More on Microsoft Mac BU

There were a number of interesting tidbits that didn't fit into the story we published this morning on Microsoft's Mac Business Unit. Here are a few of the things I left out, plus more information on some of the items mentioned in the story, and some follow-up info based on reader inquiries this morning.

• The reference in the story to the employee comparing his speech-making prowess to Apple's Steve Jobs came from an anecdote told by Rob Wolf, a product manager in the Mac BU, in the employee film mentioned in the story:

  "I was giving a speech to a bunch of Microsoft employees. Four hundred Microsoft employees, big stage, well lit, like my mini version of a Steve Jobs keynote, trying to wow the crowd, showing them Office for Macintosh, and the crowd was really with me, they were laughing, they were pointing, they were, from what I could tell, really enjoying the show. .... Turns out my fly was open. ...True story."

• The Mac BU includes one of the coolest rooms I've seen so far on the Redmond campus: A test lab with more than 85 Macs representing almost the full history of the machines, from the Macintosh Plus to the new G5. (You can see part of the lab in the photo by the P-I's Phil Webber that accompanied the story.) Between the Redmond lab and another in Silicon Valley, Microsoft essentially owns at least one of every Mac ever mass produced.

  The Macs in the Redmond lab are used primarily for automated testing of the software Microsoft makes for the Mac, which means you can stand there and watch them go through all the scenarios and tests on their screen. In total, the machines can run more than 1 million tests per day. (David Weiss, a Mac BU software design engineer involved in the testing process, toured me and some journalists from Mac-related publications through the lab last fall.) The automated testing is in addition to extensive manual testing of the software (i.e., by humans).

• A few readers have e-mailed this morning asking when Microsoft is going to start making more of its software for the Mac. The two most-requested programs thus far: MS Money and Microsoft Publisher.
  
  
• As mentioned in the story, people in the Mac BU take noticeable pride in Office for Mac as its own product, not a mere adaptation of Office for Windows. At a companywide employee meeting last year, the Mac BU demonstrated some of the new features for Bill Gates, who reportedly expressed particular interest in one of the features, as in, Hey, that should be in Office for Windows.

  Along those lines, see this list of Mac-only features in Office 2004 for Mac. Two of the new features that stood out in demonstrations were the Scrapbook (below left), which lets a user store and access images and clippings from various programs in one place; and the Project Center (below right), which is a new part of the Entourage e-mail program that gives a user a place to manage and track a project with various types of files. Click the thumbnails to see larger images.

Mike Rowe docs on eBay

Just when you thought his 15 minutes were up ... Mike Rowe has resurfaced, evidently auctioning on eBay the infamous package of documents he received from Microsoft's intellectual property lawyers. The current high bid, as of Wednesday morning, is $540. Here's the description from the site:

This is your chance to own a piece of Internet history. This is the book shown on TV, Internet, magazines and talked about on the radio and seen by millions of people world-wide. I am selling the WIPO book with the 25-page letter I received from Microsoft's lawyers on January 14/2004. I have two copies of these and I will be keeping one for my own personal memoirs. This inch-thick book contains copies of web pages, registrations, trade marks, other WIPO cases, emails between me and Microsoft's lawyers and much more. There are 27 annexes filled with information. This package also comes with the 25-page complaint transmittal coversheet that was sent with the inch-thick book. In this letter you can find policies, rules, supplemental rules, model responses, copy of complaint and much more. Take advantage of this once in a lifetime opportunity.

No profit on Xbox One

John Connors, Microsoft's chief financial officer, spoke to financial analysts in Boston this morning. Among other things, he acknowledged that the company still loses money on every Xbox it sells, and he said that isn't going to change until after the next generation Xbox is released, because of the cost of making the current console. Access the audio of the full presentation through this site. Here's his full quote on the subject of the Xbox:

"The real crossover though, in terms of profitability delta, is when we get to the next generation of the Xbox console. Where we are today in the life-cycle of that console, it’s very clear if you look at previous life-cycles for consoles, that as you get to the end, the pricing dynamic heads one direction, and that’s down. With the current cost of goods, which we have taken down fairly dramatically, there’s no way to make money on the console in this first generation. So the key is, how do we do in the hardware design and the chip-set design and the supply-chain design with Version 2. If we do as expected, we have a good crossover point where that big negative number is no longer a negative number, and because of the size of the revenue and the size of the percentage that is negative, when you have a crossover, that’s a good contribution in terms of bottom line."

Microsoft, Mac on KUOW

A new business and technology program called "The Works," hosted by John Moe on NPR station KUOW-FM (94.9) in Seattle, will air a show focused on both Microsoft and Apple at 8 tonight. If you tune in, you'll have to endure my comments in the first segment, followed by Glenn Fleishman, who writes one of my favorite columns, Practical Mac, for some other Seattle newspaper, the name of which escapes me at the moment. If you're outside the Seattle area, you can hear the live stream on the KUOW Web site or listen to the archived version later.

Windows, Linux research

Microsoft's practice of paying for research on Linux, then publicizing the results in an effort to show Windows' superiority, has been a simmering issue since last year, but it hit a boiling point with the debut this month of the company's "Get the Facts on Windows and Linux" Web site and related ad campaign. For more on the "Get the Facts" site, see this story we published this morning. For additional background, here's a collection of past articles on the issue from various high-tech trade publications and Web sites.

