Silicon Valley Watcher - reporting on the business of technology and media

Wednesday is national Data Privacy Day which is an opportunity for the computer and financial industries to teach consumers about ways they can avoid scams and numerous criminal exploits on the Internet. But there's a lot to learn.

Why don't the computer, financial services, and online retail companies deal with that stuff behind the scenes, so that consumers can have a pleasant, and protected online experience? Why should consumers shoulder the burden of data privacy and safety?

I think there is a danger that consumers might start to disengage from Internet activities such as online commerce.

These days, buying products online is not as easy as it used to be. It takes a good few extra clicks and keystrokes to purchase anything online. I've abandoned shopping carts because it was getting too much work, too many digits and keystrokes to make a purchase, and I'm sure others have too.

On Wednesday, consumers are going to be harranged with a whole bunch of things they need to do to keep from becoming victims from a long list of online scams.

Why can't the industry take care of data privacy and security transparently, behind the scenes?

That's the question I've been asking Microsoft because I've spent much of Tuesday talking with Microsoft's privacy team as it prepared to release a survey on user privacy attitudes, and prep for a public debate at the San Francisco public library Wednesday evening.

I spoke with Brendan Lynch, director of privacy strategy at Microsoft, and Peter Cullen, GM and Chief Privacy Strategist at Microsoft, and found out that it's not that easy to outsource data privacy to Microsoft, or any other company -- currently there is a lot that individuals need to do to keep safe.

Mr Lynch said that Microsoft set up focus groups that questioned three groups: 18 to 24 year olds, the mid-30s-40s, and the baby boomer 50s and 60s. It turns out that they all agreed that they should take more personal responsibility for data privacy and safety.

"We were quite surprised that there was no generational difference regarding taking responsibility. They all wanted greater control over their personal data privacy," said Mr Lynch.

A cynic might argue that focus groups are vulnerable to leading questions, and that such findings take the pressure off of companies like Microsoft to take responsibility for protecting consumers. After all, Microsoft provides the technology for consumers to access the Internet, and it also provides the server-side technologies for companies to track and target consumers based on their private data. It has to play both sides of the coin.

Mr Cullen, however, disagreed that Microsoft faced a possible conflict of interest. "It's all about value plus privacy. For example, our advertising networks do not rely on any individually identifiable data, everything is anonymous."

He also said that Microsoft has very strict data privacy policies and it is a lead lobbyist for federal data privacy laws (while the rest of the industry wants self-regulation.)

"We believe that we can set an example for other companies," said Mr Cullen.

That's a commendable position but it doesn't mean other companies measure up to Microsoft's standards. How can a consumer compare one company against another?

How does Google measure up to Microsoft, how does Yahoo, eBay, etc measure up in terms of being a good citizen when it comes to data privacy? I couldn't get an answer. But these are the type of questions that consumers will be asking, because they have to make judgements about what is OK in terms of sharing private data.

For example, Amy Barzdukas, Senior Director, Internet Explorer and Consumer Security tells me that the new Internet Explorer 8 has a whole bunch of privacy controls with variable user settings. Users can filter how much or how little private data they are willing to share with third parties. Just one web page can have a multitude of ad networks, web monitoring software, and multiple widgets--all collecting private data and sending it to more than a dozen different companies.

Mr Cullen says that visiting the front page of The New York Times results in 16 different requests by third-parties for private data, and that data is collected without the user noticing.

The new Internet Explorer 8 is able to warn and inform users that they are vulnerable in such situations and it provides a way for users to disable sharing of such data. But it is left up to the user to adjust the privacy settings, which requires a fair amount of education about optimal settings.

And this is just one decision out of many, such as keeping or deleting cookies, recognizing phishing, man-in-the-middle scams, and dozens of other exploits. It's way too much for consumers to keep track of, and the landscape keeps changing. Consumers have to keep up or they become vulnerable. This is too much to expect from consumers, imho.

Like it or not, Microsoft, financial services, and online retail companies will have to take on more responsibility for consumer online safety.

Scaring consumers into being smarter online will only work to a certain degree. The danger is it will scare people away from online commerce--and that will be a huge step backwards for the digital economy.

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Please see:

Microsoft's latest video about data privacy and security

On Wednesday, Microsoft will join in celebrating Data Privacy Day/ Data Protection Day with a series of global events. In 2007, the Council of Europe established January 28 as "Data Protection Day," to increase awareness of privacy and data protection issues among consumers, organizations and government.   Last year the United States and Canada joined Europe to celebrate "Data Privacy Day." This year, Microsoft and other members of industry are sponsoring a number of events for Data Privacy Day.

My Privacy: Safely Navigating Life Online

siliconvalleynewswire.com » Microsoft hosts public debate on privacy in San Francisco

Computing Privacy, Internet Safety and Security Information for Policymakers Worldwide

Data Privacy Day Home — Microsoft

Wednesday is Data Privacy Day in the US, Canada and European Union, and Microsoft says it will release the results of its research into how three demographic groups view data privacy. The findings, along with a short documentary, will be discussed at public event at the San Francisco Library.

industry experts, including Joanne McNabb from the California State Department and Jim Dempsey of the Center for Democracy and Technology, will provide their point of view on online privacy.

siliconvalleynewswire.com » Microsoft hosts public debate on privacy in San Francisco

Foremski's Take: Microsoft is in an interesting position when it comes to data privacy because it straddles several different communities with different interests:

- It provides most of the technology that consumers use in accessing websites and thus has a responsibility to make sure its operating system and web browser is secure. It's latest Internet Explorer includes a lot of improvements in the security of the browser

- It also has a major online advertising business which seeks to gather as much data as it can in order to better target advertising at consumers. It is interested in consumers sharing as much as they can about their interests and buying habits.

