. This will be the beginning of the end for makers of PCs for the home market. They will find it impossible to build machines compatible with Microsoft's content controls.
The Home Gateway will extend, through Universal Plug and Play (already a default setting in Windows XP (and already a severe security problem (H1))) to control your home appliances. At least it'll give you some nifty new excuses: "A hacker broke into the microwave and ruined the turkey", "The refrigerator got a virus and that's why the food spoiled and everyone got sick".
Of course, Microsoft will be selling plenty of information about you and your family to advertisers, market researchers and probably Homeland Security. They've already contracted for profiling software for their current TV set top boxes (H2).
The Home Gateway, coupled with Digital Rights Management software, and eventually Palladium is half the "Trustworthy Computing" picture Microsoft is promoting to the MPAA (Motion Picture Association of America) and RIAA (Recording Industry Association of America) as an unbreakable distribution method.
The other half of the picture is the servers used to feed digitized content (motion pictures, music, etc.) to PCs and other devices equipped with Microsoft DRM technology (H10). A more advanced DRM Server (H5) is planned for release, and will replace the current Media Rights Manager server. The servers are used by content providers .
To support all this, the Microsoft EULA (End user license agreement) you have "signed" (by the act of using Windows XP or by downloading recent Service Packs and security fixes) specifically states that Microsoft has the right to inspect software on your PC and to change or disable that software as they wish, without notice to you, and without liability to Microsoft, to protect copyrights (including their own). This means Microsoft has complete administrative rights to your PC - home or business.
Every household with children or teenagers will have its computers infected with Microsoft's DRM schemes within a few months. Kids have always received everything free from their parents, and just can't understand that "free stuff" from the outside world must be regarded with suspicion. Microsoft is distributing their DRM system with free "preview" CDs and by similar means (H9, H12).
Of course, advanced DRM requires hardware support at your end, but hardware manufacturers are all perfectly willing to go along ( H11). They see no downside whatever to your need to buy new video and sound cards, or even new PCs to support Microsoft's schemes.
All this has caused considerable unrest among rights and privacy advocates, because it tramples a number of legal rights, such as the "fair use" doctrine, post sale usage of purchased content, privacy, the security of your PC and control of the content you can view and the software you can run - but with lawmakers already bought and paid for, there's not a lot that is likely to get done about it.
So Microsoft's push to control home entertainment seems unstoppable, yet right in the midst of it, they received a stunning setback. It was announced on September 9th, 2002, that Movielink (H8), a joint venture of Metro-Goldwyn-Mayer, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Brothers would offer movie downloads starting in Q4 of 2002. IBM, not Microsoft, provides hosting, system operation, rights management and network management.
This deal is so big the Department of Justice jumped in before it was even announced. It's now obvious these movie giants never intended to consider Microsoft's delivery plan. Why? Looks like it's that pesky "trust" thing again. You just don't hand a company with Microsoft's ambitions control of your air supply (I told you these guys were smarter than the software industry).
The music industry, on the other hand, is a different matter - all the
greed with none of the brains. I expect Hilary Rosen's RIAA to go hook
line and sinker for Microsoft's promises. If they had two synapses to rub
together they would have seen the power of Napster and turned it to their own
advantage, but now, they'll be completely dependent on Microsoft for delivery,
and that's going to cost them plenty (H12).
Security problems will continue to dog Microsoft at an accelerating rate. Security is high profile since 9/11, and it's one of Microsoft's most serious weaknesses. Worm, virus and trojan invasions, Web page defacement, credit card theft, data theft, espionage and destruction are major features of Windows systems, costing business tens of billions of dollars per year worldwide, which could easily become hundreds of billions.
The vulnerability issue has now become such a serious public relations problem (even long time ally Gartner Group has recommended dumping Microsoft's Web software (X34)). Security issues now threaten Microsoft's expansion into the enterprise datacenter and encourage customers to look seriously at alternatives.
Microsoft claims attacks predominantly focus on Windows because Windows is so popular, but it is even more because Windows is a uniquely soft target. While no system is entirely secure, most at least take some skill to penetrate. Windows provides easy success for neophyte crackers and entertainment for thousands of unskilled "script kiddies". But don't take it from me, here's what Microsoft says.
"... Our products just aren't engineered for security." (X0) - Brian Valentine - Microsoft senior vice president for Windows development. Another Microsoft executive recently explained they never paid attention to security "Because customers wouldn't pay for it until recently" (X23). In other words, customers wouldn't pay extra for something they expected as part of the product.
Windows XP, advertised as "The Most Secure Windows Ever" needed a major security patch within weeks, for a feature (Universal Plug and Play) for which there is still no use, but which fits into Microsoft's marketing plans. Now Windows XP's password security has been found totally useless, easily bypassed by even normal users (X58).