• ZDNet: Microsoft touts Linux 'facts'
• Mary Jo Foley: Microsoft Not Budging from its Study-Funding Plans
• NW Fusion: Microsoft report prompts Forrester policy change
• Forrester's Research Integrity (official company statement)
• eWeek: Get the FUD
• eWeek: Lies, Damned Lies and Research Projects: Microsoft and Linux

We quoted from that last column, by Steven J. Vaughan-Nichols, in our story this morning. Ironically, the ad that accompanies the column is from Microsoft, pointing to the "Get the Facts" site. (An attentive reader noted that there's also an ad linking to the "Get the Facts" site under the "Related Advertising Links" heading at the bottom of the online version of our story this morning.)

In putting our story together, I was also able to speak via phone last Thursday with Microsoft's Martin Taylor, who was braving the LinuxWorld convention in New York at the time. (Wired News has a recap of his appearance at the event, in which he showed his sense of humor by briefly donning a flak jacket before speaking.) To balance some of the stories listed above, here's an edited transcript of the interview, in which Taylor explains the company's position on the issue -- including its logic in describing studies it pays for as "independent."

Seattle P-I: The Get the Facts campaign is what I wanted to ask about. Can you tell me in terms of the form it’s in now, with all the research collected on one site, and advertising pointing to that site, how long has that particular strategy been around?

Martin Taylor: We launched the campaign, so to speak, in its full form in January with the Web site and the ads and everything. Back in the summer I met with a bunch of folks and pretty much explained to people that this is our approach to really addressing some of the perception gaps that exist in the marketplace, which is really a fact-based approach where we can basically share information with people so that they can understand the differences between Microsoft and our platform vs. Linux and the Linux platform around areas around TCO [total cost of ownership] around reliability, around a set of things where a perception gap exists.

It’s really going to come in three forms. You’ve got a lot of customer references/testimonials, where a customer says, “Hey, I looked at Linux, I chose Microsoft for these sets of reasons.” The second form is basically working with third-party analysts and research firms to have them go ask what’s important to customers, so they’ll go sample a set of X number of IT professionals about what do they care about and then we’ll sit down and talk about how we do against that. And the third area is really where through various methods that these research firms use, they’ll do some analysis in certain areas, like the Giga one, they use their TEI methodology to go understand what’s called total economic impact and you’ll have some of those things as well.

P-I: What’s been the response from customers to the third category that you mentioned, the research?

MT: I kind of know where you’re going with the question. The response from customers is actually good compared to what you might think from some things you might have read. This information does not exist for the most part. This information is not readily available. This is such an emotionally charged, religious discussion, around Linux and Microsoft. That was fine for the time when Linux was used in a more development-oriented way when people who were really passionate about development scenarios were grabbing Linux and using it. As Linux became more mainstream, as Linux became more commercial, as IT professionals wanted to make more pragmatic decisions on it. They needed a set of data to help them sort through their decisions. They just couldn’t say, Maybe I should just choose Linux because there were 52 Slashdot postings saying that Linux is better. That’s really what drove a lot of the emphasis, to say, “Hey, fine, let’s really give a set of facts.” For some of these things we’ve gotten direct quotes from customers saying, “Hey, thank you, we were looking for this information.”

Whether they wholeheartedly take what’s written and believe it vs. they say I see that I have something from Microsoft let me go now find something comparable from Linux, so I can do an analysis, that’s goodness for everybody I think, and that’s kind of the behavior that we want to drive from this.

P-I: Obviously what that’s getting at is the fact that, my understanding is, for all these studies, Microsoft is providing the funding. Am I right in understanding that?

MT: Not for all of them. There will be some studies that we end up posting that we did not commission but in the short order, it’s one of those things, you’re a journalist, you know how this works, there’s nothing sexy or exciting about Microsoft adding another customer to their list of millions of customers, but boy it’s great journalism when one customer chooses Linux over Microsoft. But this imbalance doesn’t just exist in the press, also with the analysts, where to go do some research to prove that Microsoft is better than Linux is just not exciting research for them to go do. I told them all, “Hey, if you guys do these on your own, I don’t want to have to commission these things.”

But the thing to know is a few things: One, we’re supertransparent. We’re not driving these studies and saying, “Oh, we don’t know how these things got funded.” It’s very clear what we commission. Secondly, we’re working with Tier One firms, we’re not working with Martin Taylor Consulting down in Kent, Washington. These are reputable firms. Three, we expose the process, the TCO studies, everything that we did to do that is there, so people can go do it on their own. Fourth, we’ve also backed that up with customers that also have made decisions based on similar sets of criteria and similar sets of data.

People call it into question, and again, if someone, and I’ll ask anyone and I’ll ask you, too, if someone has a better way for me to get third-party, validated information out into the community, you know, martinta@microsoft.com, I’m up right on the north tip of Sammamish Lake, come by my house, I’m on campus every day, I’d love for someone to help me if there’s a better way to do it.

P-I: Is it accurate, though, if Microsoft is funding these studies, to characterize them on the Web site as independent?

MT: Well, they’re done by independent firms.

P-I: Right, but are the studies themselves independent?

MT: Yes, I mean, it’s their methodology. The TEI model, that’s Giga’s model. I didn’t create that by any means. The TCO model, from the Gartner study, that’s Gartner’s model. I didn’t create the model for them.

P-I: But given that they are funded by Microsoft, obviously the firms are independent, but is it really accurate to say that the studies are independent?

MT: I believe so. I guess since you’ve asked me three times now, either I’m not answering it right or you don’t believe my answer.

