Xbox exec's bold words

Bryan Lee, corporate vice president and chief financial officer in Microsoft's Home and Entertainment Division, had an attention-getting conclusion to his speech yesterday at the company's meeting with financial analysts, talking about the next-generation Xbox's chances against the next Sony Playstation. By way of explanation, the slide he was showing at the time indicated that the Xbox had attained No. 2 position in the console market Here's what he said:

We're very happy with what we've created, but when I showed this slide to some of the guys back at the Xbox team before I came here, there was one thing they were very dissatisfied with. They were very dissatisfied with seeing the number two. There are a lot of people right now who are focused, laser focused on being number one, being number one through innovation. They want to push innovation harder, faster and farther than anyone in the videogame business has ever seen before. And quite frankly they're going to push it harder, faster and farther than Sony has ever seen it handed to them before as well.

The next console cycle will be a major inflection point in the industry. Console cycles thus far have been primarily defined by the power of the hardware, and hardware is going to grow, no doubt about that, but future cycles are going to be defined by something else -- they're going to be defined by the power of the software that sits on top of that. It's truly going to redefine what interactive gaming really means.

Thus far interactive gaming has meant an immersive experience, being taken to places you've never been before, seeing characters, experiences you've never seen before; that will continue, that is first and foremost. But interactivity also means how do I interact with my friends, how do I interact with my other media, how do I interact with my PC and how do I interact with that multitude of devices that sit around my home or I take with me?

The company that can define those scenarios and execute on them will win the next console cycle. That company will either be Microsoft or it will be Sony.

So we think we've proven we can play; our goal now is to prove that we can lead.

Among other things, note that he didn't even mention the next-generation Nintendo console, the GameCube successor, as a potential contender. That's sure to get some attention and perhaps stoke the competitive fires among the folks at the Nintendo of America headquarters, around the corner from Microsoft's Redmond campus.

One other Xbox-related note: During his speech, Microsoft Chief Executive Steve Ballmer said there's no plan to release a second-generation Xbox in the current fiscal year, although he said the company is hard at work on the next video-game console. Microsoft hasn't announced a timeline for the next Xbox. Ballmer's statement wouldn't exclude the possibility of a launch prior to the 2005 holiday shopping season, because the current fiscal year ends in June 2005.

Like 25 small countries

Never mind those comparisons to Google and eBay, here's an alternate way of putting Microsoft's growth in context, courtesy the P-I's Brian Chin. The company's $4.6 billion annual revenue gain -- not its revenue, mind you, but merely the increase in its revenue -- is roughly equal to the combined gross domestic product of the 25 poorest nations in the world, based on numbers from the CIA World Factbook.

Growing half a Google

Apparently someone has told Microsoft's executives that it's a good idea to put the company's revenue increases in context by comparing them to the total revenues of competitors -- underscoring the massive growth Microsoft is still experiencing, in absolute numbers, even if its percentage growth slows.

Last week, in a conference call discussing the company's financial results, Microsoft CFO John Connors said the company's yearly revenue growth of $4.6 billion was "the size of nearly two eBays or two Yahoos, if you're keeping score."

Just now, during his speech at the company's meeting with financial analysts, Senior Vice President Eric Rudder compared the growth of Microsoft's Server and Tools division to the size of BEA Systems and Red Hat.

And earlier this morning, Senior Vice President Will Poole, noting that Microsoft boosted the revenue of its Windows business for desktop computers by $1.1 billion last fiscal year, said, "That’s more than half of a Google that we grew last year."

OK, I think we get it.

Update, 2 p.m.: It's officially a trend. The $100 million revenue growth posted by the Microsoft Business Solutions division in the last fiscal year was "comparable to the revenue that Salesforce.com achieved in the last 12 months," Doug Burgum, the senior vice president in the MBS division, just informed the analysts here.

Update, Thursday evening: It's officially an epidemic. During his speech, Microsoft CEO Steve Ballmer described the company's operating-income growth prospects like this: "Over the next four years, we might be able to grow a whole Nokia, a whole Siemens, or potentially even a whole Intel."

More FAM blogging

Other people blogging about Microsoft's meeting with financial analysts today: journalist Mary Jo Foley of Microsoft Watch, who's here; and Jupiter Research analyst Joe Wilcox, who's monitoring the webcast and posting to Jupiter's Microsoft Monitor weblog. If anyone sees other people blogging from or about the event, please let me know.

'Thanks for the 3 bucks'

Opening his speech at Microsoft's meeting with financial analysts here in Redmond this morning, Bill Gates told an anecdote about going to the movies recently. Before the show started, he said, someone came up to him and said, "Thanks for the three bucks." Afterward, he said, another person did the same thing. As he came to realize, and as you've probably figured out by now, they were talking about Microsoft's planned one-time dividend of $3 per share, announced last week.

Posting from FAM ...

I'm over here on the Redmond campus today for Microsoft's annual Financial Analyst Meeting, or FAM, as they call it. With the company's cash strategy revealed last week, much of the earlier suspense has dissipated going into the day-long event, but the people scheduled to speak include Bill Gates, CEO Steve Ballmer, CFO John Connors and other top executives, so you never know what's going to happen. Here's information from Microsoft about the event webcast, if you're interested in tuning in. I'm planning to post more as the day progresses.

The blogging question

The P-I's man in Boston, Wyatt Buchanan, has an interesting story this morning: Bloggers: The new media or a fad? The story is centered around the Democratic National Convention, but the question has long-term implications for Microsoft and other companies looking at ways to incorporate blogging into their marketing and product strategies.