The skill level needed to write a successful Windows worm or virus is absurdly low. The people who launched the famous Love Bug (estimated $8 Billion in damage and eradication costs), was launched by people with only a few weeks of computer training.
Even commercial products take advantage of Windows' weaknesses. Anyone can install a keyboard logger on someone else's Windows PC and have it email all the activity on that computer to the perpetrator's mailbox (X10, X9).
Now that Microsoft's customers are desperate enough to pay extra, Microsoft has opened a new Microsoft Security Business Unit, and is exploring ways to charge customers to overcome the design failings of Microsoft products. This will allow Microsoft to establish "tight integration" between the vulnerabilities of core products and extra cost add-on products to counter those vulnerabilities. Sweet deal, huh?
Microsoft's .NET Initiative will magnify the current problems, since business systems participating in .NET have to be permanently attached to the Internet, with key services coming from Microsoft servers of questionable security (X28, 57). Key features are "single sign-on" and "tight integration", so when security is broken at one point, it's broken everywhere. What a convenience for invaders!
What makes Microsoft's environment so uniquely vulnerable to invasion, subversion and security leaks, and why are the vulnerabilities not getting fixed?
What is Microsoft Doing About This
Denial has always been Microsoft's "remedy of choice", blaming "dumb users", "criminal hackers", and "poor administration" for security problems. Apparently Microsoft itself employs plenty of dumb users and poor administrators, because they've had to disconnect their internal systems for major cleanups with every big worm attack, and they got slammed pretty hard by the Slammer worm in JAN 2003 (X51, X48).
FUD (Fear, Uncertainty, Doubt) is Microsoft's second line of defense. A large number of articles are now appearing in news and magazines purporting to show that all environments have about the same level of vulnerability (X27), or that Linux has more bugs than Windows. They are typically by "Writers for Hire" (X26), and are simple rewordings of the Microsoft line.
Aberdeen, a market research firm that numbers Microsoft among its important clients, published a "report" with a catchy title claiming that Linux has more security flaws than Windows (X49). Cert , the prestigious security clearing house upon whose numbers the "report" was based, immediately declared Aberdeen's interpretation meaningless and invalid, but this has not stopped the Aberdeen "report" from being widely quoted in magazines and newsletters that should know better.
In January 2002, Bill Gates issued his famous internal memo (obviously designed to be leaked) proclaiming security as Microsoft's number one development concern from that point forward. He also copyrighted the title "Trustworthy Computing" to symbolize Microsoft's new mandate.
Microsoft also created a new vulnerability category, "Important", so they wouldn't have to release so many "Critical" warnings. Since then, public pressure has forced them to bump several "Important" warnings up to "Critical", and we're still getting a "Critical" about every two weeks. (X24, X29).
When a security problem is found Microsoft generally does nothing until it becomes a PR problem (X21). Then a patch is issued, which may work, but may cause problems (X25, X56). If it isn't easily fixed, or the fix would violate Microsoft's marketing plans, they just deny the problem (X7, X3, X4, X13).
Meanwhile, security patches continue to roll out in an incessant stream, (X5, X8, X11, X12, X13, X14, X15, X18, X19, X22, X29, X31, X32, X43, X54, X55), and many, many more, but you get the picture. Despite boasting of spending over $100 million reviewing code, very few of the problems (1 out of the first 15 in 2002) have been discovered by Microsoft.
That security patches have been issued is irrelevant anyway. Microsoft has told everyone that Windows doesn't require skilled administrators, so few businesses have them, and security patches don't get applied. The Code Red and Nimda server worms came out long after the patches, but a year later servers all over the world still transmit these infections. When informed of an infection, owners of these servers become very angry at the messenger, but do nothing to fix the problem. Most have no idea how.
Companies that do have skilled administrators are often reluctant to install patches, because they often break something else, or make the system unstable or nonfunctional (X53). Sometimes they simply don't fix the problem anyway. Sometimes they are used by Microsoft to force new license terms customers don't want, as with Windows 2000 SP3, and to install new features that may disrupt operation.
Even if Microsoft's Trustworthy Computing efforts do produce a "better moustrap", "better mice" are here already - root kits for Windows are now available (X66). Root kits are a generation more sophisticated than the traditional Windows attacks, and a properly written root kit can be nearly impossible to detect. Security experts think there are a bunch of them in the wild, but only a few have been detected so far (mainly due to programming errors).
For desktop computers directly attached to the Internet, the situation is infinitely worse. Most will never be patched, and make convenient tools for DDoS (Distributed Denial Of Service) attacks and as entry points into company networks. For this reason, Microsoft is trying to force feed updates using Windows Update every time you attach to the Internet. Anything wanted by Homeland Security will ride along, of course.A real concern for users is just exactly what information is being sent to microsoft during a Windows Update session. A German organization has recently examined the data stream and found a lot of information going to Redmond, including a list of software on your computer, which includes programs published by other software companies (X60). The DMCA makes it illegal to obtain this kind of information in the United States.