P-I: That’s not the way I would define independent, just as a person. Independent to me means completely self-standing, without any kind of support from anybody else.

MT: The way I look at it is, these are Microsoft-commissioned research studies done by independent, third-party organizations. Does that add a level of clarity to it?

P-I: Yes, so in that way they are independent.

MT: Yes.

P-I: The studies and the firms?

MT: Yeah.

P-I: OK. There is one study on the site currently by Giga, which was acquired by Forrester, and that prompted, in part, Forrester to change its policy.

MT: Actually, it prompted every analyst in the world to change their policy. [laughs]

P-I: Right, and that was in part because you talked about this study to reporters. Was there any discussion about perhaps not including that particular study on the site because of the controversy it caused before?

MT: We talked to Giga to make sure we had their permission to do it, obviously, and they were fine with it. … Based on the noise that was created we did definitely have conversations with them to make sure that we were all OK with that study being on our Web site, and the fact that it’s there shows that, yes, they were fine with it.

P-I: You mentioned that in the future there may be some that are put on the site that are not funded by Microsoft. Are there any currently, of those that are on the “Get the Facts” site, that are completely without funding from Microsoft?

MT: I don’t know off the top of my head. I can go scan the site and tell you. But I think that the world’s changed with the analyst community. Prior to a lot of these things that happened in the last few months, that is the way you drove these things. IBM funded research. Everybody just funded research. I think that now with this new world order we’ll see more non-funded research, I would say, that will begin get up on the site.

P-I: Obviously, you yourself, as as you mentioned, played a pivotal role in that shift. Am I right in thinking of it in that way?

MT: No, I wouldn’t say that. I would say that the Giga study was one of the first studies that we took out there broadly on really showing these differences. This is a fairly emotional, as we said, community, and so if this had been the same exact study on Oracle, I can’t gaurantee you because we’re kind of hypothesizing, but we wouldn’t have seen the level of discussion and noise that took place. I think that because of the emotional connection and religious fervor that exists around Linux and open source, it just drove a different level of attention.

P-I: Last thing, I know you’ve got to go. Am I hearing you correctly in saying the results of these studies are no different than had they not been funded by Microsoft?

MT: This is the thing -- I’ve been at Microsoft 11 years, but maybe I’m the new kid on the block in dealing with analyst firms. I’m all about just being transparent and having a level of exposure to help people make decisions. If you read some of the press that came out on the Giga thing, John Rymer and some of the guys at Giga said, “Hey this is a great piece of work that we kind of wish we would have done on our own, not being commissioned,” and so without a doubt I can say that had I paid for the Giga study or had they done it on their own, had I paid for the Gartner study or had they done it on their own, the results would be identical.

Mike Rowe's new site

Mike Rowe, of MikeRoweSoft.com fame, has his new site up and running today: MikeRoweForums.com. As the "forums" title suggests, he's seeking to make the site an online community and a place for discussion, using his newfound notoriety to help draw traffic, but he says in a message on the site that he wants it to be about more than the Microsoft dispute.

They had a scream

Presidential candidate Howard Dean's on-stage scream (RealAudio | MP3) sounded strangely familiar last week, but I couldn't put my finger on it until someone else pointed out the striking similarity to Microsoft CEO Steve Ballmer's own "yeaaaaaggggghhhh!" (RealAudio | MP3) at the end of his famous "Get on Your Feet" dance sequence -- better known on the Internet as the "monkey boy" incident -- a couple years back. (Hear the screams alone and back-to-back, for comparison, in this file: RealAudio | MP3.)

There are already a bunch of musical remixes of Dean's outburst, and there were tons of similar remixes and variations on the Ballmer episode (including this funny iPod advertising spoof). But I haven't yet seen anyone combine the two in one song. Seems a digital duet would definitely be in order.

Bill Gates, KBE, overseas

Bill Gates says during a speech Friday that the company is working on technology that will end spam within two years. Two days later the British government says it's awarding him honorary knighthood. (He won't be called "Sir Bill," since he's not a British citizen, but he'll be able to put KBE, for Knight Commander of the British Empire, after his name.) Coincidence? Regardless, here's a collection of reports on the Microsoft chairman's trip to the World Economic Forum in Davos, Switzerland, with subsequent stops in other parts of Europe and the Middle East:

• The Guardian: Gates honoured to buck up Brits
  
• Times of London: Gates in UK as Microsoft deals reviewed
  
• ArabicNews.com: Gates: Egypt IT center in Middle East
  
• AME Info: Gates makes first visit to the Middle East
  
• Pakistan Times: President invites Bill Gates to invest in Pakistan
  
• AFP: Bill Gates bullish on European recovery
  
• New York Times: Economic Talks Draw Elite to Davos ...
  

Of Wikis, SOAP and Tetris

Working on this story about new Microsoft employee Ward Cunningham, who came up with the original idea for the wiki, brought to mind another Microsoft employee known for inventing something perhaps less practical but probably more of a cultural phenomenon, at least in its heyday.

Alexey Pajitnov, a Russian computer programmer who created the game Tetris in the mid-1980s, has worked for the Redmond company since 1996. He's currently part of Microsoft's Zone group, which makes games that are available through the company's MSN service. (Pajitnov and SOAP co-author Don Box are also mentioned on the Tips For Ward at Microsoft wiki. ) Here's a story on Pajitnov that ran in Seattle Weekly a few years back. And to bring this full circle, here is the entry about Pajitnov on wikipedia, the online encyclopedia whose founders were inspired by Cunningham's concept.