- It provides much of the web server-side technology to third-parties that interface with consumers, and also track consumers across the Internet. Those third-parties are interested in gathering as much information as they can about their visitors to better target products and services and they rely on Microsoft technology to do that.

Does Microsoft have conflicted interests around data privacy?

Microsoft Data Privacy Day

There are no killer applications being developed by Microsoft's Robotics Developer Studio there are only "compelling applications," jokes Tandy Trower GM of Microsoft Robotics Group. The software giant today released a major new version of its toolkit that helps robotics researchers develop routines for controlling domestic robots.

Microsoft believes that domestic robots will become as common and as useful in the home as PCs are today. "We are still at an early stage, at the Apple II stage," says Mr Trower.

In the same way that Microsoft software propelled the microcomputer from a hobbyist tool and into a PC industry worth several hundred billion dollars, it hopes to do the same for the robotics industry.

At an event in San Francisco Monday evening, Microsoft partners showed off some of their creations programmed with applications developed by Microsoft software.

Here is a short video and interview with Mr Trower:

Last week, Steve Ballmer, CEO of Microsoft spoke at the CHurchill Club in Santa Clara. He was asked about the effect of the economy on the IT industry. He didn't seem too worried by the crisis.

Earlier today, Mr Ballmer changed his views. Speaking at a news conference in Norway, Reuters reported:

Financial issues are going to affect both business spending and consumer spending, and particularly ... spending by the financial services industry," Ballmer told reporters on the sidelines of a news conference in the Norwegian capital.

"We have a lot of business with the corporate sector as well as with the consumer sector and whatever happens economically will certainly effect itself on Microsoft," he told Reuters.

"I think one has to anticipate that no company is immune to these issues," he said, but declined to be more specific.

Wall Street analysts, on average, expect the Redmond, Washington-based company to generate an 8 percent rise in revenue to just under $15 billion in its first-quarter ending in September.

"There are parts of our every business which are probably 'safe' in the sense that it's not like our business would go to zero," he said in an interview.

"On the other hand, when businesses have less money -- they can borrow less money, they can spend less money -- that can't be good. When consumers feel the economic pinch, house prices come down. That can't be good," Ballmer said.

Microsoft shares rose 2.9 percent to $25.73 at 11:17 a.m. EDT in a broader U.S. market rebound following a sharp slide on Monday.

But Ballmer's comments weighed on the shares of German software maker SAP AG (SAPG.DE), which fell 2.0 percent and were among the heaviest fallers in Germany's DAX index (.GDAXI).

Here is what Mr Ballmer said last week:

Here is the entire Steve Ballmer talk:

Click To Play

Here are 7 minutes of spirited highlights from Steve Ballmer's recent visit to Silicon Valley at the Churchill Club. He talks about the billions of dollars Microsoft is prepared to spend on building its search business, the relevance of Silicon Valley to Microsoft, education and the myths around ad supported business models, and much more.

Here is the entire Steve Ballmer talk:

Click To Play

It was a who's who crowd that turned up Thursday evening to hear Steve Ballmer talk at the Churchill Club annual dinner in Santa Clara.

It's well worth catching the talk, Mr Ballmer talks about Microsoft's ambitions and key trends. It starts off a bit slow but picks up fairly quickly. Mr Ballmer doesn't dance but he does provide a spirited and energetic delivery. (I've edited it down slightly on the long questions.)

Ann Winblad moderates:

Foremski's Take:

Microsoft's [MSFT] acquisition of Powerset, the semantic search company, has been widely interpreted as being about beefing up MSFT's search capabilities. But how many searches require a semantic feature? Not that many, which is why Powerset chose Wikipedia as a test for its technology.

If I were to acquire Powerset it would be to use it to improve contextual advertising -- that's where a semantic technology can make a big difference. That's the value for Microsoft.

Yahoo is outsourcing search to GOOG for one reason only--it can provide better contextual advertising. That's where Powerset's technology can provide a big boost for Microsoft and where Yahoo and others can benefit. I'm surprised Google didn't step in to block MSFT, even if it believes it has a better semantic technology. After all, $100m is just a pawn in this chess game.

Either way this is a good deal for Powerset because its technology can be scaled across a global platform. It would take Powerset a decade or more to be able to leverage its technology against the same scale as Microsoft can provide today.

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Microsoft spends billions of dollars on research and development and it has some of the world's foremost experts in a variety of disciplines.

Next week at Microsoft's Silicon Valley campus in Mountain View you can take a look at some of its advanced technologies and products direct from its labs. Unlike prior Microsoft labs events that are open only to the media and analysts, this one is open to all. Bring your kids too!

Thursday May 22nd. 1065 LaAvenida, Building #1, Mountain View, CA. 12.30pm to 4.30pm.

To register for the event, please go to http://www.ustechsregister.com/MSRRoadshow and use RSVP code MSRMay to sign-up.

Here is Microsoft's description:

BusinessWeek's cover story aims to analyze how Microsoft will take on Google without Yahoo. It boils down to MSFT's top salesman Keith Lorizio.

Foremski's Take:

Even if MSFT had a hundred Keith Lorizios - it wouldn't do much good. Because there is no way that it can grow its ad business organically to match the flood of money moving into online ads.

Microsoft said it itself, when it launched its bid for YHOO:

The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010.

The online advertising market will double in three years! Even if MSFT doubled its online ad business every year for three years it would reach about $24 billion out of a total of $80 billion leaving billions on the table for competitors.

Even if MSFT executed brilliantly in its organic efforts it would still miss what is probably the biggest gold rush opportunity in advertising since the radio was invented.

That's why MSFT needs to make media acquisitions -- and quickly.

