2003 And Beyond di Andrew Grygus (tratto da) / vai a pag.2

Technology trends that will affect your business and how you do business.
The Information Technology Industry

The Technology Industry is currently in a deep slump, and will come back slowly and very selectively. PC manufacturers and most PC software publishers will not be among those recovering.

Corporate technology spending is expected to increase only marginally during 2003. A good part of that increase will be consumed by increased license costs for Microsoft products and will do little for the rest of the industry.

Much of the recovery will be led by the critical small business market (the bulk of business and employment in the U.S.), and that's a problem for big technology companies. Every time the corporate market slumps, the big guys declare their new small business initiatives, which always fall flat and are abandoned the moment the corporate market starts to recover.

Small businesses are adopting technology rapidly, by necessity, but products and services for small businesses become ever more diverse and more customized in response to intense competition. That means companies that successfully serve small business must themselves be small and very flexible. This does not favor the well-known industry leaders.

A big factor dragging down many technology companies is the increasingly tight relationship between computers and the telecomunications industry, as even voice starts being carried as Internet traffic (VoIP - Voice over Internet Protocol). The entire telecom industry, from top to bottom, is saturated with fraud, corruption, monopoly politics, heavy debt from unwise mergers and excess capacity. All this contributed to the current collapse, and will continue to affect big name network equipment makers like Lucent and Nortel, and even Cisco, through 2003.

Investment in Technology

Technology stock prices will stay depressed through 2003, and will not approach the highs of the Dot.com boom any time soon - not until the next tulip craze comes along (oh, maybe 6 or 8 years). There will be solid, though highly selective, investment opportunities, along with significant risks, but for most investors, consumer industries will be less trouble and a lot safer.

Wireless data will be a fast growing field, but with few pure plays. Wireless equipment will mostly be side lines by the same network equipment companies wired network equipment is made by, and you know they're depressed for a while.

Keep in mind that "Telecom = Fraud", so avoid anything that has to do with telephones and phone lines unless you think you're sharp enough to play with the big guys who get paid to invent and perpetrate those frauds. Better to invest in wildcat oil wells.

Internet Technologies, "Web Services", are another major growth area, but this field pretty much already belongs to Microsoft, IBM, Sun Microsystems, and other giants, as far as the corporate world is concerned.

Technology investors may start finding that participating directly in selected small businesses provides much better return than trading on the stock market, and will be a lot more productive for the economy. This is just about the only way to take advantage of the small business technology market.


The technology employment picture has been completely transformed by the Internet. The large number of corporate jobs that used to absorb entry level tech workers are being exported to India, Russia, Poland, and other places with high education and low pay - and those jobs aren't coming back. The bigger the company, the more jobs they'll be exporting. Most manufacturing and assembly work has already been sent to the Orient.

Highly skilled jobs remain, and pay well, because basic design, prototyping and pilot production will still be done here, but even if you have skills, there are problems getting hired. Human Resources departments haven't one clue in Hell how to evaluate skilled technical workers. They try to match exact experience and training to exact job requirements, and demand 3 years experience for specialties that have only existed for 18 months. Thousands of technical jobs go unfilled, while thousands who could do those jobs are asking, "Do you want fries with that?".

If you're over 40, the technology employment picture becomes really grim. You have abilities far beyond a 28 year old's, but he's the one that's going to get hired. For over 40s, there are many opportunities in consulting, especially in small and medium business, but that takes social skills and above all, selling skills, exactly what many chose technical careers to avoid.

So what does all this mean to the small business manager? Simple - whether you're looking for a consultant or an employee, you have a large pool of experienced over 40 technology workers to choose from, and you won't have to compete tooth and nail with corporate employers. Look for a track record of flexibility, and let the corps pay for the young ones' experience.

Oh, if you do want to pursue a technical career - one word: XML. Actually, a bunch of words, because to use XML effectively, you are going to have to learn a lot about business processes and methods too, and that means talking to a lot of non technical people.