The on-line registration for Windows95 was suspected of sending similar information but Microsoft denied it was. That was not true, as later analysis revealed codes assigned to any of about 100 software packages were included in the header block if found on your computer (X61).
Some effects of "Trustworthy Computing" are being felt though. Microsoft's customers have started complaining that the initiative is being used primarily as a marketing tool to force them into unwanted upgrades to newer, "more secure" versions of Microsoft products (X33).
The effect of "Trustworthy Computing" on security is much less obvious. In January 2003, Bill Gates gave another of his "we are so secure" speeches, and an ad campaign promoting Microsoft security was kicked off (X47), just in time for the Slammer worm, exploiting a weakness in Microsoft's SQL and MSDE database engines, to shut down networks worldwide (X44).
In the U.S. most of the damage was contained in the early morning hours, but many found they could not use bank ATM machines (X52) or airline reservation systems for the rest of the day. Unlike Nimda and Code Red, Slammer did not become a chronic problem, simply because of its severity. If you had an infected machine, you had no choice but to turn it off, because your network was useless if it was left on. (X46). Once again, it could have been much worse, but the worm's designer didn't optimize for damage (this worm was only 376 bytes in size).
Countries with more centralized Internet structures than the U.S. has, like South Korea, lost Internet access entirely for some hours. In the U.S., access was just deathly slow (I experienced it first hand at about 1:00AM). Had Slammer been designed to do damage, Internet access might have been unavailable for weeks, and the cost astronomical.
All in all, security experts aren't real impressed with Microsoft's "Trustworthy Computing" efforts (X50). In fact, some experts feel Windows is broken so severely at such a deep level it cannot be repaired (X1, X2).
It's just coincidence, but the Department of Homeland Security moved its servers from Windows to Linux on the very day of the Slammer attack (X45).
Conclusions: If your business has data it must keep secure and protected, such as medical records, legal files, or credit card numbers, or your systems must be always available, or if you have something to hide, running Windows leaves you vulnerable to data loss, theft, and possibly to arrest or legal action for failure of due diligence.
If you are a lawyer, why bother with the criminals - charging the victims
with negligence is going to be much easier (I am not a lawyer, so this does
not constitute legal advice). If you have criminal intent, or antisocial
tendencies, I suppose you already know what to do and are probably already
Microsoft's Legal Problems
Microsoft's endless legal problems will continue to erode the company's public image and the trust of business partners.
Even the antitrust case, which Microsoft has settled with the Department of Justice, continues to grind on. Microsoft executives have freely admitted the settlement they negotiated with the Bush/Ashcroft administration hands them greater power than they had before the trial began - not surprising since they wrote it and Bush/Ashcroft just retyped and signed it, but others continue to pursue the case,
Microsoft's highly publicized moves to "comply with the DoJ settlement" are PR stunts and are causing adverse publicity. Their high profile release of 272 APIs (Application Programming Interfaces), for example, was in a format completely useless to anyone (Q1).
Even so, if this was the extent of the matter, Microsoft would be little damaged, but, similar to the O.J.Simpson case, the real damage may be done in civil court. A number of private antitrust cases have been filed against Microsoft. With Microsoft now a convicted abuser of monopoly, guilt need not be proven, just damages - and triple damages apply.
Prominent antitrust cases have been filed by Sun Microsystems over Java, AOL/Netscape over the subject of the original trial, and Be Systems. over crushing their superior operating system, all through monopoly leverage. All these cases include very substantial evidence.
Microsoft has already bought out the Caldera antitrust suit which threatened to drag out a huge pile of their dirty laundry. The buyout is estimated at between $350 and $500 million, but Microsoft tried to trick the press into believing a $150 million addition to existing reserves was the total settlement. Most of the technology press suckered for the ploy.
Microsoft will probably fight the Sun Microsystems Java case to the bitter end, and buy out of the others, because only the Sun case involves current action. The other plaintiffs are already dead. The settlements will look huge, but will be small compared to Microsoft's wealth. The major damage to Microsoft will be to trust, and that will hinder deployment of .NET.
Another "little problem" with the Microsoft / DoJ settlement is that judge Colleen Kollar-Kotelly added a couple annoying items asked for by the states, and wrote herself in for oversight of Microsoft's compliance. Should Microsoft blatantly defy the agreement, as they have done with previous DoJ agreements, judge CKK can pretty much have her way and her way of having it as far as remedies are concerned.
Questions have now surfaced about claims Microsoft made during the antitrust settlement hearings. Microsoft argued that exposing the Windows source code would seriously compromise national security. Now they have agreed to open this same source code to the governments of Russia and China (X62). Is Microsoft deliberately compromising American national security to protect its markets, or have they been bending the truth in court (X63)? Either way, they should be held accountable.