In conjunction with the story, seattlepi.com's daily poll asks the same question posed by the headline. I'll post the results here tomorrow.

Update: There are the results, at right. Just about dead even.

Dinner in Medina

A Microsoft intern, Jeff Maurone, writes in detail on his blog about a group dinner at Bill Gates' home. (Link via Robert Scoble).

Tablet PCs at the DNC

At Comdex last year I had a hard time finding Tablet PC users (third item) to interview for a story I was working on at the time. Apparently I was at the wrong convention.

On a related, and perhaps explanatory, note, see P-I reporter Wyatt Buchanan's story today, explaining Microsoft's role at the Democratic National Convention. Also see a recent Puget Sound Business Journal report on campaign contributions by Seattle-area business leaders, including Microsoft executives.

Mystery bloggers

Two blogs by Microsoft employees have made for particularly interesting reading in the context of recent developments at the company. On second thought, make that apparent Microsoft employees, because in both cases, the blogs are written anonymously. That said, they seem authentic. Here they are:

• Mini-Microsoft: Advocating a leaner Microsoft with fewer employees, greater accountability for existing employees, and a refined focus. See especially this Mini-Microsoft post outlining the author's platform, and this post summarizing the reaction to the blog. All of this is compelling in light of the cost-saving initiatives the company has been pursuing, even as it branches out into new areas, such as search. The Mini-Microsoft author isn't the only one advocating a leaner approach. See, for example, the previous comments of MIT professor Michael Cusumano on the subject. (Note also the comment made by the Mini-Microsoft author on that post.)

• PFBlog: My Personal Finance Journey: In this blog, a Microsoft employee documents his efforts to achieve financial independence and early retirement with at least $1 million. It turns out to be an interesting case study in the ways the company's broader financial initiatives can affect an individual employee. For example, in this post in April, discussing possible uses for the company's cash, the author noted that a big dividend would hurt employees with stock options by causing the share price to decline. Last week, when they announced a $32 billion one-time dividend, Microsoft executives made the payout contingent upon shareholder approval of a plan to tweak the employee equity compensation plans to compensate for the effect of the expected drop in the stock price. The PFBlog author acknowledged that he had underestimated the willingness of executives "to orchestrate a fair plan for both shareholders and employees."

U.S. MSN Newsbot debuts

Microsoft today launched the U.S. version of its MSN Newsbot service, in preliminary form. The site, operated in conjunction with MSNBC.com, takes a personalized approach, offering people news based on stories they've viewed previously. Search Engine Watch offers an explanation of the technology in this story:

Recommendations for similar stories are made based on stories that other NewsBot users have read. "A great comparison is much like what Amazon does today," said Justin Osmer, product manager for MSN Search, citing Amazon's "Customers who bought this book also bought" feature.

Along those lines, see our previous story about Findory.com, the personalized news site launched by Greg Linden, a former Amazon employee who created the original technology behind the Amazon recommendation engine. He offers his initial take on the new Newsbot in this post today on his weblog.

Previously launched versions of Newsbot, targeted to other countries, are available through the MSN Sandbox site (third item down). For additional coverage, here's the MSN Newsbot search result for news on the U.S. launch.

Bachelor Nos. 1, 2 & 3?

Nevermind the apparel similarities, the Two Hour Lunch blog has an alternate interpretation of the Gates/Connors/Ballmer photo from earlier this week.

Lookout lives

Some people who wanted to see what interested Microsoft so much were frustrated when Lookout Software's e-mail search tool was made unavailable after the Redmond company's MSN division acquired the small company last week. If you were one of them, the program is now available for download from Microsoft's site. (Update: Download moved again. Now it's here.)

MSFT Q4, FY04

Here's a collection of stories previewing Microsoft's fourth-quarter and fiscal 2004 earnings, to be announced after the stock market closes this afternoon:

• CNN Money: Thanks, Microsoft. What's next?
  
• Bloomberg News: Microsoft's 4Q may rise, marking 20 years of growth
  
• TheStreet.com: And for Microsoft's next trick: Earnings
  
• Reuters: Stocks Pressured; Microsoft Awaited
  
• Microsoft Monitor weblog: Fiscal foreshadowing

Update, Thursday afternoon: Here's Microsoft's earnings release.

Great minds dress alike?

Sure, khaki pants and oxford shirts are standard apparel on the Microsoft campus, but did anyone else notice that Bill Gates and Steve Ballmer were wearing the exact same thing during Tuesday's meeting with employees? Just an observation.

More on Microsoft's cash

Our poll asking what Microsoft should do with its cash is fast becoming moot, given yesterday's news, but it's interesting to note that the responses, most of which were submitted before Microsoft's announcement, are largely in line with what the company ended up doing. Who knew our readers had so much pull in the Microsoft board room?

The one major exception is the 16 percent of people who say the company should use the cash to avoid cuts in employee benefits. Seeing that result, one shareholder who e-mailed asked if Microsoft employees might have figured out a way to stuff the virtual ballot box and vote more than once for the benefits option. (I'd presume, or hope, they'd have better things to do.)

In its online poll today, the Wall Street Journal is asking, "Is Microsoft's big dividend and stock buyback the best way for it to spend its cash hoard?" As of about 10:30 Pacific time, 83 percent of the more than 2,000 people who had voted answered yes.

