Feb. 12 2001

MSFT  $56.13 B.G.  $41.6B 02.22.01. Thanks to BillG Networth.

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On Monday February 5, Microsoft announced the official name for the next release of Windows, which was being developed under the codename 'Whistler'. According to Ms, the successor to Windows 2000 will finally abandon the clumsy year-based version names that have been used since 1995 in favor of an even clumsier nonsensical moniker - Windows XP. The next release of Office, which had been known as 'Office 10' inside Microsoft, will also receive the rebranding job and become Office XP. But the applications that combine to create Office (Word, Excel, et al) will apparently retain the year-version system and be branded 2002 when they ship this summer. The server flavors of 'Whistler' are as-yet unnamed, but we expect them to also retain Microsoft's year-version brands when they go on sale next winter. Or they may ship as 'Windows 2000 Server SE' but that's not very likely.
Microsoft's press release stretched to explain the XP as being "short for 'experience'" - but this is Microsoft, so of course we doubt the truthfulness of that one. More likely, XP stands for nothing and is just an attempt to cash in on the marketing Apple will do later this year to promote its Mac OS X operating system. Microsoft has already copied design elements from the unreleased Mac system into XP, so why not steal the name too? (The XP acronym also has dozens of humorous explanations, but we'll leave those up to someone else.) Nonetheless, the XP flavors of Office and Windows will both be very minor upgrades to Microsoft's last releases, and serve as little more than cashflow extensions between the 2000 and .NET versions.
ALSO SEE: CNET, InfoWorld, CNET, The Register

COURT NOTES: In a January 29 court filing responding to the government's main appellate brief from earlier in the month [see Jan. 15, 2001], Microsoft said that the government now acknowledges that bundling Internet Explorer with Windows was actually beneficial for consumers and has moved away from its original claims that the bundling itself was an illegal act. But even with that charge completely eliminated, Microsoft still has a half dozen other instances of anticompetitive tactics and illegal actions to explain away. Microsoft's rebuttal brief also attacked Judge Thomas Penfield Jackson again, using interviews the judge gave with several journalists as evidence of his obvious bias against the defendant.
Later in the week, attorneys representing Microsoft and the government reached an agreement to hold oral arguments before the seven-judge panel on February 26 and 27, with a total of 4 1/2 hours of oral argument from both sides. The proposed schedule called for three hours of argument in the first day, with half that time spent on Internet Explorer tying charges and the remainder used to discuss 'maintenance of a monopoly'. (Sounds like a weekend seminar for prospective Microsoft employees.) The second day would have half an hour of argument about Microsoft's specific monopoly, with the remaining hour going into a discussion of remedies. Surprisingly, Microsoft's lawyers requested none of the oral argument time to discuss Judge Jackson's conduct, the focus of their defense so far.
But the appeal judges apparently felt that a discussion about Jackson was necessary, because their finalized scheduling order handed down on February 6 included an extra hour on the second day to discuss issues about the judge. The appellate court also gave more time than requested to discuss monopoly maintenance and the remedies issue. The court's decision to include Jackson is a bad sign for the government, since it indicates that Microsoft's previous message has hit home and the panel of judges is eager to start ripping into Thomas Penfield Jackson and his ruling.
ALSO SEE: PC World, The Standard, CNET, The Register, PC World, The Register, Court Site

While Microsoft advertises its network software on television prompting businesses to adopt it for their critical needs, its own network engineers were looking for an outside company to handle their network traffic. Following two straight days of Web downtime last month [see Jan. 29, 2001], Microsoft finally realized how incompetent its own IT department is and hired Akamai to handle all of the company's DNS traffic. Akamai's distributed network will improve the speed of Microsoft's sites and as a bonus adds several layers of redundancy in case of any future attacks against the Web servers. Akamai was a natural choice since Microsoft has a small investment in it [see Oct. 11, 1999], but Akamai doesn't actually use Microsoft products on its network - most of their servers run an undetermined mix of Solaris and Linux. So the next time you're considering what network software to purchase, remember that not even Microsoft uses Microsoft products for its critical networks.
ALSO SEE: Wired News, The Register, InfoWorld