Mike Rowe settlement

This just in ... Microsoft has reached an agreement with Mike Rowe, the Canadian teenager who was using the Web site mikerowesoft.com in alleged violation of the Microsoft tradmark. Here are the details, as relayed to us by Microsoft spokesman Jim Desler. In exchange for Mike turning over the mikerowesoft.com domain to Microsoft, the company has:

• Agreed to help direct any traffic from mikerowesoft.com to Rowe's new Web site (which he's currently working on) to make sure he doesn’t lose any business. The company will pay any out-of-pocket expenses related to this change, including cost associated with changing over to the new url and any other expenses. (The Rowe family is now calculating those expenses.)

• Invited Mike and his family on to the Microsoft campus for the company's Microsoft Research Tech Fest in March. The company will pay for the travel and accommodations. No promises, but it's possible he could meet Bill Gates, depending on the Microsoft chairman's schedule, Desler said.

• Agreed to pay for Mike to get Microsoft Certification training. Depending on which courses he chooses, this could lead him to become a certified support technician, or system administrator, or something along those lines.

• Agreed to give Mike a subscription to MSDN, the Microsoft Developer Network Web site, with various tools for developing software around Microsoft products.

• Agreed to give Mike an Xbox game system, complete with a number of games of his choosing.
  

Said Desler: "It is a story of a young, bright kid starting a business, came up with a creative domain, and I think our initial step was maybe perhaps a bit too impersonal. Once we understood the circumstances around it, we wanted to work things out in a way that would be fair to him." He said the company also wanted "to do things in a way that would foster his interest in technology."

Said Kim Rowe, Mike's father: "It's nice that this is over, so that he can go back to being Michael. He still has school and if he fails, that's six months of his life gone. He's also setting up his new Web site so that things can get zipped over there quickly and it will be ready and stuff, because he's going to get a whole whack of hits."

Mike, in a brief phone interview this afternoon, said he feels "good" about the way things turned out. "I'm just looking forward to all the media going away," he said. "I'm pleased that everything is over and we settled."

Microsoft's SEC filings

For more information on Microsoft's second-quarter earnings report, in which the company topped $10 billion in quarterly revenue for the first time in its history, see the main page on the Microsoft investor relations site. (You can also listen there to the webcast of the conference call referenced in our story this morning.)

But often the most interesting information on the company's quarterly performance comes a few weeks after the earnings report, when Microsoft files its Form 10Q with the Securities and Exchange Commission.

In that filing, for example, you can see which of the company's seven divisions made money for the quarter and exactly how much those divisions made or lost. The consistently profitable divisions have been Client (desktop Windows), Server and Tools, and Information Worker (the Office System). The ones that have yet to reach a profit are Home and Entertainment, Microsoft Business Solutions, and Mobile and Embedded Devices. The MSN division posted its first quarterly profit in the quarter ended Sept. 30, but the company declined to say yesterday if MSN was profitable in the most recent quarter.

I'll post a link to the 10Q for the latest quarter when it's filed, but in the meantime, here's the 10Q from the previous quarter. You can also search for additional filings on this page on the SEC's Edgar site.

Seattle vs. San Jose

For more on Microsoft's effort to move the RealNetworks antitrust suit from a court in San Jose to one in Seattle, click here for the full text of the Microsoft motion. For more on the origins of the case, see our initial story on the suit, this earlier post, and RealNetworks' original complaint.

We also explored the San Jose vs. Seattle venue issue in more detail in this story a couple days after the suit was filed. That story includes this comment from a jury consultant in California: "Down in San Jose, there's still a lot of animus toward Microsoft ... I think there are a lot of people who have the mentality that we need to support these cases against Microsoft and keep them going, because we got let down by the Department of Justice."

Mike Rowe, future CEO?

In putting together this follow-up story on the mikerowesoft.com situation, we wanted to understand how Mike Rowe originally got his story out, so I phoned Norman Gidney, a reporter for the Times Colonist newspaper in Victoria, B.C., which appears to have been the first newspaper to publish the story. He explained that Rowe e-mailed a "to whom it may concern" message to a number of media outlets last week, explaining what had happened.

But more interesting was Gidney's suggestion of a way that Microsoft might resolve the situation: Since Rowe is soon to graduate from high school, Gidney asked, why doesn't the company offer him a college scholarship as part of a settlement?

Not a bad idea, really. As an alternative, an internship at Microsoft might be a another solution. Or how about a job? Microsoft executives are known to put great stock in employees willing to stand up and defend their positions to those in authority. And just look at Rowe's negotiating tactics, suggesting a $10,000 payment after the company's lawyers offered $10. Maybe Microsoft has found its future chief executive.

Microsoft's share price

In this story earlier this week we addressed the question of Microsoft's relatively flat share price. Matthew Lubanko, the personal finance columnist for the Hartford Courant, was recently asked the same question by a reader. He responded Sunday in this column (free registration required). Here's what he wrote:

There are two Microsofts: the company that grew rapidly before 2000, and the company that has struggled to find a new identity ever since.

To see how this story has played out, take a quick look at the most basic financial numbers.

From fiscal 1993 through fiscal 1999, sales at Microsoft rose from $3.75 billion to $19.7 billion. During that same seven-year span, Microsoft's net income rose from $953 million in 1993 to $7.6 billion in 1999. This golden age of growth coincided with the arrival of the Windows 95 operating system, Microsoft Office, the three-computer household and the Internet as America's favorite electronic library and shopping mall.