On its online poll, CNBC is asking: "Do you think Microsoft's $75 billion buyback and dividend plan is too big, not big enough, or just right?" As of 11 a.m. today, more than 61 percent were saying "just right."

And just in case that's not enough polls for you, see the P-I's home page today, which asks the question, "How will Microsoft's $75 billion deal affect you?" (Update: See final poll results here.)

Shares of Microsoft were up about 59 cents, or 2 percent, as of 10:50 Pacific time this morning. They had been up more than 3 percent earlier in the day. You can go here to see the current share price.

Highlights from the rest of the coverage in newspapers and online news sites:

• Video of appearance by Microsoft CFO John Connors on CNBC.
  
• BBC News: Microsoft billions find a home
  
• Newsday: Microsoft's $75b gift
  
• N.Y. Times: Microsoft to Pay Stockholders Special One-Time Dividend
  
• Dan Gillmor: Microsoft Shares the Wealth
  
• CNet News.com: Never mind the cash, how's Microsoft's business?
  

Then there's the lighter take from John Paczkowski of Good Morning Silicon Valley: "Listen, Steve, Melinda's insisting I clear all that cash out of the east wing. Can we come up with something?"

And finally, in case you didn't see it, here's one of the central pieces of the explanatory graphic that the P-I's graphics department put together for our story this morning. This and the other pieces are visible separately in the story online, or collectively in this pdf file of today's front page.

$30b stock buyback

The answer to the question posed by our story this morning, Is a Microsoft stock buyback in the works? is yes. Plus a $3-per-share, one-time special dividend and a boost from a 16 cent annual dividend to an 8 cent quarterly dividend. More details to come.

Update, Tuesday afternoon: Here's the Associated Press story.

Update, Wednesday morning: Here's our coverage from today's paper:

• Main story: Microsoft shares riches
  
• Q&A about the plan
  
• Gates' dividend will go to charity

The lyrical Linspire

Linspire, the company formerly known as Lindows, may have made peace with Microsoft in court, but apparently the settlement doesn't do anything to prevent poking fun at the Redmond software giant. See this promotional parody song and flash video titled "Come on Baby, Try Linspire," sung to the tune of the classic Doors song. Here's a sampling of the lyrics. (The line about bug mire coincides with an image of Bill Gates in an awkward pose):

The time to try XP is through
No time to wallow in bug mire
Data you will only lose
And the viruses a funeral pyre

Come on, baby, try Linspire
Come on, baby, try Linspire
Time to set MS on fire!

Microsoft Research tour

Microsoft's Channel 9 site has been showing extended video clips of a tour through Microsoft Research, led by its general manager, Kevin Schofield. One of the people interviewed in the latest segment (accessible via this page) is Gary Starkweather, who invented the laser printer years ago while at the legendary Xerox Palo Alto Research Center, better known as Xerox PARC. He now works in Microsoft Research's hardware lab.

Starkweather comes in about nine minutes into the video (after discussions with Lili Cheng about social computing and Mike Sinclair about micromotors.) Prompted by Microsoft's Robert Scoble, who's running the camera, Starkweather explains how he came up with the laser printer. Then Scoble asks him to compare Microsoft Research to Xerox PARC, the research facility perhaps most famous for inventing the graphical user interface but letting others -- most notably Apple and Microsoft -- bring it to market and build their empires around it. Starkweather doesn't talk about that at all, but his answer to Scoble's question sheds a lot of light on the Xerox culture back then, and how it could have led to such a situation. Here's a small part of what he says:

"One of the biggest benefits we have is very business-savvy management here [at Microsoft]. You don't have to explain sunrise and sunset to people here. They understand and they have a real desire to move forward. The kind of research we're doing here [in Microsoft Research] is much in league with what Microsoft is working on [in its product groups]. Xerox created PARC to be very different from what it was currently doing, and when we did things really different, they didn't know what to do with it."

Other highlights of the video include an encounter in the hallway with a researcher working on search-related technology. See previous segments from the tour here and here.

On a related note, Robert Weisman of the Boston Globe had an extensive look at Microsoft Research in this story yesterday.

Gmail hits its mark

Google initially took some heat from privacy advocates for the ads and related links that appear automatically in the company's new Gmail e-mail service based on contents of the personal messages its users receive. Putting that issue aside, however, the Google technology has an uncanny ability to offer relevant links, at least in my experience.

Case in point: An e-mail I received in my Gmail account late yesterday contained an analyst's report about Microsoft's upcoming quarterly earnings release, and its possible uses for its cash. The related links placed automatically next to the text included one pointing me to one of my own stories from the P-I on those exact topics. Perhaps by coincidence, or perhaps not, the story also contained a quote from the same analyst who authored the report and sent the message.

Here's a screenshot.

Creepy, maybe, but impressive nonetheless.

Lindows suit settled

Here's some breaking news: Microsoft and Lindows Settle Trademark Dispute.

The press release doesn't disclose the terms, but the "confidential" settlement agreement, filed by Lindows with the SEC, provides the details, including the $20 million settlement payment from Microsoft to Lindows. Here's a link to the filing on the SEC's Edgar site.

This was a significant case because it threatened to invalidate Microsoft's Windows trademark. The agreement by Lindows to drop the suit may surprise some people who were following the case, because Lindows had won favorable preliminary rulings in U.S. courts, and because of the publicly defiant stance taken by Lindows CEO Michael Robertson.