The PC Industry

The PC industry was once thriving, driven by rapid innovation. It's now down and it's not coming back. Microsoft's monopoly enforces the "Uniform Windows Experience" to the extent innovation and product differentiation to attract new computer purchases are simply impossible, even compared to nameless "white box" products.

IBM wisely withdrew from the general desktop PC market, while Hewlett Packard and Compaq merged out of desperation. Dell alone thrives by being just an assembler, well tuned to commodity markets. The other majors are weighted down with design engineers and manufacturing facilities. The few remaining second tier vendors like Gateway are struggling and may fold, as Everex, AST, ALR, Packard Bell and others did in the last big shake-out.

All the major PC brands have moved to low end servers as their profit center, but the same "commoditization" is happening there. They all use the same Intel chips (because Windows won't run on anything else) and the same designs, and they all paint their boxes black. Essentially, they compete on price, which guarantees ever thinner profits. Meanwhile, Sun and IBM manufacture high end (non Windows) servers, which remain profitable.

"White Box" PCs by local builders are now the leading brand, having captured at least half the desktop market worldwide (I16), and now cutting into the low end server market. Declared dead by industry pundits a few years ago "White Box" has continued to grow its market share.

Why such success for the "no names"? To the "Local Brand" builder, PCs aren't a product, they're just part of a service offering, and that service is far beyond what the "Name Brands" could hope to offer. The quality is often higher, product consistency better, and if something does fail, it's usually fixed within hours with minimum hassle, often less time than you'd spend on the phone with HP or Dell..

With little possibility of regaining White Box territory, and unable to differentiate their products due to the "uniform Windows experience", name brand makers are locked in a pricing battle. Ever lower margins have forced them to cut heavily into customer support, and even Dell's once legendary support has been shaved to near worthlessness(I1). This makes them even more vulnerable to high support White Box products.

Competition for the business market may become even more intense, because I expect Microsoft branded "PCs" to take much of home market within a couple of years. There's already XBox, Home Gateway coming soon, and XBox 2 will be much more like a fully functional PC. A lot of other Microsoft branded hardware is appearing. Microsoft will use "security" and "Digital Rights Management" to force competitors out of the home market.

What does this all mean to the small business manager? It means the market has been turned upside down. If you want cheap, buy major brand computers. If you need support and effective service, buy your computers from a local service provider who provides White Box PCs and servers as part of his service offering.

Disclaimer: Automation Access builds servers and PCs as part of our services for customers, but market figures are from major industry publications.


The peripherals business, led by printers, is in better shape than the PC industry, but there are significant downside risks, especially for HP (formerly Hewlett-Packard (I11)).

Dell, described by Sun's McNealy as a "grocery store that sells bananas as fast as it can", is master of commodity markets. Having already pushed PC giant HP into an ill-considered attempt to imitate Dell's marketing methods, now Dell is after the printer market too. They've signed a major deal with Lexmark to supply Dell branded printers and consumables. HP is very dependent on its profitable "imaging" business unit for income.

The threat to HP is not so much printers as consumables (ink and toner cartridges). Volume market printers are already sold at a loss, and the money is all made on overpriced consumables. Dell has stated they will be competing on the price of consumables (I4). Lexmark, the #2 printer manufacturer won't be impacted as much, as it will "make it up in volume" as Dell's major supplier. Lexmark already manufactures HP compatible toner cartridges, so the competition may go beyond just the Dell printer / consumables value package.

What does this mean to the small business manager? It means careful selection of products may soon yield significant savings in TCO (Total Cost of Ownership) of printers when consumables are taken into account.

The Software Industry

The PC software industry is in the final days of being destroyed by Microsoft. Having leveraged a monopoly it was handed by IBM into multiple monopolies, with complete control over the PC manufacturers, and with an "Ethics? We've heard of it" attitude, Microsoft is preparing to drive the few remaining significant software publishers out of the Windows market.