Finally caving in to pressure from investors and analysts, Microsoft on February 7 released sales figures for Windows 2000 server, showing that approximately 1 million licenses for the OS will be sold by the end of this month. (Sales for the desktop version of 2000 are tracked separately.) But Microsoft wouldn't divide the sales up by flavor, to specify sales for each of the three server products - Server, Advanced Server and DataCenter Server. Most industry analysts agree that the DataCenter flavor has not sold well at all, since its release was delayed until last fall and it only sells as a preload on mainframe and highend computer systems that cost in excess of $10,000. At most, no more than 400 to 500 Windows 2000 DataCenter Server licenses have been sold so far, severely denting Microsoft's plan to replace Unix on high end computers.
The same time Microsoft released its server sales figures, a new survey was unveiled showing that the majority of companies running 2000 servers have chosen not to use Active Directory, Microsoft's long promised competitor to Novell NDS. According to that survey, only 10 to 15 percent of 2000 server installations are running Active Directory - and the ones that do are usually small installations with one server or massive installations with dozens. The small to medium sized businesses Microsoft targets have mostly ignored AD, simply because it's too much trouble to install the thing on more than one server unless you have a massive IS department. Active Directory also forces companies to run Windows on every networked desktop, a commitment that a lot of smaller businesses can't afford to make. A Microsoft spokesman said that they are aware of those issues with Active Directory and are working on a few solutions to make it more appealing for small to medium businesses.
ALSO SEE: ZDNet, TechWeb

Speaking before more than 1000 people at the Embedded Windows Developers Conference in Las Vegas, Microsoft CEO Steve Ballmer discussed his delusional vision for the future of embedded and handheld computing. First Ballmer reassured the crowd that Microsoft has no plans to abandon the desktop PC or any of its other strong markets, but at the same time intends to gain a similar dominance over embedded operating system sales. Ballmer then revealed specific product plans; Windows XP Embedded (Whistler Embedded until last week) is scheduled to ship later this year with the other XP products, replacing NT Embedded in the company's product lineup. But X-Box, also shipping this fall, will use NT Embedded for its operating system instead of XP - indicating that the embedded version of XP will actually be very late.
At the same time Microsoft is working on XP, the company is also developing an upgrade for Windows CE on a totally separate track. That product is currently codenamed 'Talisker', and we don't expect it to be called CE 4.0 when it ships since nearly all other Microsoft offerings will be branded XP by then. To increase demand for Talisker and Embedded XP, Microsoft is going to include them in the 'expanded' source licensing program [see below] and build in standards like Bluetooth (present in competing systems right now). Ballmer also said that Microsoft is "pushing in this space and will be flexible on the pricing and licensing side where necessary" - meaning that they'll undercut prices for the Palm OS until Palm Computing goes out of business or sells itself to AOL the way Netscape had to.
ALSO SEE: PC World, TechWeb, ZDNet

An internal beta of Internet Explorer 6 that was sent to a small group of beta testers in November has popped up on the Internet. People who have downloaded it described the Windows-2000 only browser as looking 'very similar' to the current release of IE, but noted that it has a half dozen new toolbars with nothing but links to MSN services and Microsoft programs, and a new left hand 'Explorer Bar' panel that looks similar to the Sidebar included with Netscape 6. But unlike the Netscape feature, Explorer Bar apparently cannot be turned completely off, so it takes up valuable screen space with links to still more MSN sites - shades of ActiveDesktop.
The browser was made available for download from two Web sites, FileClicks and The-Ctrl-Alt-Del. Once Microsoft discovered the leak, both sites removed the file but neither would reveal how they obtained it. The-Ctrl-Alt-Del defended itself by noting that IE 6 will be a free product, so offering a preview of it for download couldn't be classified as stealing. But the program had to be provided by a Microsoft employee or beta tester, either of which would have been under a non-disclosure agreement that specifically forbids public exposure of unreleased programs. Microsoft vowed to investigate the leak but wouldn't comment about penalties for anyone caught breaking their NDA.
ALSO SEE: CNET, InfoWorld

Confirming our earlier reports [see Jan. 29, 2001], Sega announced on the last day of January that it will abandon the money-losing Dreamcast game console in March of this year and begin producing game titles for the Microsoft X-Box. However, the X-Box will not get an exclusive market for the games because Sega also committed itself to producing titles for the Sony PlayStation 2, a future hardware device from Nintendo, and the Palm OS. The Palm OS instead of Windows CE, even though the Dreamcast console itself can run WinCE. That doesn't eliminate the possibility of Sega producing CE games in the future, but we expect them to wait until Wince and PocketPC are more established in the handheld market. Still unconfirmed is the other rumor about X-Box being able to run previously released Dreamcast games.
ALSO SEE: WinInfo, Wired News, The Register