The San Diego company has registered for an initial public offering of its stock, and Robertson's representative, citing the associated SEC quiet period, said he wouldn't be commenting on the settlement. See related coverage by CNet News.com and Reuters.

Lookout's evolving look

Lookout Software has added an MSN butterfly to the logo on its Web site to denote its acquisition last week by Microsoft's Internet division. But it isn't the first time the e-mail search company has changed the logo's appearance.

The three images above show the logo's evolution, with the oldest version at left. (It's also visible in this cache view showing how the Lookout home page used to look.) Hey, haven't we seen something like that somewhere before? Apparently Microsoft isn't the only one with a fondness for the appearance of a certain Internet search giant.

In a post to Lookout's discussion forum a couple months ago, Lookout co-founders Mike Belshe and Eric Hahn wrote that Lookout made some "minor updates" to its look "at the request of another company and because we are nice guys."

Microsoft's 'Ricky Martin'

Nintendo of America brought in Sheryl Crow for its E3 party, and Sirius satellite radio entertained the crowds at CES with live performances by Lee Ann Rimes and Ziggy Marley, among others. Now, Microsoft treats its employees to a performance by the renowned singer ... William Hung?!

Yes, the lovable "American Idol" reject -- the so-bad-he's-good singer known for his wonderfully awkward dance moves and unabashedly off-key interpretations of Ricky Martin hits -- performed during a party for employees at the Microsoft Global Briefing conference in Atlanta. See on-the-scene reports from Microsoft employee bloggers here and here.

As explained in this employee's post, however, Microsoft's party planners also brought in the popular alternative band Smash Mouth to perform, no doubt redeeming themselves among the company's music aficionados.

PC sales up -- MSFT, too?

Reports of strong PC sales bode well for Microsoft's quarterly results, to be reported later this week along with its 2004 fiscal year results, Seattle-based brokerage firm McAdams Wright Ragen said in a message to its clients Friday afternoon. (See related news from research firms IDC and Gartner, and computer company Dell). A big portion of Microsoft's revenues depend on software sold with new computers.

Analysts surveyed by Thomson Financial expect Microsoft to report revenue of slightly more than $9 billion for the quarter, an increase of 12 percent over the same quarter last year, with quarterly earnings of 29 cents per share, a 24 percent increase.

Lookout for MSN Search

The Web site of Lookout Software has been updated this morning to reflect its acquisition by Microsoft. Unfortunately, if the news this morning made you want to try the software, the primary download links on the Lookout site have been disabled, but the industrious Web users among you may be able to figure out a way around that, at least for the time being. For more information on the acquisition, here's a message from Lookout's founders to its users.

Browsing alternatives

In the context of all the news surrounding Internet Explorer lately, Wired News considers a few alternatives to the ubiquitous Microsoft Web browser in this informative story.

Apple, Microsoft and blogs

Wrote PR strategist Steve Rubel, in a post Wednesday about corporate employee blogging: "Although dozens of its competitors -- including Microsoft, Sun, Dell, IBM and more -- have either officially or unofficially sanctioned corporate blogging as a communications tool, Apple stands alone, noticeably silent, snubbing its nose at the medium."

Responded Apple employee Buzz Andersen, in this post yesterday: Redmond Blogs, Cupertino Codes. (Note: The original version of this post referred to the wrong Buzz. It's corrected now. Sorry about that. -- tb)

Microsoft's Fiat deal

Click on the image at right for a pop-up version of the graphic that accompanied our story this morning on the new partnership between Microsoft's automotive software unit and Fiat Auto. Also see coverage this morning by the Associated Press.

In putting together the story yesterday, I spoke with people including analyst Phil Magney of the Minnesota-based Telematics Research Group. One point I wasn't able to fit into the story was his response to a question about Microsoft's prospects for long-term success in automotive software. Specifically, I asked him whether Microsoft's dominance in other parts of the computer world would make automakers reluctant to adopt the company's software for their on-board computer systems. "That's a common question but I don't have any evidence of that," Magney said. He added later, "The problem with telematics is there's quite a bit of lead time before companies start making money, because you have all this R&D and it takes time to get to critical mass." But along those lines, he pointed out, "Microsoft has deep pockets and a lot of resources, and they have staying power."

Then there was the anonymous reader who, after seeing the story, left this message on my voice mail this morning: "I wonder how many times per mile you'll have to reboot this damned car, huh?"

IM across platforms

Allison Linn of the Associated Press has the scoop on a significant development in corporate instant-messaging: "Microsoft Corp. plans to release a product that will allow business users to send and receive messages from Yahoo! Inc., AOL and Microsoft's instant messaging systems, regardless of which brand the user is running."

Blogging from MGB

A lot of big Microsoft conferences are attended by, or intended for, people from outside the company -- such as partners, software developers, and reporters. Not so the Microsoft Global Briefing, or MGB, as it's known, an annual sales and internal technical event that lasts more than a week, drawing people from Microsoft offices around the world.

This year's conference is now getting under way at Atlanta's Georgia Dome and nearby venues. Speakers traditionally include Steve Ballmer, whose appearances at MGB have been legendary. About 15,000 Microsoft employees are expected to attend this year, but you probably won't see any mainstream news reports from inside, because it's an internal event, no reporters allowed.

However, a few Microsoft employees are writing about the event on their weblogs -- not disclosing any secrets but giving a sense for the flavor of what's happening. Here are some of their posts so far.