Since the end of fiscal 1999, Microsoft's earnings have hit a plateau. The company reported net income of $9.4 billion in 2000, and $10 billion in 2003, with two subpar years (earnings in 2001 and 2002 came in below $8 billion) sandwiched in between. This phase of retreat and consolidation neatly coincided with Microsoft's legal troubles (antitrust lawsuits around the globe) and security concerns (Windows is vulnerable to hackers), as well as the recognition that Office and Windows cannot get much bigger than they already are; they already run most of the world's personal computers.

"When sales hit the $25 billion mark (as they did in fiscal 2001), it became that much more difficult for Microsoft to grow," said Richard Scocozza, an analyst who follows the company for Whitaker Securities LLC in New York. New lines of business - the Xbox game system, television ventures, such as MSNBC, and wireless appliances - have garnered some fanfare, but contributed little or nothing to Microsoft's bottom line, Scocozza added. Even though Chairman William H. Gates III sold 9 million shares of Microsoft in November, he still holds 1.1 billion shares in the company he founded with Paul Allen in 1975.

Despite recent setbacks, it would be foolish to cast Microsoft as America's next Bethlehem Steel Corp., a former giant that recently dissolved. At the end of September, Microsoft held $51.6 billion in cash. It is still the dominant software provider for personal computers; try finding a computer at home or the office that uses anything else. This dominance in its industry helped support Microsoft shares during the worst of the tech wreck of 2000-2002; the stock didn't fall as far as other software makers, and thus didn't recover as dramatically in 2003.

But if you're looking for Microsoft to recapture the rapid-growth magic of its early years as a public company, forget about it. Its days as a wunderkind are over. It is now too big to grow as fast as it once did, Scocozza said.

Ebert on Windows v. Mac

The latest issue of MacWorld magazine (February 2004) has a good retrospective on the first 20 years of the Macintosh, including a series of essays from some well-known figures. One of them is film critic Roger Ebert, who on page 72 makes clear his loyalties in the Windows v. Mac debate:

"Macs turn up in movies all the time," he begins, "not so much because of product placement, but because so many movie people use them and like them. A historian of the future, counting all the on-screen computers between 1983 and today, would likely conclude that Macs represented 90 percent of the computer market.

"Alas, this is not so. But since any reasonable person would choose a Mac over a PC, Apple's market share does provide us with an accurate reading of the percentage of reasonable people in our society." [Note: Quote corrected since original post - tb]

That Ebert is partial to the Mac is not news, however. In this review of "Final Destination 2" last year, he wrote (emphasis added):

The malevolent presence doesn't remain unseen for long. Soon bad things are happening to good people, in a series of accidents that Rube Goldberg would have considered implausible. In one ingenious sequence, we see a character who almost trips over a lot of toys while carrying a big Macintosh iMac box. In his house, he starts the microwave and lights a fire under a frying pan, then drops his ring down the garbage disposal, then gets his hand trapped in the disposal while the microwave explodes and the frying pan starts a fire, then gets his hand loose, breaks a window that mysteriously slams shut, climbs down a fire escape, falls to the ground and finally, when it seems he is safe ... well, everything that could possibly go wrong does, except that he didn't get a Windows machine.

MikeRoweSoft reaction

Microsoft's effort to make a Canadian teenager named Mike Rowe stop using the domain name "mikerowesoft.com" for his small business has garnered widespread coverage, even earning a mention on NBC's "Today Show" yesterday morning. A sampling of the reaction:

• Times Colonist: Langford student battles tech giant:
  "Victoria intellectual property lawyer Dawn Wattie said Rowe's chances against the Microsoft legal machine probably 'aren't very good.' Mostly, the little guys lose, she said."

• ZDNet Commentary: Microsoft stuck with MikeRoweSoft mess:
  "Let's be clear: Microsoft is not only within its rights but is pretty well compelled to defend its name. Under U.S. law, if you let one potential infringement slide you lose the ability to defend against any. Where the company went wrong was in treating a teenager like a con artist: it may be backing down now, but the damage has been done."

• The Mac Observer: "In today's corporate-dominated environment, companies have far too much power when it comes to such things as domains. From J.K. Rowlings management coming down on kids with Harry Potter-related domains, to Miller Brewing going after the Miller family, if you have a domain that is covered by a corporate trademark, beware."

• A range of reaction from seattlepi.com readers on Brian Chin's Buzzworthy weblog: Writes one, "How silly from Microsoft to generate so much negative publicity over a trivial domain name dispute. They must protect their trademark, but could have done so in a more discreet manner." Counters another, "This is not big corp vs little kid. This is a matter of a little kid, with the help of the press costing a big corporation a lot of money on legal fees for no good reason. You are on the wrong side of this one kid."

Update, 11 a.m.: There are now indications that Microsoft may be loosening its position. Company spokesman Jim Desler just gave us this statement, echoing what the company told ZDNet earlier today: "We take our trademarks seriously, but in this case maybe a little too seriously. It’s important to recognize that under the law companies are required to take this type of action to protect their trademark against widespread infringement. But that said, we appreciate that Mike Rowe is a young entrepreneur who came up with a creative domain name. We’re currently in the process of resolving this matter in a way that will be fair to him and satisfy our obligations under trademark law."

