Microsoft: The Good, the Bad, and the Ugly

NY Times reports that Microsoft has gained money in servers (hurting Oracle, Sun, et al), but continues to bleed money in the Internet services business. Guess which part of the IT market is growing by leaps and bounds? Hint: it's not servers. See below for details.

Microsoft reported solid quarterly results yesterday that slightly surpassed Wall Street expectations, with sales growth driven by its Xbox game business and software for server computers. Both revenue and profit rose 11 percent.

Microsoft’s chief executive, Steven A. Ballmer, says Web sites like MSN give the company an online presence, adding that it has Web initiatives.
Demand for the company’s software for corporate databases and servers grew strongly, with sales up 17 percent, to $2.5 billion. Sales of Xbox game consoles, software and online game subscriptions jumped 70 percent, to more than $1 billion. Those two businesses accounted for most of Microsoft’s revenue growth in the quarter, the first in the company’s 2007 fiscal year.

Microsoft’s Internet services business, which competes with Google, Yahoo and others, continues to struggle. Revenue declined, and the unit lost $136 million.

Vista cracked

Briefly, I worked for Microsoft's Security Business Unit (or whatever it was called). Trying to sell security software made by Microsoft -- even next gen stuff -- was a lot of bullshit spinning. So it's kind of nice to see some of it start to UN-SPIN in the Vista world.

Microsoft is furious after a security outfit Authentium worked out a way of disabling one of the security features on Vista.

According to PC Magazine, Authentium has managed to switch off Vole's PatchGuard software so that it could install its own security systems.

Vole has vowed to work quickly to make sure that Authentium's hack does not work. It said it would be doing this for the good of the user as those who do not use PatchGuard could find themselves vulnerable to attack.

However all this puts Microsoft in a strategic position it does not want to be. In the past, Vole only had to worry about hackers and crackers, now it appears that legitimate security companies are now going to start looking for holes in which they can stick their software.

Not only that, any move that Microsoft makes to close those holes used by legitimate security companies are going to attract the attention of anti-trust regulators. Those in the EU are particularly concerned that Vole is using its dominance of the operating system market to shut out rival security vendors.

The move by Authentium is a shot over the bows of the Mighty Vole as a warning of what the software giant might be letting itself in for if it does not let them into Vista.

By Nick Farrell: Thursday 26 October 2006, 08:12

Microsoft releases new Web browser

IE 7.0 new release is more in line with competing products such as Opera Software ASA's Opera and Mozilla Corp.'s Firefox. Internet Explorer 7, or IE7, adds features such as tabbed browsing, which lets people open several Web pages without cluttering their desktop with multiple open browser windows.

Microsoft has been heavily testing the new browser, releasing five beta versions over 14 months, and has periodically offered security updates for IE6, first released in 2001.

Still, a lag of more than five years between official releases has cost the company. Web analysis company WebSideStory estimates that Internet Explorer's U.S. market share is about 86 percent, while Firefox commands about 11 percent of the market and smaller offerings account for the rest. Two years ago, IE had about a 93 percent share.

Here's the kicker:

Matt Rosoff, analyst with independent researchers Directions on Microsoft, said Internet Explorer is important to Microsoft's business because most people believe an operating system should include a way to immediately access the Web.

Still, he said, Microsoft might not have seen much reason to spend a lot of money upgrading sooner since most people continued to use the older version.

Google Gets YouTube

Former Microsoft evangelist Robert Scoble comments on the company's decision to build its own video-sharing site: "Microsoft still thinks it can build a big audience by cloning the technology. Hey Steve Ballmer, that strategy won't work! You can't clone the Beatles -- this is NOT a technology-only play!"

(courtesy of Todd Bishop in the Seattle P-I)

Google vs. Microsoft Office

Google Inc. is taking another step in its online challenge to Microsoft Corp.'s Office software, combining its Web-based word-processing and spreadsheet programs into a single offering.

Google is bringing together its existing Writely and Google Spreadsheets sites into a single, free offering known as Google Docs & Spreadsheets.

Both programs let users create and share documents online, from within a Web browser.

The new strategy is similar, on a smaller scale, to Microsoft's packaging of programs such as Word, Excel and PowerPoint into the unified Microsoft Office suite.