• David Weller: Zero hour approaches
  
• Alex Barnett: The Blog From Atlanta
  
• Kirk Allen Evan: MGB 2004 -- Welcome to Atlanta.
  
• John Porcaro: Atlanta Geekfest
  
• John Montgomery: Off to Hotlanta
  
• Yosi Taguri: Going to Atlanta

Also see John Porcaro's archived posts from last year's MGB in New Orleans, including this one with some cool thumbnail pictures from what appears to be the back row of the SuperDome.

PS3, Revolution, Xbox 2?

Yesterday's announcement that Sony plans to unveil the PlayStation 3 at next year's E3 convention, and a similar announcement by Nintendo about its GameCube successor, code-named "Revolution," have kicked off a new round of speculation about the possible timing of the follow-up to Microsoft's Xbox game console. Here's a collection of snippets from related news articles and weblog posts:

• Engadget: "[Sony executives] still haven’t committed to a release date or confirmed any specs, but no one seriously expects that the PS3 will be out anytime before 2006, and we’ve even heard that it might get pushed back as far as 2007 (which would be suicidal)."

• BBC News: "There has been some talk that development is not going well, but we expect to have a playable version at E3," [Sony's Ken Kutaragi] said. "We are pushing ahead with that schedule in mind."

• EuroGamer: "To date, Microsoft has consistently refused to comment on any talk of Xbox 2, despite issuing numerous game developers with development kits, but with both Nintendo and Sony having made up their minds to use E3 2005 as an initial launch platform, Microsoft will be mindful that it needs an event of its own which can generate as much attention without getting lost in the next gen crowd."

• ArsTechnica: "It is currently believed that Sony is planning to release the PS3 at some point in 2006, likely in Japan, with a targeted global launch in time for the 2006 holiday shopping season. That would put it a year behind the Xbox 2, assuming Microsoft is able to keep development on schedule, and still ahead of Nintendo's next-generation console, codenamed 'Revolution.' "

• The Register: "The E3 showing will take place alongside the first appearance of 'Revolution', Nintendo's next-generation console, a move Sony's rival has already confirmed. Microsoft may be planning to unveil Xbox 2 later this year, at September's X04 European industry event, according to some reports, with working models showing at next January's Consumer Electronics Show or possibly Games Developer Conference, a few months later. Either way, it's a good bet Xbox 2 will also be on display at E3."

• Reuters: "Microsoft officials have repeatedly said that the software company's new game machine, dubbed "Xbox Next" by media, would not be beaten to market by Sony. There has been speculation that Microsoft could put a more tangible time frame on the console as soon as this month, when it reports fiscal 2004 results."

Partner conference wrap

Here are a few of the highlights from the past few days of coverage of Microsoft's Worldwide Partner Conference in Toronto, which ends today:

• IDG News Service: "Steve Ballmer rallied Microsoft Corp. partners in his trademark, high-energy style Tuesday morning, but not all partners got what they wanted from the software maker's chief executive officer."

• Silicon.com: Ballmer "hit back at criticism that Microsoft has stifled software innovation. 'Where's the technology innovation going to happen? Technology innovation has happened much more from commercial companies than open source. Open source has just been trying to do clones of commercial software. That's all Linux is – a clone of Unix,' he said."

• InfoWorld: "Microsoft at its Worldwide Partner Conference here on Tuesday will announce enhancements to the company’s Network Access Protection technology, expected to be a key piece of its next major release of Windows Server 2003. As part of the rollout, 25 business partners will pledge support for the technology."

• Mary Jo Foley, Microsoft Watch: "Microsoft's channel partners here grilled Microsoft Business Solutions chieftain Doug Burgum more pointedly than did lawyers in the Oracle/PeopleSoft antitrust trial."

• CNet News.com: "Microsoft plans to increase partner investments to $1.7 billion next year and reallocate one-third of its direct customer-marketing dollars to joint-marketing programs with its partners."

• Joe Wilcox, Microsoft Monitor: "During the final morning of Microsoft’s partner conference presentations, security Veep Mike Nash showed a video interview with his 90-year-old grandmother. Her computer had become infected with malware and he asked question to understand how. Perhaps most telling: After a recent virus outbreak, she attempted to go through the Microsoft’s 'Protect Your PC' process, but stopped part way because she found it too complicated."

See also this page for transcripts of Microsoft executive speeches from the event. The Ballmer speech transcript includes only his opening remarks and not the Q&A session that followed.

Silverberg on open source

Brad Silverberg, former Microsoft Windows chief and the current managing partner of Bellevue-based venture-capital firm Ignition Partners, is the subject of a wide-ranging Q&A in the latest installment of a quarterly online newsletter published by the Milestone Group professional services firm.

One of the questions: "How does Microsoft deal successfully with the open source threat?" His answer, in part:

"I don’t think they have figured that out yet, I think that is clear. They are struggling with not so much open source, per se, but rather they are no longer the low price solution. In the past Microsoft was the low cost solution and Microsoft was then competing and attacking expensive proprietary systems from below. Now for the first time the tables are turned and it's Microsoft that's being attacked from below by a lower price solution. Microsoft needs to figure out how it can demonstrate better TCO (total cost of ownership) to justify its higher prices."

Spend Microsoft's money

It's time for a change of polls on our Microsoft news page.