BusinessWeek on AOL

The current issue of BusinessWeek includes a story on Time Warner's AOL division, which is facing many of the same challenges as Microsoft's MSN division, trying to move away from dial-up subscriptions to broadband services:

The heart of AOL has always been online subscriptions, which made up 90% of revenues last year. Parsons' big chore is to stanch the larger-than-expected member defections plaguing AOL since 2003. Chances are, he -- and investors -- won't know if the division's newly launched broadband and discount ISP services will do the trick for another 12 months.

HP, Microsoft and Apple

USA Today has a story today recapping and putting into context the developments of the past few weeks in the music download arena, including HP's deal with Apple and Microsoft's response. In the story, Dave Fester, GM of Microsoft's Windows Media division, reiterates the company's stance on Apple's iTunes Music Store:

Microsoft's Fester insists that the Apple/H-P deal will further confuse consumers. For instance, an H-P PC owner who buys a digital song at the iTunes store won't be able to move it to a non-Apple portable device — like an H-P iPaq Pocket PC, which is built on Windows Media software. They can listen to it on their computer but not take it with them. "It's like buying a CD from Amazon.com, but Amazon is the only store where you can buy CDs, and you can only play it on an Amazon-branded CD player," Fester says. "That's limiting in choice."

As we recounted in this story a couple weeks ago, Apple's Steve Jobs responded to such criticism last year by noting the dominance of both the iPod and the iTunes store, and exclaiming, "Why should we work with another music store when we're working with the Microsoft of music stores?"

Justice: Deal not working

Associated Press: "One of the most important provisions of the antitrust settlement negotiated with Microsoft Corp. is falling short of the federal government's hopes that it would energize rivals of the world's largest software maker, the Justice Department acknowledged Friday. U.S. antitrust lawyers told the trial judge they are increasingly uneasy that efforts to persuade competitors to license Microsoft's Windows technology for their own software products 'are not likely to spur the emergence in the marketplace of broad competitors to the Windows desktop.' "

The story is based on the latest joint status report detailing Microsoft's compliance with the U.S. antitrust settlement. You can download a copy of that report here. It's not the first time such concerns have been raised. See, for example, this story we published in June.

Gates' other company

Mary Jo Foley of Microsoft Watch reports on the annual meeting held in New York today by Seattle-based Corbis -- "perhaps the lesser known" of the two companies founded by Bill Gates, as the Microsoft chairman put it during the meeting. At the event, Corbis reported 20 percent revenue growth in 2003, to $140 million, which it said was five times the average growth rate in the advertising and publishing industry.

Windows music changes

Associated Press: "Microsoft Corp. has agreed under pressure to change its Windows software to resolve complaints by the Justice Department that it unfairly influenced how customers buy their music online, the government said Thursday. Microsoft will offer updated software for its Windows XP operating system in February or March to stop its disputed practice of compelling consumers who buy music on the Web to use only Microsoft's Internet browser. The company continues to maintain its design was legal."

Their slogan. His gripe.

Listening to the radio I sometimes wonder whether the announcer is going to run out of breath before reaching the end of Microsoft's long and winding "Your potential inspires us to create software that helps you reach it" slogan, the prelude to the "your potential, our passion" tag line. Apparently I'm not the only one who has noticed this. Here's an excerpt of a column last week by Jim Kershner of The Spokesman-Review (free registration required). See especially his tongue-in-cheek alternate suggestions at the end of the excerpt:

I first began to notice this on morning radio. My radio alarm would go off and I would hear the new Microsoft tag line:

"Microsoft: Your potential inspires us to create software that helps you reach it."

What? What did they say? My potential makes Microsoft reach for my what?

I decided that I was just too groggy to decipher it correctly. I mean, this phrase was far too awkward to be dreamed up by a multi-billion dollar company. Back when I lived in Cody, Wyo., I used to hear radio slogans like, "Betty's Bargain Barn, serving all of your wants, needs and desires in the thrift shop vein," but those were written by 19-year-old ad salesmen who had dropped out of 10th grade English.

Surely, Microsoft had the money to hire an ad agency that could come up with something a little more catchy, like: "`Microsoft: We Gotcher Software," or "Microsoft: Disk Inferno," or "Microsoft: I'm Lovin' It. I Got No Choice."

So I listened even more closely the next morning, and I even stationed a pencil and paper on my bedside stand so I could write it down verbatim.

Sure enough, it was exactly what I thought: "Microsoft: Your potential inspires us to create software that helps you reach it."

Could a slogan possibly be any clunkier? How about, "Microsoft: Your potential is that which we seek to optimize, software-wise." Or maybe, "Microsoft: We create software because you have potential which subsequently inspires us to help you achieve it, `it' referring to your potential."

PC shipments rising

The Associated Press: "Worldwide PC shipments in 2003 showed double-digit growth for the first time since 2000 as consumers took advantage of falling prices and more people bought notebooks, according to preliminary numbers released Wednesday by two research companies."

It's a good sign for Microsoft, which derives much of its operating-system revenue from preinstallations on PCs. See the IDC news release, the Gartner news release, and reports by Reuters, News.com, and IDG News Service.

Eolas verdict upheld

A federal judge in Chicago today upheld the $521 million patent-infringement verdict for Eolas Technologies and against Microsoft in a lawsuit over technology used in the Internet Explorer browser. Microsoft plans to appeal. If the verdict stands on appeal, it could result in changes to Internet Explorer. Some in the technology industry, including World Wide Web inventor Tim Berners-Lee, warn that many Web pages could be rendered incompatible with certain software programs if that happens.