There are currently about 25 patent infringement cases against Microsoft (Q4). Technology innovators tend to be hopelessly naive and do not recognize the smell of Microsoft's money as the smell of death. Microsoft routinely drags out license negotiations until they know everything they need to know about the product. Negotiations are suddenly dropped, and Microsoft issues an infringing product. The next step is to cut off the innovator's cash flow and use Microsoft's massive legal forces to bankrupt him in court. No royalties will be paid.
The list keeps growing. British company Sendo partnered with Microsoft to bring Microsoft's SmartPhone version of Windows to the mobile phone market. Just days before introducing their product, Sendo dropped the relationship and has filed suit against Microsoft. It seems Microsoft's favored contract manufacturers in Asia, who have little software design expertise, started shipping handsets incorporating sophisticated technology identical to that developed by Sendo (Q6).
Microsoft has just lost its appeal of an important patent case brought by Timeline. Microsoft signed a patent license agreement with Timeline, but apparently issued misleading statements about that agreement to their customers to encourage developing for SQL Server. SQL Server developers now face the possibility of having to pay staggering license fees to Timeline. Some are considering suing Microsoft for misleading them (Q11).
Two cases cleared for trial threaten every version of Windows from Windows95 on (Q7, Q8), and if either wins, it will cost Microsoft the big bucks. Microsoft does lose in court pretty regularly, since they're clearly guilty most of the time. When they lose, they negotiate a settlement incorporating a nondisclosure agreement. This costs them extra, but is well worth the cost, because the public never learns the true extent of Microsoft's violation of laws and ethics.
In fact, nearly every Microsoft agreement or contract carries an NDA (Non Disclosure Agreement), often to hide the extent to which extortion was applied. Facts hidden by the NDA may seep out many years later. The NDA required to get critical Microsoft programming assistance in the transition to Windows, for instance, included an extortion clause requiring software developers to drop all development of software for IBM's OS/2 operating system. By such means, superior products are driven from the market.
Now, with Microsoft battling Linux in the universities, they require NDAs that force public institutions to be in violation of U.S. public records laws (Q5). In other words, "You want our software, you're going to have to break the law a little".
Related legal problems are that Microsoft's licenses for Windows XP and Windows 2000 SP3, which are expected to be expanded in future products, apparently force customers to violate both U.S. Banking law (Q10) and HIPAA (Health Insurance Portability and Accountability Act of 1996 Q9). Microsoft's demand to be allowed to enter, examine and make changes to systems that are required to be certified and secured is incompatible with U.S. law and regulations.
Microsoft also faces legal problems oversea. Most prominent is action by the European Commission which is investigating Microsoft's business practices in several areas (Q12). If charges are brought, the EU has much less incentive to accept a favorable settlement than Bush/Ashcroft did. The Taiwan FTC (Fair Trade Commission) also has ongoing action concerning Microsoft's business practices (Q13).
For certain, there will be many more legal actions against Microsoft, because the company has never respected the law. Microsoft started out by stealing intellectual property ("dumpster diving" for code) and computer time, and it hasn't changed its attitude one bit since. It is likely new Federal antitrust charges will be filed soon after Bush/Ashcroft leaves office - there is certainly plenty of material for one.
The smiling Bill Gates mug shot
from 1977 exemplifies this attitude. Microsoft claims it was for a traffic
violation, but the laws of New Mexico say otherwise - mug shots are
reserved for more serious offenses. What was the offense? Microsoft's money
has caused that to vanish from the record. As long as money buys "justice"
Microsoft will respect neither law nor justice.
Why Choose Microsoft Solutions?
Despite matters discussed above, some of which can be interpreted as detrimental to businesses, most businesses Will choose Microsoft solutions, and many will choose only Microsoft solutions.
A principal factor is that America's business leaders simply don't want to think about complex technology issues - they want to think about golf. Microsoft promises them that, and being a large, and hugely successful corporation, they have high credibility with top business executives.
Microsoft's sales teams waste little time pitching to people who understand and implement technology, they pitch to executive "decision makers" who have the power to dictate what information systems will be used, even though they know little about them. Microsoft has direct access to high level managers, many of whom are strong admirers of Bill Gates' wealth,
So strong is the desire to simplify decision making, many executivs are willing to live with "solutions" that don't actually work. The industry is replete with stories of "Microsoft only" shops where staff replaced Microsoft products that didn't work well with lower cost products that did, only to be ordered to remove them and return the Microsoft "solution" to service. Other shops are reported to have adopted a "don't ask, don't tell" attitude.
Microsoft promises integrated solution packages they assure the customer will all work together seamlessly to implement efficient new business processes resulting in huge contributions to profitability in an amazingly short time. Better yet, this is all pre-packaged and can be implemented and run by cheap, semi skilled labor rather than the expensive administrators required by other systems - it's all "point and click".