First, we've officially retired our Google vs. Microsoft poll, and as you can see from the final results, at right, a majority of our readers -- or at least a majority of the 380 or so who cared to vote -- expect the folks from Mountain View to remain the kings of the search-engine business over the next five years, despite Microsoft's efforts. The outcome is notable in part because the results of some of our past Microsoft polls -- such as one asking whether Microsoft will remain the dominant force in the software industry over the next 10 years -- have been decidedly pro-Microsoft, perhaps reflecting the hometown leanings of our Seattle-area readership.

Now, without further ado, it's on to the next poll, newly posted in the upper right-hand corner of the Microsoft page. It asks a question that promises to be timely during the next few weeks: "What should Microsoft do with its $56 billion in cash?" Your choices: buy back shares; increase its annual dividend; make a huge, one-time payout to shareholders; use it for acquisitions; use it to avoid cuts in employee benefits; keep it; or some combination of the above.

Microsoft has said it expects to announce a plan for its cash by the end of the month. If you vote, feel free to comment here to explain your choice, or suggest alternative uses for Microsoft's cash. Sarcasm not discouraged.

MSNBC.com's first profit

MSNBC has the news: "MSNBC.com has achieved its first quarterly profit in eight years of existence, benefiting from a sharp increase in advertising revenue, the company announced Monday. The site, a joint venture of Microsoft and NBC News, recorded a profit “in the neighborhood of $1 million” for the quarter ending June 30 ... "

New Microsoft blog site

As the number of Microsoft employee weblogs has soared, keeping track of them has become increasingly difficult, even for Mary Jo Foley, whose maintains what has been the closest thing to a comprehensive list. But a new site from the company promises to make tracking its blogs a lot easier. The Microsoft Community Blogs portal comes with features including a search function and an RSS feed of recent posts.

The Microsoft.com community team explains further, Tim Jarrett posts about a hidden feature, and Dave Winer praises the effort.

PMCs vs. PDAs

BargainPDA.com has a good overview weighing the pros and cons of the forthcoming Portable Media Centers, handheld audio and video players based on Microsoft software. The post compares the devices to what the author considers a viable alternative. Not the iPod, but the PDA. The story: "Microsoft Portable Media Center, Why Not Just Use a Pocket PC?"

AltaVista case files

Here are a few links to more information on the case of Laurent Chavet, which we detailed in this story in today's paper.

• Click here to download a .pdf of the March affidavit in which the FBI stated its case against Chavet in order to get a broader warrant to search the computers that had already been seized from his home.

• Click here for a .pdf of the grand jury indictment.

• The U.S. Attorney's press release last week, announcing the arrest but not mentioning Chavet's Microsoft employment, is available here.

• And here's the bio page from a report co-authored by Chavet with his former colleagues at the IBM Almaden Research Center.
  

To reiterate some important points from the story: The allegations against Chavet don't refer to Microsoft. The FBI says it hasn't seized any computers from Microsoft as part of the case. Microsoft won't say whether it's investigating on its own to see if any of the allegedly stolen AltaVista code has been incorporated into Chavet's work on MSN Search. And Chavet declined to comment when I reached him at his home earlier this week.

Shrimp and weenies

Microsoft's cost-saving initiatives, and Steve Ballmer's references to them in this week's companywide memo, were brought up by Seattle-area reporters during a dinner last night with Microsoft executives Jeff Raikes and Chris Capossela. Raikes took the opportunity to point out that such efforts are nothing new, citing what's known in Microsoft lore as the "Shrimp and Weenies" memo from the early 1990s.

As Paul Andrews explains in this post from a few years ago, the memo made it clear that Microsoft party planners should serve cocktail wieners rather than more expensive shrimp as part of a broader return to frugality. Because of the memo, "shrimp and weenies" became a Microsoft catch phrase referring to efforts to save money. (See the "Shrimp & Weenies" entry in this .pdf version of the 'Microspeak' glossary.)

Searching around the Internet this morning, I couldn't find an actual copy of the memo, but I did come across a PC Week Spencer F. Katt gossip column from 1993 that refers to it, complete with a drawing of a gleeful weenie kicking a shrimp in the backside. (Click here for the .pdf.) According to the column, the memo from executive Mike Murray was delivered with classic Microsoft bluntness, targeting not only shrimp but also "stupid, unneeded" T-shirts.

Now there's a phrase you don't see in Ballmer's latest memo.

Ballmer and open source

In this article, eWeek's Steven J. Vaughan-Nichols dissects Steve Ballmer's companywide memo from the perspective of open-source and Linux, getting reaction from analysts and open-source advocates. One of the main subjects they examine is Ballmer's reference to Microsoft's "Get the Facts" on Windows and Linux campaign. (See this story for more background.) Here's the relevant excerpt from Ballmer's memo:

We are effectively using independent studies by Forrester Research, the Yankee Group, IDC, Giga, Bearing Point and many others to change perceptions of the advantages of Windows over Linux when it comes to Total Cost of Ownership, functionality and productivity advantages, support and security. We need to do work like this in every business to get customers to recognize our work and appreciate it fully.

In response, Garth Dickey, president and CEO of Progeny Linux Systems Inc., tells Vaughan-Nichols in the eWeek story:

"The transparency of commissioning such 'independent studies' for a specific purpose -- that is, to find a prespecified result -- serves merely to undermine the effectiveness of such efforts by raising doubts within the industry about the impartiality of such studies."

SAP Chief on Microsoft

CNet News.com has an interview with SAP CEO Henning Kagermann, in which he discusses issues including the company's merger talks with Microsoft.

Shrink Microsoft's scope?