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Please see:

Over the next three years Microsoft predicts that the online advertising market will double from $40 billion in 2007 and reach $80 billion in 2010.

If Microsoft fails in its bid for Yahoo! it will be locked out of much of that money because of its inability to significantly increase traffic to its Internet businesses.

Search services are a strategic business yet Microsoft is in a distant 3rd place with 9.8 per cent of the market, compared with Yahoo with 22.9 per cent, and Google with 58.4 per cent.

Yahoo has ben mired with slow progress in technology initiatives and internal turmoil as it tries to rebuild its management teams and reorganize its business groups. However, with such a massive surge in online ad money, Yahoo! can profit handsomely even if it continues to struggle with its reorganization.

The risk for Microsoft is that Yahoo's financial fortunes will quickly improve and make its bid of $44.6bn offer look miserly rather than generous. This is why the 62 per cent premium in Microsoft's offer is designed for a quick deal.

But Yahoo shareholders could be losing out on a much larger valuation as the online advertising money floods into Yahoo's Internet businesses. Google might lead in search but Yahoo's web sites get more traffic than Google. All that online advertising will be seeking content inventory and Yahoo can provide that in a way that Google cannot.

Despite its struggle to reorganize Yahoo is better positioned than either Google or Microsoft in terms of winning a major share of the $40bn in new advertising. Google's business is constrained by a maturing search services market and Microsoft has hit a wall in improving its share of search and Internet traffic.

Yahoo! said it had received an unsolicited acquisition bid from Microsoft. It's board of directors said it would evaluate the proposal "carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders."

The $44.6 billion bid ends many months of speculation that Microsoft wanted to acquire Yahoo! If the bid is successful, it would vault MSFT into a strong second position in search and other Internet businesses.

At $31 a share MSFT is offering a generous premium of 62 per cent indicating that it wants quick approval for the deal.

Microsoft is eyeing the massive shift in the advertising industry to online. It estimates that the online ad market will double from $40 billion in 2007 to $80 billion in 2010.

Ray Ozzie, chief software architect at Microsoft said, "The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners."

The Yahoo! board of directors had rebuffed Microsoft in February 2007 saying that the company's "potential upside" would be good because of several key initiatives. In a letter to Yahoo! Microsoft said, "A year has gone by and the competitive situation has not improved."

Microsoft has calculated that the acquisition could be completed in the second half of 2008 and eliminate $1bn in annual operating costs for the combined entity. The letter to Yahoo! promised generous retention packages to its "engineers, key leaders and employees across all disciplines."

Microsoft's bid comes one day after the resignation of Yahoo! chairman Terry Semel. He has been replaced by Roy Bostock, a board memebr since May 2003. Mr Bostock has a strong background in advertising and marketing.

Microsoft Corp. today announced revenue of $13.76 billion for the quarter ended September 30, 2007, a 27% increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.92 billion, $4.29 billion and $0.45, respectively.
Source: MSFT

At first glance, the numbers look similar, except then you notice that MSFT reported more in profit ($4.3 billion) than GOOG reported in total revenues ($4.2 billion).

Google reported revenues of $4.23 billion for the quarter ended September 30, 2007, an increase of 57% compared to the third quarter of 2006 and an increase of 9% compared to the second quarter of 2007.
Source: GOOG

We will all end up working for MSFT, mark my words, many already are.

Technorati Tags: Ironic design

Microsoft is keen to relaunch Vista, (this time with drivers!) Tuesday evening I went to a very pleasant Vista dinner with Microsoft, Best Buy, and Hewlett Packard execs. I heard a lot about Vista and how now consumers have a choice in the PC arena.

I was puzzled about all the talk of choice because Best Buy and other retailers only carry Vista PCs on their shelves. Even HP only offers one laptop with Windows XP. Is my choice to buy or not to buy?

I should be able to choose to load my machine with whatever I want--that's the kind of choice any customer would want. (There are a couple of links online on BestBuy.com that will get you an XP machine . . . if you know where to click.)

I said that these days we don't have to choose, which is great.

My son runs Vista and Mac OS X on his laptop. I run Windows XP and Microsoft OS X on my laptop. Am I a Mac user or a Windows user? I'm both, I don't have to choose, I just choose applications. I don't have to have religion about Mac or Windows, that tedious 20 year argument has gone away, and I'm glad.

My Windows apps run great on my Mac thanks to Parallels, but I could use other virtualization software to run multiples OSes, and the performance is great. And Microsoft still gets paid. Yet Microsoft people continue to get upset about Apple, which I can't understand.

Leopard?

MSFT's chat with the media about Vista has nothing to do with Apple's imminent launch of its Leopard operating system this Friday. It is coincidental timing, MSFT wanted to tell us about what is new in retail PC land.

But isn't Vista nearly a year old I asked? Yes, but It is still new to a lot of people...
(Tune in for Video Vista Interviews...)

Undercover VPs

I did learn a couple of interesting things. Microsoft VPs will sometimes throw on a blue Best Buy employee shirt to talk to potential customers in Best Buy stores to get a measure of the retail market. They will throw on a red shirt in Circuit City stores.

Inside the Geek Squad

I accepted an opportunity to drive around with Best Buys' Geek Squad as they strive to make the world a simpler place for technology users. BTW, here is an interesting fact: Vista PC customers that buy Geek Squad services have a 50 per cent lower rate of returning their Vista PC.

Microsoft's acquisition late last week of the AdECN advertising exchange is a smart move. I interviewed Bill Urschel, the founder of AdECN earlier this year.

It is a company that has quietly managed to establish itself as a major real-time exchange for trading online advertising. It is a market that is very difficult to break into once first mover advantage is established because scale and liquidity are the most important attributes for the success of any exchange.