More on smart watches

Here are a couple interesting weblogs tracking Microsoft's Smart Personal Objects Technology, and specifically the smart watches released last week: SpotStop, which, among other items, notes (and refutes) a negative review of the smart watches in IEEE Spectrum; and Spotlight on SPOT, which includes an item tracking the experiences of initial users of the smart watches. (For more background, see our item on the smart watches in Monday's Microsoft Notebook.)

Game Studios VP resigns

Ed Fries, a Microsoft veteran who oversaw game development for the Xbox and Windows as vice president of games publishing for Microsoft Game Studios, has decided to leave to "pursue other goals," Xbox Chief Robbie Bach said in a message this morning. Bach said he "reluctantly accepted" the resignation. Shane Kim, who has been Fries' top lieutenant, will fill the role on an interim basis until a permanent successor is named. See Fries' bio on the Microsoft site and this 2001 profile of Fries by the P-I's Dan Richman.

Gates' Corbis seeks voice

An item by my colleague, John Cook, in the P-I business section's Insider column this morning:

Corbis, the Seattle digital imaging company controlled by Microsoft co-founder Bill Gates, will hold its first meeting to be held annually in New York City on Thursday. An annual meeting? That seems a bit strange for a privately held company whose primary shareholder is the world's richest man.

The Insider thought the meeting, which will include comments by Gates and Chief Executive Steve Davis, might be in preparation for an initial public offering. (Some industry watchers have speculated that the company is getting ready to file for an IPO.)

But company spokesman Dov Schiff said "there are absolutely no plans to go public."

So why is the 15-year-old company holding the meeting?

Quite simply, it is a way to inform analysts, clients and the media about issues related to digital images and rights management, Schiff said. But he also added that the event is in response to Seattle-based Getty Images, the publicly traded competitor which held its analyst day in New York last month.

"They are the ones telling everyone how they see the industry," said Schiff. "And we don't always agree with the way they see it."

Windows Auto demo

Before leaving Las Vegas over the weekend, I got a chance to spend a little time on the Consumer Electronics Show floor with Microsoft's Windows Automotive team, which was there demonstrating one of the connected concept cars that the company unveiled at the show. The computer system -- in this case embedded in a Hummer H2 (pictured below) -- lets you use voice commands to do all sorts of things hands-free while driving, like finding points of interest, making phone calls and getting driving directions. In the concept car, the technology works via an onboard computer running Microsoft software. That computer connects wirelessly via Bluetooth with a mobile phone in the car that connects to the Internet.

Here's a recording I made inside the car during the demonstration they gave me. You'll hear the system finding not just the nearest gas station but the nearest gas station with the cheapest gas (Windows Media | RealAudio | MP3). After you listen to that, here's Peter Wengert, marketing manager in Microsoft's automotive business unit, explaining what's going on, from a technology standpoint, to make that happen (Windows Media | RealAudio | MP3).

The cars are prototypes meant to show what the Microsoft software can do. The company says elements of the system are available in 23 preinstalled and aftermarket devices, including a car available from Toyota in Japan. Microsoft is working with automakers and suppliers to expand the market.

Some related links:

• Mary Jo Foley: Microsoft Shows Off 'Connected Concept Cars.'
  
• An Associated Press story from December, quoting Dick Brass, vice-president of Microsoft's automotive business unit, saying that the company would like to have one of its operating systems "in every car on Earth."
  
• The results of an online poll conducted on seattlepi.com, in which more than 60 percent of respondents said they either didn't like the idea of Microsoft software running in their car or were dubious about it.
  
• Microsoft Automotive's home page.
  

Portable Media image

In this story earlier this week, we ran an image of a prototype Portable Media Center that Microsoft showed at the Consumer Electronics Show last year. The caption explained that the actual products could look a lot different, and in fact, that's the case. Below is a product shot of the Portable Media Center device from Creative Technology, which was shown for the first time during Bill Gates' opening speech here Wednesday night.

This device is a little more than 5.5 inches wide and slightly less than 3.5 inches tall. For reference, the standard iPod is about 4 inches tall and 2.5 inches wide.

AOL, MSN and dial-up

Seeing this wire story about AOL's push to rebuild its dial-up subscriber base reminded me of something analyst Van Baker of GartnerG2 said when I interviewed him for this story about the reasoning behind the new MSN service launched this week. I didn't use the quote in the story, but I went back to my notes, and here's what he said:

Dial-up access is "a very competitive marketplace. It’s hard to be profitable in that space for the simple reason that there’s so many competitors that are offering such low prices. It’s also going to be a shrinking market over time. AOL’s strategy seems to be one of having a bigger and bigger share of a smaller and smaller market, which has never been a very good business strategy in the long run."

HP and Apple to team up

More news out of the Consumer Electronics show today: HP, Apple to sell digital music device.

Xbox as Media Extender

One variety of Microsoft's Media Center Extender technology, shown for the first time this week here at the Consumer Electronics Show in Las Vegas, significantly expands the capabilities of the Xbox. With a special DVD and remote control, the Xbox will be able to communicate with a Media Center PC in another room to let someone watch content from the computer on a TV. (The Media Center Extender software will also come in set-top boxes and inside TVs.) Microsoft hasn't yet released expected prices for any of the devices.