One of the people I spoke with for today's story on Ballmer's memo was Michael Cusumano, an MIT professor and author of books including "Microsoft Secrets" and more recently "The Business of Software."

Something interesting that I wasn't able to fit into the story: Cusumano agreed with Ballmer's assertion that it's important to look at the effect of costs on profit at this point in the company's life-cycle. But he said the company should be acting more aggressively by dropping some of the products and businesses least likely to contribute to the bottom line.

While it's important for the company to try to grow beyond its money-making Windows and Office products, Cusumano said, he'd like to see Microsoft make "a smaller number of bets rather than betting across the whole universe." He added later, "There’s so much stuff that may never get anywhere. I think they could get rid of at least half of their products and they would be incredibly profitable and still growing."

"It’s easy for companies to add things," he said. "It’s very hard to cut things. It really would take someone to come in from the outside with a fresh look and start really paring Microsoft down to the really promising businesses."

Ballmer memo excerpts

Microsoft CEO Steve Ballmer issued his annual state-of-the-company memo to employees yesterday, outlining the company's progress and challenges. In addition to our story this morning, see coverage by The New York Times, the Washington Post, the Associated Press, and CNet News.com.

This year's memo wasn't nearly as long as last year's -- coming in at less than 4,000 words, compared with more than 5,500 last year -- and it didn't contain a rallying cry on the level of last year's "We will rise to the challenge" of Linux statement. But it was full of information about Microsoft's plans, and insights into Ballmer's feelings about the company's direction.

Here are some excerpts from the memo:

On growth and costs: "We have as much opportunity to grow as any other company in the world. That’s a big statement, but the opportunities we’ve scoped out are very big. Make no mistake -- we must grow our revenues to grow profits. We cannot just cut costs. At the same time, we must ensure a competitive cost structure, or competitors will offer prices, services or innovations that we cannot afford to match. Other companies have been severe in tightening costs the last few years -- layoffs, major benefit reductions, etc. We have not done those things and want to be prudent now so we avoid severe measures later."

On the need to innovate: "The key to our growth is innovation. Microsoft was built on innovation, has thrived on innovation, and its future depends on innovation. We are filing for over 2,000 patents a year for new technologies, and we see that number increasing. We lead in innovation in most areas where we compete, and where we do lag – like search and online music distribution – rest assured that the race to innovate has just begun and we will pull ahead."

On Microsoft's share price: "Obviously, we all want to increase the value of our stock, and we have the best opportunity to do that since the end of FY98. Our stock was around $25 then, as it is now, and we have more than doubled our operating profits since. Shareholders then were betting we would work hard for all these years to make the company worth that mid-98 stock price. We have done so."

On aiming products at various markets: "Our products must also be better segmented for different users with different needs. And we must evolve marketing to focus more squarely on the value proposition throughout the product lifecycle, not just at launch. So many customers have yet to deploy our most recent advances, so we must not only help them understand why to deploy, but also demonstrate the benefits of deploying before we reach the Longhorn generation."

On perceptions of Microsoft: "We must also work to change a number of customer perceptions, including the views that older versions of Office and Windows are good enough and that Microsoft is not sufficiently focused on security. We must emphasize key positive perceptions of the strong manageability, and developer and information-worker preference, for our platform."

On avoiding the trappings of size: "Nothing solves 'big company' ills quite like a strong focus on accountability for results with customers and shareholders. Innovating, growing share and profits, and serving customers all ensure that we have no time for wasted motion. To do this, we need to prioritize the things that matter the most with our customers and for the company, and then be accountable for executing on those choices."

Tablets on 'Dead Zone'

Jupiter Research analyst Joe Wilcox, on the Microsoft Monitor weblog, points to characters on an episode of the TV show "The Dead Zone" using Tablet PCs. (Villains, no less.) It would be interesting to find out if this was a paid product placement or a small sign that the Tablet PC is becoming more ubiquitous.

High-tech on Hood Canal

That was the scene Saturday morning at the Alderbrook resort on Hood Canal (see map), as members of the Skokomish tribe conducted a spiritual cleansing ceremony to mark the reopening of the historic property after an extensive renovation and expansion.

Right about now, you're probably wondering what this has to do with Microsoft. As it happens, the resort was acquired in 2001 by a holding company called North Forty Lodging LLC. That company is owned by Jeff Raikes, the group vice president in charge of Microsoft's Information Worker division, which includes Microsoft Office and related products. (That's him to the left, speaking during the ribbon-cutting ceremony Saturday morning.)

Reporters were invited out for the grand opening, so I took the ferry over and spent some time Saturday checking the place out. People there for the event included Bill Gates, his wife, Melinda, and his father, Bill Gates Sr., who reminisced about catching his first fish on Hood Canal as a boy. Also spotted walking the grounds during the event was Bob Kerrey, the 9/11 Commission member and former U.S. Senator from Nebraska (Raikes' home state).

As you would expect, given the property owner's day job, lots of thought went into the technology behind the renovated resort. For example, wireless Internet access is available not only in the meeting rooms but also down on the boat dock. This page has full details on the renovation and expansion work. North Forty also revamped the property's wastewater treatment facility in an effort to make sure it doesn't exacerbate Hood Canal's depleted-oxygen problem.

Yesterday's Insider column had more details on an earlier, unsuccessful bid made for the resort by Raikes and Bill Gates, both of whom own homes on Hood Canal. Jeff Larsen's Short Trips column last week featured the property. Reporter Niki King of The Sun in Bremerton wrote about the Saturday event in this story. And for additional background, see this P-I story by Marni Leff a couple years back.