Mr Urschell said that there is probably only room for about three ad exchanges.

A neutral MSFT

An important aspect of AdECN is that it is neutral, it is not competing with advertising networks for ads, it trades the ads themselves, linking buyers and sellers, along with demographic, regional, and time-based delivery of advertising.

This neutral model could be a feather in MSFT's cap because Google is competing with its own publisher network. Advertising on Google's own sites has climbed to 64 percent of total revenues when it used to be evenly split with third-party publishers.

MSFT's AdECN exchange combined with its ad server technology could position MSFT as a preffered advertising partner for some publishers because it is not a direct competitor.

- MSFT recently won a major client, Digg, the community powered news aggregator.

- MSFT recently won EA, the world's largest gaming software company, to serve ads in online games.

MSFT is less of a competitor

- MSFT's own sites aren't doing that well, so it could claim that its own sites aren't competing against its publishing partners.

- In contrast: GOOG's own web sites grew 9 per cent in revenues in the most recent three months compared with no growth over the same period for its partner sites - GOOG 2Q 2007.

- Microsoft could sweeten deals with aggressive revenue sharing offers. It could potentially pay out more than 100 per cent of advertising revenues to publishers.

Google and Yahoo have tied up some of the largest online publishers into multi-year deals, however, most of the publishers in their ad networks can leave at anytime. Billions of dollars in online advertising revenues could switch to MSFT in an instant from GOOG and YHOO. It is a huge vulnerability for those companies.

A bonanza for publishers?

A battle for online publishers among GOOG, YHOO and MSFT could result in a bonanza for content producers. The revenue sharing agreements would favor the publishers and it could help some struggling newspapers and magazines.

I got a chance to meet the very dapper and tanned Dan'l Lewin, VP and senior Microsoft strategist. He said that Microsoft had spun out four startup companies recently. Tongue-in-cheek I asked was it a way to reduce headcount, was it a sell-off or a spin-off?

Mr Lewin said that the spin-off companies have innovative technologies and should do well. But why would investors want a piece of a startup that Microsoft doesn't want? VCs want startups that they can sell to MSFT or others.

The MSFT startups are in ancillary businesses that are not part of Microsoft's businesses, I was told. Isn't Microsoft in everyone's business these days? Or, at least trying to get into everyone's business...

Robert Scoble has as they told the Microsoft Most Valuable Professional Global Summit)

Robert thinks it would all be quite funny, if it weren't pathetic.

The words are empty. Microsoft’s Internet execution sucks (on whole). Its search sucks. Its advertising sucks. If that’s “in it to win” then I don’t get it.

...Microsoft: stop the talk. Ship a better search, a better advertising system than Google, a better hosting service than Amazon, a better cross-platform Web development ecosystem than Adobe, and get some services out there that are innovative

Oh, and Ballmer, if I ran Google your speech at Stanford yesterday would be plastered on every door on every campus Google has. Why? It’ll motivate Google employees the same way a coach will motivate an opposing team during the Superbowl by taking trash in the press. You’re up against a formidable competitor and one you’ve never seen before that has some real, significant weapons that you can’t deal with (and YouTube isn’t even close to it). Google’s secret weapon? It controls the entire stack in the datacenter. Google writes its own hard disk drivers. It has its datacenter hardware built to its spec. Ever wonder why Live.com is slower than Google? Hint: it’s cause Google is out executing Microsoft in the datacenter.

Internet, online and on the air

Microsoft, Google, Dell, HP, Intel and Philips say they can deliver Internet over TV airwaves - and they're pushing the FCC to give them the green light, says the Washington Post.

The coalition has come up with a device that would make TV-spectrum Internet work in homes. After a few months of testing, they're hoping the agency will approve the device and that it could be sold in stores by 2009.

"These devices have the potential to take the success of the WiFi phenomenon to another level," said Jonathan S. Adelstein, an FCC commissioner.

That would mean a little competition for the cable companies and telcos, which of course also control massive amounts of content.

And really the greatest use of TV Internet would probably be in rural areas, where it's hard and expensive to get wired net and wireless solutions have proven too flaky. IMO, it should also work in urban areas where underprivileged can't afford to pay $60 a month for cable Internet. In any case, it could have a positive effect on municipal wireless networks.

In urban areas, a TV Internet system might somehow be combined with phone- or cable-provided Internet service to redirect signals through every wall of a house or office -- without replacing the phone or cable company as the provider, said a person affiliated with the coalition. He spoke on condition of anonymity because he was not authorized to speak on the record about such possible uses.

Google's the only company without a serious hardware business. What are they doing in the coalition? It's a new Internet platform, the article notes, and it gives them another option for alternative access to the Net. Recall that Google invests in Internet-over-power-line companies as well.

"It recognizes that the heart of the problem is a lack of competition on the broadband platform," said Rick Whitt, Google's telecom and media counsel in Washington. "We're very interested in finding ways to create platforms for other broadband connectivity."

Is search broken?

Microsoft thinks that it is - at least, it concedes that MSN Search is not doing the trick (Google market share: 53.7%; MSN marketshare: 8.9%). So at TechFest - Redmond's three-day chance to show off to reporters and employees the neat tricks MS Research is working on - the word of the week is "search," says the Times' John Markoff.

Lili Cheng, a user-interface designer for the Windows Vista operating system, showed off a new service called Mix that will allow Web surfers to organize search results and easily share them. She said Mix would be released in six to nine months.

A second tool demonstrated, called Web Assistant, is intended to improve the relevance of search results and help resolve ambiguities in results that, for example, would give a user sites for both Reggie Bush and George Bush.

Microsoft is not the spiffiest when it comes to product names, but these widgets are not products yet.