The Web According to Ballmer

Selected quotes:

"Classically, we're the Windows company. When it provides $20 billion in profit, it's pretty important. "

" In some of these things, you'll have to decide, if you're the big guys: Do I want to play at the application level or do I merely want to play at the commerce and other platform level in a way that strengthens the rest of my assets and allows me to make money?"

"We wanted to win that MySpace deal. At some point, we said we can't do this. Now Google can afford to spend more than us and Yahoo because they have more people in their ad system, so they're getting better yield, effectively."

"Explain how the business for Xbox changes from the first generation of the console to the current generation with Xbox 360. Generation one was lose money—gross margin loss on the console for the lifetime. You've got to take a lifetime view. We did have a lifetime view that said if you add all the revenue from selling consoles and all the costs of shipping consoles, it was negative."

And, from the Comments:

"Ballmer's glib talk about failed products like XBox should make shareholders angry. After promising to break even on the original XBox, now he claims they planned to lose money over the life cycle of the product! XBox and XB360 have so far cost shareholders more than $3 billion, and now Microsoft faces a price war as Sony and Nintendo ship their next-gen consoles. As for Zune, all I can say is why? They have adopted a player product that has already failed in the marketplace, added some half-baked software, and will sell at a price that has zero advantage over the market leader, Apple. This is a strategy for success? "

MS Zune is not an iPod killer

Microsoft's Zune looks good on paper, but it's not going to kill the iPod because of three things:

1. It's not cool and never will be. The iPod is streets ahead in the things that really matter: ease of use, aesthetics and -- here's the tough one -- cool. The Zune is not cool. You can tell that at a glance. Take the choice of colors. It'll come in black, white and brown. Wait a sec -- brown? Surely this is some sick joke gone horribly wrong. Or are they trying to rip off LG's Chocolate phone? The Zune's best bet is waiting it out until the iPod becomes passé, which seems unlikely given that Apple is constantly redesigning and refreshing the device.

2. The Zune will be locked down tighter than the queen's knickers.
The Zune's interesting features -- Wi-Fi sharing and the music subscription plan -- will be subject to a strict digital rights management scheme, and given Microsoft's reputation in this area (PlaysForShit) -- I'll bet the Zune will drive customers to the iPod.

After all, PlaysForSure is such a technical and marketing disaster Microsoft is abandoning it altogether in favor of the Zune, which will attempt to tightly integrate hardware, software and services, just like the iPod.

But whereas Apple's FairPlay digital rights management scheme seems to be working very well (surprisingly, there aren't widespread reports of glitches and problems), Microsoft's penchant for complex and glitchy verification systems bode ill for the device.

3. Wi-Fi song sharing will not catch on in public.
The Zune's only original feature is Wi-Fi song sharing, which will allow Zune owners to search for others nearby and temporarily trade songs over the air. Traded tunes will be playable up to three times over three days, and can be flagged on the player for later purchase online. Otherwise they disappear.

But while it's obvious that sharing songs will be fun with friends at school or college, it's not an activity that will take off in public. It'll largely be confined to peer groups.

How do I know this? Because that's what's happening with iTunes music sharing, which does more or less the same thing with a computer over a network, instead of peer-to-peer.

Amazon.com Drops Search Engine Features

The AP writes that Amazon has CUT the most widely touted features for its A9 search.

Apparently, Amazon.com spokesman Drew Herdener said the company is "shifting its priorities to areas where it can provide the greatest benefit for customers."

But this sucks for Amazon, because (as the AP notes), "A9 had put considerable effort into taking detailed, street-level photos of 20 U.S. cities, which people could use to map directions and find businesses. Google Inc. and Microsoft Corp. also have invested heavily in such photographic search technologies."

This is an admission that Amazon has lost the battle for SEARCH (not that they ever had any chance of winning it -- Despite its big-name parent, A9 hasn't gained much traction among users. It ranked No. 32 among search engines in the United States, accounting for just 0.1 percent of all searches, or 3.2 million searches, according to August data from Nielsen/NetRatings. Google ranked first with more than 3 billion searches in the same period).

Sucks to be you, Amazon.

Oh, and furthermore... Amazon.com also is discontinuing a toolbar that helped keep track of such information. People who used the service will be able to retrieve their own personal data, such as Web site bookmarks, by following instructions on the A9 Web site.

Now, Amazon is turning to MS for help -- they're going to use Microsoft's new search technology, called Live Search.

Wonder how that's going to go for them?