'Bye, Bye, Mr. CIO Guy'

There have been many, many, many responses to Nicholas Carr's famous and controversial Harvard Business Review article, "IT Doesn't Matter." But only one of them, sung by Microsoft's Pat Helland, is destined to become a classic.

Go to this page on Microsoft's Channel 9 site for the video and the lyrics. Highly recommended. (Microsoft's Harry Pierson tells the back story here.)

Blogging and the SEC

Corporate employee bloggers worry about what the boss will think about their posts. But corporate executive bloggers have an entirely different set of concerns, as Sun Microsystems President Jonathan Schwartz made clear in the inaugural post to his weblog earlier this week:

... What should you expect in my blog? Relatively frequent updates. Less frequently when I'm on airplanes (which is sadly quite a lot -- can't wait for truly pervasive connections). You'll see thoughts on the future (but absolutely no forward looking statements -- for all insight into our business performance, please refer to our regularly scheduled filings at the SEC). ...

Gates, Ballmer in Asia

Bill Gates and Microsoft CEO Steve Ballmer have been making separate stops in various Asian countries this week. Here's a collection of links rounding up some of the international coverage from the past few days:

• CNet Asia: Microsoft goes civic-minded in Asia
  
• Telecoms Korea: Will Linux become a Nightmare to Microsoft in Korea?
  
• Korea Times: MS CEO Ballmer Urges Neutrality for Software
  
• China Daily: Bill Gates in Asia to promote Windows system
  
• Associated Press: Gates: Microsoft to expand China research
  
• AFP: Gates unfazed by possibility of Chinese antitrust laws
  
• New Zealand Herald: Gates blitzes Asia to stem Linux threat
  
• Bloomberg News: Microsoft may offer cheaper Windows ...
  
• ChinaTechNews: Gates Begins Beijing Visit
  
• Taipei Times: Bill Gates on fourth visit to China ...

MSN Search: Look familiar?

Let's see, rainbow colors, lots of white space, prominently placed search box. Where have we seen this before?

That's the new MSN Search page, which debuted last night. (See related Bloomberg News story from today's P-I.) It's Microsoft's first major move under its revamped search strategy, and yes, it looks a lot like Google.

After a briefing yesterday with other media, I asked MSN corporate vice president Yusuf Mehdi if the company was concerned about possible criticism over the similarities between the new MSN page and Google's longtime interface. He acknowledged the common elements, of course, but he also pointed out a number of distinctions, including the drop-down menu to the right of the search box and the portal-style links beneath it. Microsoft has also made the page more lightweight, and therefore slightly faster-loading, than Google's page.

"If you take a good look at the page, there are a lot of important differences," Mehdi said.

For now, the MSN search still uses technology Microsoft licenses from Yahoo, but Microsoft is also working on its own algorithmic search engine, and the company today launched a technical preview of that effort. Microsoft posted that page primarily to get feedback from Webmasters and Internet search wonks, and Mehdi cautioned that it's not yet at a level where the general public should rely on it for searching. Microsoft plans to come out with a public version of that technology, using it as the engine for MSN Search, within the next year.

Additional coverage and links from today's papers and weblogs:

• Washington Post: Microsoft Enters Search Market
  
• New York Times: Microsoft Making Changes to its Internet Search
  
• Reuters (via CNN): Microsoft steps it up against Google
  
• L.A. Times: Microsoft to Launch Search Site
  
• John Battelle: MSN drops paid inclusion
  
• Search Engine Lowdown: Microsoft Launches New MSN Search
  
• Search Trends Blog: "It should come as no surprise that MSN has copied Google ... "
  

Now it's (probably) over

For many people, it might have seemed as if Microsoft's federal antitrust battle ended in 2002, when a judge approved the company's settlement with the U.S. Justice Department and many of the states that had been involved in the case. But in fact, even after that ruling, U.S. trade groups and some of the states continued to challenge the settlement as inadequate.

Massachussets has been the last state holding out, but yesterday the U.S. Circuit Court of Appeals for the District of Columbia rejected the state's appeal in a decision that contained some unusually exuberant language. ("We say, Well done!") You can download a .pdf of the ruling here. The only question now is whether Massachusetts will try to appeal to the U.S. Supreme Court. Other lawyers involved in the case say the state's prospects for success on appeal would be low.

One of the people I talked with about the ruling yesterday was Bill Neukom, the former Microsoft general counsel, who led Microsoft's legal team throughout the historic case. His thoughts on the decision and his reflections on the case are included in this story about the ruling from this morning's paper.

Of course, the end of the federal antitrust case, though significant, wouldn't mean the end of Microsoft's antitrust problems. The company is appealing the European Commission's landmark antitrust ruling, and it still faces an antitrust suit from RealNetworks, among other challenges. But Microsoft has cleared some serious hurdles in the past year, most significantly by settling antitrust disputes with America Online and Sun Microsystems. The company also has resolved many of the state consumer class action suits that arose from the monopoly finding in the federal case.

Here's some additional coverage from other newspapers around the country. (Some of these sites require free registration):

• Boston Globe: State loses Microsoft ruling
  
• New York Times: Court Lets Settlement Stand ...
  
• USA Today: Microsoft sanctions not too lenient
  
• Washington Post: Microsoft Settlement Upheld
  
• San Jose Mercury News: Epic case ends after six years