Personalized Search compares web-search results with an index of content on the user's hard drive (that's generated by Desktop Search, quite similar apparently to Google Desktop). It does a neat trick, though.

Susan Dumais, a veteran Microsoft search expert, demonstrated the effectiveness of the program by searching for Michael Jordan. By culling through local information on her hard drive, the program was able to discern that she was interested in finding the Michael Jordan who is the machine-learning expert at the University of California, Berkeley, not the basketball player.

Search in the future will look nothing like today’s simple search engine interfaces, she said, adding, “If in 10 years we are still using a rectangular box and a list of results, I should be fired.”

About 7,000 employees participate in the event as well as reporters and business partners. Rick Rashid, head of MS Research, originally opposed the festival idea but he's now a fan.

“We realized we were clearly tapping an underserved community,” he said. Now the company uses the event to move technology from its research division into products.
That includes monitoring which employees visit which lectures and booths and looking for patterns, he said.

Andy Plesser over at Beet. TV interviewed Jim Kathman, head of AP's global broadcast strategy:

The Associated Press, the world's largest news organization, and Microsoft have developed an online video platform for thousands of U.S. newspapers, television and radio stations to upload, publish and monetize locally-created video.

The new system is in beta tests with some 30 newspaper publishers and broadcasters including The Miami Herald, the Houston Chronicle and the Rocky Mountain News.  The program will go live in about 30 days.

Link to Beet.TV: Exclusive: Microsoft and the Associated Press Teaming with Thousands of Newspapers and Broadcasters in New Online Video Network

MSFT's attack on Google's use and interpretation of copyright makes lots of sense considering the upcoming launch of this service.

But can MSFT get more revenues to the publishers than Google? Google's AdSense advertising network for publishers does not pay much, but can MSFT make sure publisher's get more revenue?

MSFT could offer 100 percent to publishers in order to lure them away from AdSense. We might even get into an advertising war in which MSFT or GOOG, or YHOO offer 125 percent or more... MSFT has a ton of cash--this would be a quick way to buy large market share.

After a federal jury handed down the biggest patent infringement verdict ever, a federal judge has thrown out the verdict, ruling as a matter of law that Microsoft didn't infringe Alcatel-Lucent's MP3 patents, CNET News.com reports.

The judge dismissed all 19 of the claims made by Alcatel-Lucent, which plans to appeal and is "comfortable with our chances of success as the case makes its way through the legal system", spokeswoman Joan Campion said.

Microsoft deputy general counsel Tom Burt said the ruling "reaffirms our confidence that once there's judicial review of these complex patent cases, these Alcatel-Lucent claims ultimately won't stand up."

Don't worry, there's plenty more patent action. A new trial between the two over user interface patents starts May 21.

http://www.washingtonpost.com/wp-dyn/content/article/2007/02/23/AR2007022301697.html

In an op-ed piece for the Washington Post Sunday, Bill Gates calls on government to pay attention to the importance of innovation in economic health. He highlights two areas he says are critically important: math and science education and H-1B visas.

Gates notes with dismay that on an international math test in 2003, U.S. high school students ranked 24th out of 29 industrialized nations surveyed.

Our schools can do better. Last year, I visited High Tech High in San Diego; it's an amazing school where educators have augmented traditional teaching methods with a rigorous, project-centered curriculum. Students there know they're expected to go on to college. This combination is working: 100 percent of High Tech High graduates are accepted into college, and 29 percent major in math or science. Contrast that with the national average of 17 percent.

To remain competitive in the global economy, we must build on the success of such schools and commit to an ambitious national agenda for education. Government and businesses can both play a role. Companies must advocate for strong education policies and work with schools to foster interest in science and mathematics and to provide an education that is relevant to the needs of business. Government must work with educators to reform schools and improve educational excellence.

Until America starts producing the number of computers scientists and hard scientists that industry needs, there will be a crying need to import more foreign high-tech workers. But with H-1B visas limited to 65,000, there just isn't a big enough labor pool, Gates says.

Last year, reform on this issue stalled as Congress struggled to address border security and undocumented immigration. As lawmakers grapple with those important issues once again, I urge them to support changes to the H-1B visa program that allow American businesses to hire foreign-born scientists and engineers when they can't find the homegrown talent they need. This program has strong wage protections for U.S. workers: Like other companies, Microsoft pays H-1B and U.S. employees the same high levels — levels that exceed the government's prevailing wage.

If you're rejoicing over Microsoft getting wacked with that $1.5 billion patent infringement verdict, you might want to think again. That verdict could enrich Alcatel to the tune of many billions of dollars from technology companies if its upheld, The Times notes. That's because the patents in question cover core MP3 technologies developed by Bell Labs 20 years ago.

Microsoft and most other technology companies license MP3 patents from the Fraunhofer Institute, which, along with Bell Labs and the French company Thomson, developed MP3. They paid $16 million for the patents from Fraunhofer. But Alcatel-Lucent, which is a descendent of Bell Labs, claims earlier patents that were not part of the Fraunhofer patents.

Microsoft is asking the judge to discard the verdict and will appeal the decision if he doesn't. If the verdict stands, Alcatel-Lucent may go after Apple and any other company that makes MP3 playback software.

“Intellectual property is a core asset of the company,” said Joan Campion, a spokeswoman for Alcatel-Lucent. “We will continue to protect and defend that asset.”

Without conceding that the company violated the patents, Microsoft argues that the damages are way too high in any case, given that the cost of the licensed patents was just $16 million. Alcatel valued the patent violation at .5 percent of a computer with Windows installed.

“We think this is just plain wrong,” Microsoft lawyer Thomas Burt said. “They told the jury to measure damages, not on the value to Microsoft of one of the 10,000 features in Windows, but on the value of the entire computer.”