Microsoft backs all this up with very well developed product selection tools (M2) to help configure systems that might actually work. If the tools are good enough that semi-skilled managers feel comfortable pointing and clicking their way through the design stage, those expensive and troublesome "experts" won't be brought in at all, and superior alternatives to Microsoft's solutions will not be examined.
That's the pitch: at the top, become a superhero to the stockholders without taking your mind off golf, and for the middle managers, the security that "Nobody ever got fired for buying Microsoft" (not actually true, but widely believed). This two-pronged pitch is difficult for any competitor to counter.
Small businesses don't get wined, dined and golfed by Microsoft sales, but they are still continuously exposed to Microsoft's marketing materials, and are just as vulnerable to the temptation of making easy choices. "Lets just go with the leader - that'll be safe." In some cases small businesses have little choice, since their internal systems are dictated by customers and business partners much larger than they are, and they don't have the skills to get around that.
Most small businesses don't call in a consultant until they have already decided on a course of action - they just expect the consultant to make what they have decided to do work. In truth, most consultants are happy to go along with this, because they can charge full rate for everything, and not get blamed for the choices. A system that "sort of works" generates a lot more consultant dollars than one that works (IBM Global Services favors Windows over IBM's own OS/2, because OS/2 works).
Does Microsoft deliver on its promises? In many ways, yes - but that "bottom line" part - no. Microsoft's solutions have always proven to be very expensive, sometimes absurdly expensive, and often far more expensive than available alternatives. If Microsoft solutions were cheap, Microsoft wouldn't be that rich.
Microsoft's solutions often look inexpensive, and are always claimed to be, but are often cheap by the unit and expensive overall. There is often little economy of scale. One unit, a thousand units, the cost per unit is about the same, and each carries full support costs. There are also often many more units than with competing solutions, especially when it comes to servers.
Some years ago, Microsoft convinced management that moving from Novell NetWare servers to Microsoft Windows NT servers would save them huge amounts of money, because the servers could be administered by people with far less skill - it's all "point and click". Companies following this path found that every NetWare server was replaced not by one, but by three or four NT servers, and the admins were definitely cheaper, but there were four or five times as many of them.
Why wasn't a big stink raised? For the pointy haired bosses of middle management, the Windows conversion was a godsend. Four or five times as many employees means more power and more pay - and nobody could object or criticise, because it was all dictated by top level management. These same conditions apply on the "Road Ahead".
This state of affairs will persist, and be resistant to change. Business leaders simply are too comfortable with the Microsoft solution, and become more comfortable as Microsoft eliminates more competitors - less decisions to be made. Being able to say, "we really had no choice", is something most business "decision makers" are willing to pay any price for.
Alas, this soothing ointment does come with flies in it. There are many
applications for which Microsoft solutions are simply not at all
suitable, and others where they become way too costly the
moment a competitor implements an alternative solution. This has
given alternatives staying power, and as the cost and complexity of
Microsoft's solutions continue to increase, alternatives increasingly
threaten the status quo.
Given that Microsoft makes such a compelling case to business leaders, you would think competing products are at the end of their days, yet many are showing such strength, even the technology press is beginning to notice.
In important areas, competitors have slowed Microsoft's expansion to a crawl, and even threaten to recover lost territory. Deliberately incompatible Windows features now often slow acceptance of Microsoft products rather than demolish competitors as intended. To maintain revenue growth, Microsoft has been forced to increase costs to its current customers, providing yet more incentive to look at alternatives.
What happened? Windows NT was supposed to hit Unix hard (it did - like a bug hitting a windshield), and the last mainframe was to be unplugged before the end of the century - yet Unix and mainframes are still the power houses of business technology. Even Novell, decimated by Microsoft's superior marketing, is showing signs of renewed life.
The problem is simple, superior marketing can take you a long ways, gathering all the low hanging fruit, but eventually you get to a place where you must compete on merit. Microsoft has reached that place, and their products have proven inadequate for many jobs.
What Alternatives Are There?
The prominence of Linux in every one of our "reasons" categories, and its appearance in many of the "alternatives" as well, has caused Microsoft's management to move it to the top of the "Enemies List", and declare it to be the most serious challenge Microsoft has ever faced.
To date, Linux has displaced Unix to a greater extent than it has Windows, but each Unix server Linux replaces is a server Microsoft had expected to replace with Windows. Linux has seriously slowed Microsoft's expansion in the server market, because it is much easier to convert from Unix to Linux than Unix to Windows, and once Linux is in place, Windows offers no cost benefit.
To make matters worse, developers are rapidly improving Linux' already capable graphic desktop environment, which can even be configured to look exactly like Microsoft Windows. As Linux starts seeping out of the server room into "line of business" workstations, Microsoft's most jealously guarded monopolies are directly impacted.
Linux is very difficult for Microsoft to fight, because it isn't the product of a single company they can buy out or bankrupt. The Linux code is open source (free and freely available), so anyone who wants to can publish it, and thousands of programmers worldwide contribute to its improvement and maintenance. Destroy one Linux publisher and another would take its place overnight.