But X-Box's road to store shelves may not be paved as smoothly as Microsoft would like, because the name of the device may belong to another company. After Microsoft introduced the X-Box in early 2000, a small design firm in Florida called Xbox Technologies alerted Ms of its previously existing trademarks on 47 different variations of the Xbox name. The first had been applied for in March 1999, while the other 46 were filed in May 2000 after Microsoft announced the project. Microsoft waited until September 2000 to file its own claim on the X-Box trademarks, giving Xbox Technologies a legal advantage. Xbox claims it offered to "buy off" Microsoft last summer to avoid any legal hassles, but Microsoft refused - giving the Xbox company an opportunity to sue, sell itself to Microsoft (a possibility it has so far dismissed), or sell out to someone else. A lawsuit would be especially messy for Microsoft, as that could prevent them from selling the game devices. But since Xbox Technologies is apparently a small operation, Microsoft would likely prevail over it in a court challenge - unless an outside company (hello Sony or Nintendo) purchases Xbox or its trademarks first.
ALSO SEE: PC World, The Register

The $400 rebate Microsoft has been using since November 1999 to attract customers to MSN has been discontinued. The rebate was given to anyone purchasing a three year contract for MSN Internet Service with a new PC, and was quite successful in driving PC sales - but it didn't do too much for MSN, considering the amount of money it cost. The rebate is being replaced with a free year of MSN service, available with whatever combination of PC products the store chooses. So far only Ms retail whores RadioShack and Best Buy have joined the program, but Microsoft had already entered into a similar agreement with Dell for its direct sale PCs late last year. MSN isn't alone in the free year arrangement, as Apple has a comparable deal with Earthlink and several OEMs like Gateway offer free service through their own branded providers.
ALSO SEE: CNET, The Register

When MSN Messenger 4 is released in March or April, it will be partially compatible with message clients from Yahoo and several other small services. The first version will permit text messaging between the platforms, with chats and file sharing added to a later release. Microsoft hopes to eventually make its client fully compatible with instant message clients from every member of the IMUnified coalition, a loose knit group of companies that want to force AOL into opening its IM protocols. Microsoft obviously wants to produce a client that can take customers away from AOL's AIM and ICQ services, but we've noticed that people are more likely to run MSN Messenger, ICQ, and AIM at the same time rather than replace one with another. MSN Messenger is also at a disadvantage because it only runs on modern Windows and Mac OS, while AIM and ICQ have versions for Java and a half dozen platforms ranging from Windows 3 to Unix.
ALSO SEE: InfoWorld

To appear more friendly towards open source software, Microsoft made much ado about nothing earlier this month with an announcement that the Windows source distribution program is being expanded. Of course, that doesn't put Windows code out in the open for anyone to see, but rather gives a dozen or so new companies a license to view the code. View, not modify. A license to check the code and make products more Windows compatible. Microsoft has been selling code licenses for years on a super limited basis - its refusal to hand over the entire source after companies paid to see it led to lawsuits from AT&T and Bristol several years ago. The companies included in the program's expansion will most likely be top-tier computer vendors and a few large software developers.
ALSO SEE: InfoWorld, The Register

Controversial stock analyst Henry Blodget recently took over coverage of Microsoft for the Merrill Lynch brokerage firm. Blodget, the analyst many blame for recent Internet stock collapses, began his coverage of MSFT with a downgrade, suggesting that the stock won't hold up in the long run. His predecessor, Christopher Shilakes, had rated Microsoft as a 'long-term buy'. Blodget credited the downgrade to Microsoft's dependance on declining desktop PC sales. However, the analyst did say Microsoft's stock will go up temporarily when Windows XP and Office XP are released. The rating adjustment had a minimal impact on the company's current share price.
ALSO SEE: CNET, The Standard

Microsoft has invested an additional $10 million into Audible, a producer of audio content for computers and handheld devices. The new investment, which joins an undisclosed amount Ms paid into Audible several years ago, will be used to produce recordings in the Microsoft Windows Media audio format.
While Microsoft has publicly attacked other companies' plans for 'thin client' terminal-based computing, its own Terminal Services product line has eaten up more than half the market for thin operating systems. Or so it now claims. According to Microsoft, a recently IDC survey shows that Microsoft's Terminal Professional, based on NT Embedded 4, and Terminal Standard, based on WinCE, run on 59% of the world's thin client computer setups.

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