But the situation may be more dire for Microsoft than for many other tech companies. That's because in the past Microsoft did not play the game of defensive patent filing.

“Microsoft has been and to some degree continues to be at a competitive disadvantage, as it did not file for patents for many, many, many years,” said Jack Russo, a patent lawyer with Russo & Hale in Palo Alto, Calif. Large companies like AT&T and I.B.M. “have huge patent portfolios and that represents large and unpredictable risks for companies like Microsoft,” he said.

In a 2005 interview, RedHat GC Mark Webbink explained the way patents work in the software industry:

If others are going to threaten you with patent infringement, your strongest defense is going to be your own patent portfolio. Your patent portfolio may have nothing to do with the technology you're producing, because that only allows you to keep others from what you're doing. When Red Hat and others look at obtaining patents, I'm far more interested in what the other guy's doing. Because if he knows I have a patent that will disrupt his business, he's liable to leave me alone. A lot of the patents we've been filing are not on our own technologies, they're on technologies of other companies and extensions of those technologies. And it's not because we want to tax them, we just want them to leave us alone.

If Microsoft can't play the game of mutually assured destruction, it's at a disadvantage. If Apple has played the game better, they may be less vulnerable.

Alacatel's claims of the importance of its patents are hard to swallow. This is the biggest patent award in history. The previous record setter was a big deal: Kodak had to pay Polaroid $900 million for violating instant photography patents and exit the market and recall its instant cameras. Common sense says that an award more than 50% larger should be based on damages of the sort that Polaroid suffered, not on an arbitrary royalty number.

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Additional Info:

The Coalition for Patent Fairness: www.patentfairness.org

A federal jury in San Diego just delivered a verdict that Microsoft infringed on audio patents held by Alcatel-Lucentand should pay $1.52 billion in damages, Reuters says.

Microsoft claims the verdict is unsupported by law or facts and will seek a judgment not withstanding the verdict from the trial court and failing that, will appeal.

"We made strong arguments supporting our view and we are pleased with the court's decision," said Alcatel-Lucent spokeswoman Joan Campion.

A Russian prosecutor's outrageous case against a schoolteacher who installed 12 pirated copies of Windows has been thrown out by a Russian court, calling the case "trivial," AP reports.

"We're off to drink champagne now," Ponosov told The Associated Press by telephone. "Of course, it was trivial."

The open question is still whether Microsoft had anything to do with these criminal charges. Mikhail Gorbachev wrote a letter of appeal to Bill Gates, asking him to drop the charges.

Microsoft, however, said it had nothing to do with the charges, and that the company declined to file a civil action against the teacher last year. Gorbachev has since stated that he was satisfied with Microsoft's response to his letter.

Ponosov said that 12 new computers at his school came with the bootleg versions of Windows operating system and Microsoft Office already installed. While the charge of major copyright infringement can carry a five year prison term, the prosecutor was seeking $110 fine. Prosecutors claimed Ponosov had caused $10K in damages to Microsoft.

The turmoil that exists within Bill. As head of the Gates Foundation, his role is to help the developing world prosper, using technology, vaccines and infrastructure building. As chairman of Microsoft he is on a crusade against piracy, otherwise known as free software, the engine that is creating some actual vibrant economies in Eastern Europe.

This was all laid out to him in an embarrassing press conference with the president of Romania (which we joked about here). Now another embarrassing moment for Bill. None less than Mikail Gorbachev is asking him to intercede in the sentencing of a Russian Windows pirate. BBC reports.

Mr Gorbachev's letter, on the website run by his charitable foundation, said "many people in Russia regard this scandalous case as trumped-up, launched on the initiative of Microsoft corporation to set a precedent".

"We have great respect for the work of Microsoft's programmers... and are in no way casting doubt on the principle of punishment for intellectual property violations.

"However, in this case we ask you to show mercy and withdraw your complaint against Alexander Ponosov," the letter read. It was also signed by Russian parliament deputy and banker Alexander Lebedev.

Mr Gorbachev said that under Russian criminal law the teacher could face "imprisonment in Siberian camps".

Surely this outrage cannot stand. It is even worse than Yahoo's turning in a Chinese journalist to the authorities because here, it appears, the charges are being pressed by Microsoft while Russia's top leadership is opposed to the punishment.

Gartner predicts the bleeding obvious: Vista will be the last Windows.

LOS ANGELES (Reuters) - Research firm Gartner Inc. turned soothsayer on Wednesday by predicting that Windows Vista will be the last big release of Microsoft Corp.'s (Nasdaq:MSFT - news) Windows operating system.

Source: Gartner predicts Vista to be last major Windows - Yahoo! News

Vista runs a web browser, which overlays Vista--paper covers rock...

Bill Gates saw it coming when he crushed Netscape and established Internet Explorer(IE) as market leader. He realized that the browser is the interface-not the OS.

It was the open source community that managed to revive Netscape's role as an alternative to Microsoft. But Microsoft did not give any respect to open source projects, it continually derided Linux for years. It did not see the challenge to IE as credible.

Microsoft could have kept far ahead of the Firefox/Safari/Opera etc, pack by innovating on Internet Explorer when it had the lead. Except MSFT decided to sit on it for about three years until the recent launch of IE7.

The new Internet Explorer 7.0 is good, it supports industry standards such as CSS far better than IE 6, and it has a many good features. If Microsoft had pushed that kind of innovation when it had pole position in the market, it would have taken the open source community a lot longer to catch up and challenge Internet Explorer.

This is the penalty from not innovating from a leadership position. The competitive distance is shortened, and short distances hearten people to challenge the status quo.

If Microsoft had pushed the envelope on IE, it would have cemented its position in owning the most important real estate in the world--the interface into our digital worlds.