Linux isn't even the extent of the problem. Other open source products counter Microsoft, often in conjunction with Linux, but often on Windows itself. open source Apache dominates the Web server market with a 60% share, while Microsoft's IIS holds less than half that. Additionally, IBM's Websphere e-commerce suite is also based on Apache. open source OpenOffice and its commercial variant, StarOffice 6, now directly threaten the Microsoft Office monopoly. When our clients balk at $500/workstation for MS Office, we just install OpenOffice for free.
With business management moving to Web Services and Web based applications, The strength of open source Web applications is very worrisome for Microsoft. For instance, both FedEx Freight (C25) and Union Pacific Railroad (C24) have placed their customer interface and traffic management systems on Linux and/or Apache. Neither FedEx Freight nor Union Pacific Railroad are exactly "Mom & Pop" operations.
FedEx Freight moved from Windows NT to Linux / Apache, and intends to dump another 40 or 50 Windows servers, consolidating their functions onto a single 4-processor Intel server running Linux. Union Pacific has a mostly Unix network, and refers to their remaining Windows / IIS applications as "legacy applications".
So powerful is the Linux freight train, even mainline business magazines
are getting on board. Business Week (A8 - articles
listed to the left of the cover picture) has just
published a 9 article cover feature on Linux.
Cost and Competitiveness Issues
Competitiveness issues are arising from the high and rapidly rising cost of Microsoft solutions. Some years ago, research firms Forester, Gartner and others established the real cost of Windows PCs on a corporate network to be between $8000 and $14,000 per year per PC, and corporations confirmed these figures internally (the bulk of this cost is hidden, consisting of support, administration and upgrades). Multiply this by the number of PCs in the company and it starts to look like real money.
As long as your competitors use similarly costly systems, you can just pass costs on to customers with little loss of business, but once a competitor implements a more cost effective system - you have a problem.
This is now happening in the financial markets of Wall Street. Morgan Stanley (C29), Merrill Lynch (C28) and others have moved their financial reporting systems to Linux, and now everyone else is scrambling to follow suit to bring their costs in line. Some Windows NT/2000 is being replaced, but much of the transition is from Unix. Nonetheless, it's a major loss to Microsoft because they expected to own this territory, and now it's gone.
The same thing happened in the special effects industry. Titanic was rendered on a Linux supercomputer cluster. Lord of the Rings was produced on Linux workstations and rendered on Linux supercomputers. Now the entire industry is either on Linux or scrambling to get there as fast as possible, including Disney and Lucas.
Retail is already starting to slide down the slippery Linux slope, with Sherwin Williams, Papa John's Pizza (C21), Burlington Coat Factory, Boscov Department Stores (C20), Regal Entertainment Group (550 theater concession stands), Hannaford Brothers (119 grocery stores) (C30) and others. It won't be long before this becomes the same sort of landslide the special effects business has experienced. Sending millions upon millions to Microsoft is hard to justify in hardscrabble retail, especially if your competitor isn't.
Other businesses are looking very hard at Linux. Even GiftCertificates.com, founded by a former Microsoft executive, and built entirely on Microsoft software, is now seriously considering a move to Linux. The difference "is hundreds of dollars on the Linux side versus tens of thousands of dollars for Windows." according to its CEO (C14).
Even the U.S. military is concerned with costs these days. A report prepared by MITRE for the U.S. Army (C1) is very favorable toward the use of Linux and open source software for government systems, even though Microsoft was allowed to review the report and request changes before it was published.
Linux appears in every category Microsoft operates in and beyond in both directions (wristwatches to supercomputers). It cooperates well with other threats such as Java, Thin Clients, eComStation and Mainframes, and. since it's a variety of Unix, it merges easily into the high end server environment. On top of this, it's strongly backed by Microsoft's most powerful competitors (IBM, Oracle, Sun Microsystems) and even Microsoft's leading allies (Hewlett Packard, Dell).
Microsoft executives are (bleep)ing bricks over Linux, and using every method they can to fight it, but with limited success - they were tied up getting convicted on antitrust charges at the critical moment, and it's now hard for them to get the genie back into the bottle. How do you undercut an established product that costs as little as nothing, is highly stable, performs better than your products in most situations, and is more scalable? Bummer!
Originally, Microsoft called Linux a toy, created by hobbyists for hobbyists. The traumatic end of that line is wonderfully stated in this press conference quote by a top Microsoft executive, "Linux is a toy, well, with IBM backing it, no it's not a toy".
Next was to claim that "Linux is cheap to purchase, but license costs are a very small part of TCO (Total Cost of Ownership)". In truth, other system costs are far greater, making purchase cost almost irrelevant. Microsoft's problem with this line was that many of their customers had already found these other costs to be lower with Linux as well.