At CES today I got a chance to talk about the Xbox Media Extender with Cameron Ferroni, the general manager of the Xbox platform team. He called the use of the Media Center Extender for the Xbox one example of how the company has been working to expand the capabilities of the video-game console. (Another is the Xbox Music Mixer karaoke program that debuted last year.)

But Ferroni also made it clear yesterday that the company won't merely throw technology into the Xbox just for the sake of doing it. To do so would risk alienating hard-core video game players interested first and foremost in the console's gaming capabilities. The idea is to build "entertaining experiences on top of that foundation that they actually care about," Ferroni said.

Jay Leno returns

Posting from Las Vegas ... "Tonight Show" host Jay Leno, who helped Microsoft launch Windows 95, returned Wednesday night, joining Bill Gates on stage to launch the new version of MSN during the Microsoft chairman's opening keynote address at the Consumer Electronics Show here. You can read what Leno said (along with more details about other news Gates announced during the speech) in the official transcript. (Do a cntrl-f search for Leno's name if you want to get right to that part.) A sampling of the Gates-Leno banter:

JAY LENO: [A]ctually, Bill and I go back, because we introduced Windows '95 together. What year was that, Bill? (Laughter.)

BILL GATES: We picked the name for the date, it was 1995.

JAY LENO: Yes, '95, right. Back then Bill was doing this computer thing out of his garage, I paid for lunch, he still owes me a $20, but I mean, we'll forget about that. But, who would have guessed back in '95 that this whole computer thing was going to catch on the way it did. It's pretty amazing. Do we have some photos of that? There it is right there. There he is, as you see. My hair was much longer then, a little darker. Bill, your hair looks exactly the same. The glasses are a little smaller. Bill, it's interesting, since Ben Franklin there's been a lot of advances in eyewear, did you know that? They have the Lasik surgery now, they have the contact lenses, have you thought about it?

BILL GATES: No, I haven't.

JAY LENO: Yes, well, you're weaning your way. The glasses are getting smaller, so you might be getting towards contacts, but it's just something to think about.

New Office for Mac

At the MacWorld Expo today, Microsoft announced it will release new versions of Microsoft Office and Virtual PC for Mac. CNet News.com's Ina Fried calls it "a sign that Microsoft plans to be in the Apple market for some time." Microsoft's long-term commitment to the Apple platform has been a concern for some Mac users since the 2002 expiration of the technology development pact between the companies. Many Mac users rely on Office for Mac to share documents with Windows users.

I've seen a demonstration of an early version of the new Office for Mac, and one of the more interesting features is the ability to record and embed audio into a Word document. As with Microsoft's OneNote application for Windows, the program synchs the audio with what you're typing when something is said, letting you go back later and hear precisely what was recorded at the time you typed a particular line.

RealNetworks as victim?

Columnist Mike Langberg of the San Jose Mercury News offers a facetious version of what a lawyer for RealNetworks could say in closing arguments in its antitrust case against Microsoft:

"RealNetworks, which develops streaming audio and video software as well as selling premium music and sports programming online, is being strangled by the evil and monopolistic Microsoft.

"Just look at the record: The stock gained 50 percent last year. Sales were up 9 percent in the first nine months of 2003, and net losses were cut in half. The corporate piggy bank holds $378 million in cash and short-term securities.

"The Rhapsody online music service, owned by RealNetworks, is delivering more than 1 million songs a day to its 250,000 subscribers; overall usage is up nearly 200 percent in the last six months.

"Rob Glaser, RealNetworks chairman and chief executive officer, showed the depths of his despair in October when he declared, `We're clearly the leader in music subscription services and believe that we are building a strong foundation for future success.' "

Surely the plaintiff's closing argument in the case of RealNetworks vs. Microsoft would sound nothing like that.

But it's all true. RealNetworks filed a lawsuit Dec. 18 accusing Microsoft of ongoing antitrust violations by which ``Microsoft has unjustly enriched itself at the expense of RealNetworks'' -- even as RealNetworks loudly touts its growth.

See the full column here: Microsoft as legal piñata is getting old

A week full of gadgets

It's going to be a big week for consumer electronics news, with the Consumer Electronics Show starting Wednesday in Las Vegas and the MacWorld Expo starting tomorrow in San Francisco. We had two related stories in the paper this morning, one about Microsoft's portable media center software, and one about the reemergence of U.S. companies in the consumer electronics world. I'll be at CES later in the week, reporting for the paper and posting to this weblog. Gizmodo, the gadgets weblog, should be an interesting site to watch during the week. In the meantime, here's a collection of related stories from other publications.

• CNet News: Computing giants to debut new gear at CES
  
• Wired News: Gadget Hounds Line Up for CES
  
• TechNewsWorld: Microsoft Ramps Up Consumer Electronics Push
  
• San Francisco Chronicle: Tech firms betting on digital living room
  
• Reuters: Manufacturers gamble on consumer electronics
  
• Boston Globe: Will Apple's innovations ... translate into market share?
  
• CamcorderInfo.com: 2004 CES Preview
  
• ThinkSecret.com: Apple planning 'mini-iPods'
  

Improved Microsoft page

We've beefed up our Microsoft page with links to special reports on the company, past profiles of Microsoft executives, related sites elsewhere on the Web, and a mug shot of a rather suspicious-looking character. In addition, you can still use the page to access Microsoft stories from the paper by month. The site also includes a new online poll. The first question: "Will Microsoft remain the major power in software during the next 10 years?"

Feel free to send me an e-mail or post a comment below to let us know what you think, or to suggest ways to improve the page further.