Google is one of several bridge investors in Meraki Networks, a wireless mesh provider that Google has shown interest in regarding the San Francisco WiFi Project, Katie Fehrenbacher writes on GigaOm.

co-founder Sanjit Biswas Biswas wouldn’t specify the amount but said the round was under a million dollars. “We’d bootstrapped the company so far, so this cash is really just for growth/acceleration . . .and for the development of some products we plan to launch next year,” says Biswas. The company currently sells a $49 wireless 802.11b/g router (beta price) that allows users to build a wireless mesh network or extend the range of a municipal network.

Microsoft officially released Vista and Office 2007 to business customers. But after so much delay and build-up, the official launch of Vista is fairly anti-climactic, especially since it's still not available to consumers. Infoworld:

This is a big launch for them but for everyone else it's ho-hum," said James McQuivey, a professor for Boston University's College of Communication who specializes in marketing research and business management. "It's the biggest wait-and-see event of the week. Customers are going to wait and see when they need [Vista] and if they need it."

Paul Kedrosky points to the transcript of oral arguments (PDF) before the Supreme Court in closely watched patent case. The case has big ramifications for software because the Court may reject the current "obviousness" standard for awarding patents.

This is important stuff, and changes -- which look inevitable, based on justice comments this morning -- could have a wide-ranging impact across a range of companies in all sectors, from consumer products, to life sciences, to information technology. We had justices calling the curent Federal Circuit standard vague, gobbledy-gook, and generally un-useful to everyone except the lawyers being paid to lawyer the thing. Here is Justice Scalia pointing out how absurd the current non-obviousness standard remains, despite its supposed universality: "It is misleading to say that the whole world is embraced within these three nouns, teaching, suggestion, or motivation, and then you define teaching, suggestion, or motivation to mean anything that renders it nonobvious. This is gobbledygook. It really is, it's irrational."

Bill Gates' gradual departure from Microsoft over the next two years comes at a time when the company is facing its largest challenges. It is way behind Google and other companies in transitioning to the online era, and it faces large problems with staff morale.

Just a few days ago, Robert Scoble, a hugely important and popular Microsoft evangelist left the company. And it has lost other key people. This makes it doubly hard for it to recruit its next generation of leaders.

Mr Gates' departure might be a way to bow out before the company's problems come home to roost. A company of MSFT's size has plenty of business to carry it through the next few years. And it can remain very profitable if it cuts its losing business groups. But its long term future is anything but bright, as Mr Gates claimed at the press conference today: "The road ahead for Microsoft is as bright as ever."

Microsoft must make some very hard decisions and reinvent itself as a company. The power of the founder to make such changes within an organization can be very significant.

Steve Jobs, CEO of Apple Computer, returned to the company when it was facing huge challenges and he managed to remake the company he co-founded. Bill Gates could also bring that type of capability to Microsoft during a time of huge challenges.

Clearly, Mr Gates is no Steve Jobs.

- - -
From Cnet: Gates stepping down from full-time Microsoft role

Bill Gates announced that over the next two years he will gradually step away from his daily responsibilities, handing the reins to CTOs Ray Ozzie and Craig Mundie.

Bottom line:
Analysts are speculating on how critical the loss of Microsoft's chief architect will be as it fights to stay competitive in the changing software-industry landscape.

From WashTech News, the following peice by Jeff Nachtigal:

Internal Microsoft documents obtained by WashTech News show that Microsoft salaries have been stagnant or nudged only slightly higher over the past two years. Comments from current and former employees about the company’s compensation and performance review system suggest a growing level of frustration among rank-and-file workers.

To read the full story see:
http://www.washtech.org/news/industry/display.php?ID_Content=5041

If you'd like a regular helping of WashTech News:
http://www.unionvoice.org/washtech/join.html?r=ep1d3-F19cW3E

By Tom Foremski for SiliconValleyWatcher

Microsoft's Origami device is trying to exploit a new form factor, similar to OQO. The size of the device is larger than a PDA and smaller than a notebook.(See Engadget.)

Microsoft has managed to produce a product that combines all the disadvantages of a PDA and a notebook with none of their advantages.

A PDA such as my Treo fits in my pocket has very long battery life, has a cell phone, a camera and a touch screen and has my calendar, email and contacts database.

My three-year old 12 inch IBM ThinkPad X31 is lightweight, has a good keyboard, has decent battery life of nearly 4 1/2 hours, and is my main and only system.

Combine the two and you get Origami, a form factor that is too small for a keyboard, won't fit into a pocket, has a battery life half that of my notebook, and at a price similar to a notebook. And it doesn't have a cell phone. Brilliant.

By Tom Foremski, Silicon Valley Watcher

There is one strategy for Microsoft, if it is to hold its own against Google, and the "Live" announcement this week is just one segment of it.

MSFT only has one main strategy open to it, because it cannot compete against Google on Google's terms.

Let me explain: Google is faster at innovation than any other organization of any size.

It is structured in such a way that self-organizing teams of innovators form naturally within Google, and they make it past various checks and balances on the way to becoming full fledged beta business projects.

The teams of innovators within Google compete against each other, but they leverage the power of the GOOG, the planet's most powerful and most scalable computer system.

In today's web 2.0 world (it's actually Web 0.2--we are still very early) it is all about knowledge capital, not money capital, because the infrastructure is already there. There is no need to build a data center or reinvent algorithms, etc, it is all part of the infrastructure--both in the public sphere and within Google.

The innovation coming out of Google is "technology enabled" but not "a technology." Gmail, Google Desktop, etc, are all applications we've seen in one form or another before, but they are different, they are search-enabled applications (SEA) and they are integrated, and they are created with simple but powerful software development tools such as PHP, Ruby on Rails, Perl, etc.