In mid-July, 2002, at Microsoft's "partner" conference in Los Angeles, Microsoft president Steve Ballmer made an about face. He explained that Linux was less costly overall, but that Windows provides "better value". This is a more defensible line, since it's impossible to quantify. For some definitions of "value", Windows really can be the better deal, but those definitions and are rapidly becoming less numerous.
Then Microsoft launched, through paid writers, Microsoft sponsored lobbying groups, and its own management and sales force, a major disinformation campaign, calling Linux and other open source products "Communist", "Un-American", and "a major threat to intellectual property and American prosperity".
Microsoft claimed open source software is not safe to use because it doesn't protect users from possible patent claims. This argument has less impact since Microsoft itself has been shown to have not only left SQL Server devlopers wide open to patent claims, but to have deliberately mislead them about the risks (Q11).
Microsoft claimed open source software is a security risk because the source code is available. Microsoft has argued in court that exposing Windows source code would compromise national security, but they have now agreed to provide that source code to the government of Russia and China (X62). Both are not only considered hostile powers by the U.S. government, but are point of origin for many viruses and cyber attacks.
Of all its arguments, Microsoft's intellectual property claims sound the most reasonable, but are completely false. No one in the world (including entire countries) holds more patents, copyrights and other intellectual property than IBM, yet IBM is a major user and promoter of Linux and other open source products.
Further, any business can incorporate open source code in any way it pleases for its own use without risk and without having to reveal anything, so long as it doesn't distribute the resulting material. The GPL (General Public License) (C32) and other open source licenses limit Microsoft and other software publishers, but not most businesses.
Then, in December 2002, Microsoft about faced again, saying Windows has lower TCO (Total Cost of Ownership) over a 5-year period, and cited an IDC study which Microsoft paid for (C22). Problem with the study is, nobody believes it. It not only contradicts established experience, but has flaws obvious even to the untrained eye. Further, one of the authors is on record saying Microsoft's conditions biased the study.
The study presumes: Linux installations need as many administrators as Windows installations (they certainly do not), and Linux administrators cost a lot more than Windows administrators (they do not). Completely omitted are the cost of major Windows upgrades, which are required by License 6, every 3 years. Windows 2000 Server is the 5-year baseline, and it's only been out 2 years, so figures are just projections.
Microsoft is keeping the full study and its methodology secret and releasing only summary figures. This suggests there are many more questionable assumptions and a lot more twisted logic in there.
Other studies have come up with decidedly different
results, as did a quantitative analysis of cost, performance and reliability
by David Wheeler (C31), and a cost comparison by
Robert Frances Group (C33). These results are
confirmed by less rigirous studies (C35).
The Foreign Threat
There are many reasons why business and governments outside the United States should be taking a hard look at breaking free of Microsoft, and many are doing so. Security, high cost, ownership of data, balance of trade, and developing a local software industry are prime factors. Several countries have ongoing antitrust action against Microsoft which further encourages them to look at alternatives.
For developing countries, cost is a huge factor. Most have been running on stolen Microsoft software, but international pressure to enforce copyright continues to increase. Many are looking at Linux and other open source products as their best bet - in two ways. Not only does Linux itself promise to save huge amounts of money and help build a local software industry, the Mexican experience has shown the way to use Linux to extort free licenses, and even computer equipment and services, out of Microsoft.
If Microsoft lets Linux take over overseas markets, that's sure to spread. If they bow to extortion, as they have been doing, it also depresses their overseas markets. Though "millions of dollars worth of software" costs Microsoft about $15.00 (the millions only show up on their tax deductions), it means no income is derived from those licenses. In addition, computers to run the software and support services do cost, and these are often part of the deal. Here's a bit of what's going on:
Clearly, Microsoft can't continue bribing all the world to use Windows, the threat will keep coming back with each upgrade cycle. That $43 billion in the bank just won't stretch that far. Even worse, American corporations are starting to learn the extortion game too. Rumors abound that if a company demonstrates a strong Linux pilot program, Microsoft sales is authorized to drop license fees by up to 50%.
Now that whole countries can fulfill their basic software needs at little
cost through rapidly improving open source products, and can use the open
source platform to develop localized software, Open source threatens
to become the standard for international commerce. American
import/export business will need be compatible with their trading partners,
and the U.S. military (which already makes use of open source products) will
have to be compatible with its allies. The implications for Microsoft's
expensive products are clear.
Software Industry Support
In the past, Microsoft found it easy to use extortion and threats against software developers to destroy competing platforms, as they did with OS/2. If software developers won't develop for it, even a vastly superior operating environment is dead.
Today, the situation is a little different. It is the software developers themselves who are clearly targeted for Microsoft destruction. When you have already condemned someone to death, additional threats have diminished impact.
The problem many developers face is their total commitment to Windows and the Windows market. They literally know nothing else and fear everything else. They have no choice but to stare into the headlights until impact. Other developers have Unix or Borland Delphi experience, or run their products on standard database engines that have been ported to Linux. These developers have choices for survival, and a few of them will make the right choices to survive.