And the innovation comes from the marriage of business models around useful, simple SEA/services. And just like a startup seeking a market, Google's emerging business groups rely on market validation (usefulness to users) before continuing to the next stage.

Knowledge capital isn't just salary and benefits, it is about recruiting the best people. But it's not easy to get the best people, it takes more than money. MSFT has tons of money but Google has the better pitch.

It goes to universities and it says to graduates: come work with us because if you want to make big changes in the world, nobody has the same scale, the same ability to make a huge difference in the world than Google.

That's a powerful pitch. Microsoft cannot counter, as it has tried to, by suing Google over hiring away top staff.

And Microsoft cannot match Google's pace of innovation because that is a cultural issue--MSFT's legacy culture cannot change fast enough.

Microsoft has but one strategic choice, imho. And I'll tell you about it in my next post :-)

Please see:
It's not about the money or the stock options. . .thoughts on Microsoft lawsuit against Google for poaching staff

Schmidt reveals Google's Really Big Vision

The game changed, and nobody told Redmond

By Tom Foremski for Silicon Valley Watcher.com

The announcement of Microsoft Live seems a couple of years late. Of course, Microsoft has done well over the years by following others that pioneered markets and then cleaning up because of its scale. But following a company like Google won't work for Microsoft this time, because by the time MSFT figures things out the market has moved on.

I spoke with one of MSFT's lead engineers recently and he was telling me about the fantastic search technology that they have in the labs. That it is better than GOOG's. But the conversation has moved on: it's about Search-Enabled Applications now, it really is a SEA change (and the apps are AJAX).

Rebranding some MSN stuff and adding layers of subscription based services is not going to get MSFT very far.

MSFT can live off the fat of its enterprise market but that won't last forever. And it cannot compete against GOOG's low operational costs--GOOG is much more New Rules Enterprise than MSFT. And it will be MSFT's legacy culture and thinking that will sink the company.

BTW, GOOG does not see itself as a MSFT competitor. The fact that it added a few programmers to help out OpenOffice is not significant.

The New Rules business mantra is: just focus on making sure you execute in your own business--the competition will take care of itself.

GOOG just needs to make sure it is always a step ahead of MSFT (and anybody else)--MSFT will take care of itself. Its legacy burdens will see to that.imho.

Cnet's story on Microsoft Live launch:
Gates: We're entering "live era" of software

Related:

The Google Zeitgeist and the walking dead...

The new Dotcoms will eat lunch this time around. Some of the rules of the new rules enterprise

by Richard Koman for SiliconValleyWatcher

Like a pledge who hits on every woman at a frat party in the first hour, only to be taken aside by a brother and told to chill, MSN Search is apologizing for its overly aggressive RSS bot, which was hitting feeds every 10 minutes. According to SEW there is a robots.txt command to slow things down. Says Eytan Seidman, MSN Search program manager, (and kudos to him for knowing about it, linking to it, and responding quickly):

At this point we are just experimenting and suffice to say that in our short experiment we have learned a lot. We have been a bit more zealous in our crawling then we would have liked and we are going to fix that. Thanks for the feedback!

Ask BitTorrent creator Bram Cohen, as it seems many people have, what he thinks of Microsoft Research's Avalanche, their better-than-BitTorrent P2P program and you'll get an earful (or at least a blogful).

On his blog, Cohen writes:

"First of all, I'd like to clarify that Avalanche is vaporware. It isn't a product which you can use or test with, it's a bunch of proposed algorithms. There isn't even a fleshed out network protocol. The 'experiments' they've done are simulations."

I won't pretend to understand the technical niceties except to note that Cohen's critique is that the Microsoft simulation is rigged against BitTorrent. He concludes:

Microsoft will shortly unleash Avalanche, an attempt to improve on the popular filesharing app, BitTorrent. While BitTorrent is anathema to Hollywood studios and other copyright holders, Avalanche, which is being built in Microsoft Research, would include a DRM to block the unlicensed sharing of copyright material.

UPDATE: BitTorrent's Bram Cohen calls Avalanche "complete garbage." [Read[

Presumably what interests the folks in research, though, are some technical enhancements. Microsoft would add network coding to BitTorrent's swarming approach to large file downloads. In simplest terms, BitTorrent breaks content into blocks of data and does parallel requests for blocks from multiple servers. This greatly speeds downloads of large files.

Microsoft's improvements order the blocks that each machine has and creates a way for machines to communicate which blocks they have. According to Microsoft Research's paper:

Such encoding ensures that any piece uploaded by a given peer can be of use to any other peer. Peers do not need to find specific pieces in the system to complete, any encoded piece will suffice. This makes the system very robust as peers disconnect. Also, no peer becomes a bottleneck, since no block is more important than another. Finally, network bandwidth is considerably reduced since the same information does not travel multiple times over bottleneck links. And all this is achieved with zero-information of who has what, no knowledge of the network topology or available bandwidth, and negligible-overhead!

Very cool but its DRM not speed enhancements that will excite Hollywood as well as the digital frontier. Avalanche might actually legitimize P2P applications. Users uncomfortable with the shady side of the Net might be interested in using it if they didn't have to worry about love letters from the MPAA showing up in the mail.

And Hollywood would be happy to play ball with copyright-friendly companies like Microsoft, as they've proven with Apple. "Having a legitimate way to exchange intellectual property and respect copyright would be very welcome in the entertainment industry, and other industries too," movie industry lawyer Charlie Sims said.

But Microsoft needs to do DRM right. It would need to respect fair and free uses of copyright material, such as the ability to use purchased materials on more than one machine and to move materials to portable players.

Sounds like a release is imminent. I'll be happy to check it out.