There are persistent rumors that Microsoft is porting some of its major products to Linux. Microsoft is many things, but suicidal is not one of them. Porting would be difficult (the Apple OS X (Unix) version of Office depends on an OS9 translation layer written by Apple), and they certainly wouldn't release it if they did port it. Such an endorsement of the enemy would clearly signal that their monopolies are smashed, so expect to see the Devil on ice skates first.
Laws and Government
Our "elected representatives" in Washington and State Capitals are elected by the public, but the public is not what they represent - they represent money. Laws recently passed, such as the DMCA (Digital Millennium Copyright Act) (G10, G11), and laws now under consideration, are not designed to benefit the public, but to benefit specific industries at the expense of the public - industries that contribute heavily to election funds.
Prominent among these contributors are the RIAA (Recording Industry Association of America) and MPAA (Motion Picture Association of America) and Microsoft. These organizations are all able to "influence" as many Congresscritters as they need out of petty cash, and they have placed plenty of items on the legislative plate.
Several proposed laws are aimed at extending corporate ownership and control of intellectual property (books, movies, popular characters, software, etc.) and to reduce the rights and privacy of individuals. Many have been reworded to include the word "Security", which, since 9/11, has eclipsed "to protect the children" as the all-purpose justification for taking rights away from American citizens.
Several of these acts, both pending and already passed, violate established rights, such as the right of "fair use" (making copies of material you have purchased for your own use, or quoting excerpts for reviews or reference), post-sale rights to use and disposal of property you have paid for, and freedom of speech.
Not all Congress critters are as outspokenly bought as Fritz Hollings, (D. Disney - oops, I mean South Carolina) and Diane Feinstein (D. California), who are promoting the extremely anti-consumer Consumer Broadband and Digital Television Promotion Act (CBDTPA), but you can expect most to "get with the program".
Even Microsoft has objected to the CBDTPA, not because of the rights it takes from you, but because it would legislate matters of technology that Microsoft feels it alone should control (G7). In other words, the law may not choose Palladium as the means of digital rights control, and has clauses aimed at preventing monopoly.
Congress has already passed the DMCA (Digital Millennium Copyright Act G10), which makes it illegal to make available or to own any device or software that enables you to bypass any means of limiting access (to enabling "fair use" for instance). It does include an exemption for cryptographic research, and for "reverse engineering" (to create compatible products), but that definition is very narrow and only exemnpts software, so a method that includes hardware is off limits,
Many consider the DMCA to be very poorly written (G11) and wide open to abuse. For example, if a consumer activist Web site offers evidence of corporate wrongdoing by posting incriminating documents, the corporation need only inform the Web site's hosting service that "the site is making unauthorized use of our copyrighted material", and the hosting service is required by law (the DMCA) to immediately take down that material.
There is a protest procedure to get material back up, but it requires the complaining party to immediately file a lawsuit if it wants to keep the material removed, which may discourage many from attempting to get material restored. The site Chilling Effect Clearinghouse (G14) documents how the DMCA discourages freedom of speach.
Examples: the Church of Scientology has applied the DMCA in an attempt to force Google not to indexing a site that criticizes Scientology (G15), and printer manufacturer Lexmark is using the DMCA to prevent your access to low cost recycled ink and toner cartridges (G13).
To avoid legal problems caused by ill-considered laws passed by legislators with little or no understanding of technology issues, development projects and advocacy Web sites are being moved to other countries, with a net loss of American jobs. It's only going to get worse as "big media" continues to try to solve marketing problems by banning technology.
A big Microsoft push is to get UCITA (Uniform Computer Information Transaction Act) (G2 through G6) passed as an addition to the Uniform Commercial Code all states use as a guide in matters of contract. UCITA makes legally binding "shrink wrap" and "click through" licenses for software, even if you are not allowed to read the license before purchase, and also allows the publisher to change the license terms after acceptance, any time he pleases.
The UCITA "self help" clause gives software publishers a clear legal right to enter your computer systems without your knowledge or permission and disable software for any real or imagined violation of license or payment. UCITA also forbids you to disclose license terms to anyone else - if you got had, you're not allowed to warn others.
UCITA is opposed even by the American Bar Association. The American Library Association, several industry associations, and most State atorneys general also oppose the measure, but it's supported by Microsoft's money, so it returns from the dead every year, and will do so until it passes. So far it has passed only in Maryland and Virginia, but that is sufficient for some purposes.
Note: do not sign any software contracts that specify laws of Maryland or Virginia.
I suggest reading the references, letting others know what's going on,
and writing your "representatives" to let them know that you know what they
are up to, and that you don't like it.
- Andrew Grygus
Updates since the original release
Minor corrections and additions that don't change a paragraph substantially may not be listed here.
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