Soon there will be Microsoft, Intuit, and Symantec. While Intuit will put up a strong fight, its popularity is not something Microsoft will tolerate for long. Revenue plans for Microsoft Great Plains do not allow for the existence of accounting software competitors. Microsoft will use Longhorn and .NET to bash and batter Intuit (see below). Symantec will continue because someone has to publish antivirus software, and it isn't going to be Microsoft (liability issues).

A few years ago, venture capitalists wouldn't fund a software startup if its product wasn't for Windows. Now they won't fund anything that runs on Windows either. Making a big splash and going public gave way to making a splash and selling out to Microsoft, but now Microsoft just tells companies, "Sell at our price or die", leaving little room for return on investment,

Ironically, the impossibility of commercial software competing against Microsoft's monopoly has spurred rapid growth in non-commercial software under the banner of open source. While much open source software runs on Windows, the majority runs on Linux, an operating system that is itself open source, thus available for free.

Linux has already taken big bites out of Microsoft's server sales and has blocked Windows from key accounts. Research firm IDC (the same firm Microsoft hired to "prove" Linux cost more than Windows) expects Microsoft's server market share to start to decline by the end of this year. Even more serious is the Linux threat to Microsoft's desktop monopoly, which becomes more credible by the month (I5).

Paradoxically, a strong open source alternative is the best hope for a revived commercial software industry. Much software needed by businesses is simply of no interest to open source developers. As Linux becomes a mainstream business operating system, the market for commercial software running on Linux expands.

The market for commercial software running on Linux is, however, a market for small companies to serve, and will not spawn a "new Microsoft". Microsoft has only two profitable products, Windows and Microsoft Office. open source equivalents of both are already free (Linux and OpenOffice) or very inexpensive (commercial Linux and StarOffice).

Microsoft sees the danger very clearly, and is already spending millions of dollars to fight open source, but their most effective weapons are ineffective against such low cost products that are available from many sources, none of which are dependent on Microsoft for their success.

What does all this mean to the small business manager? It means you need to start preparing now for the "All Microsoft" future - or start preparing now to move away from the Windows environment. This decision may look to you like a "no brainer" right now, but it shouldn't look at all easy by time you've finished this article.

"The Internet"

The Internet is transport for a number of completely separate services (ftp, email, gopher, newsgroups, chat, dns, etc.), but to businesspeople, the Internet is "the Web" (World Wide Web service). Actually, they do use other services, but these are now integrated into the Web browser, so they appear to be part of the www service.

Web pages are rapidly becoming the essential master communications center for every business. For most businesses, the Web site will never produce income, directly, but will be critically important to generating revenue through established business methods.

A recent Sears study (I7) confirmed for retailers what the Internet industry has known for some time. Customers who use Sears' appliance Web site generally travel to stores to purchase, but when they get there it is to buy, not to shop. They've already used the Web site to research products, compare value and make buying decisions. I'm sure you can see the potential for reducing sales staff this implies.

This trend is solid - people want to buy in the presence of the physical product, or talk to a real sales person on the telephone, but people don't have time to go to stores to shop any more. They can't afford to travel to stores except to buy. Shopping, research and price comparison can be done on the Internet quickly, conveniently, and at any time of day or night.

What does this mean to you, the small business manager? Without an effective, well designed and well promoted Web site, your business, products or services, aren't going to be considered at all. If people can't effectively gather the information they need before visiting your store or picking up the phone to acquire your services, they aren't going to bother, because they can get all that information from your competitors.

This bodes well for consultants, hosting services, and others who prepare and maintain commercial Web sites and Internet strategies, especially those that service small and medium business - in the long term. What's holding it back in the short term is that so many business people have yet to realize the critical importance of the Web site, and many more think they can do a fine job themselves in a couple of hours with Microsoft Front Page.

Increasingly, if the first impression made by a business' Web site is wanting, that will be the last impression that business will get to make. Speed and ease of finding information count for everything, and a slow Web site, or a Web site that offers pizzaz instead of content, will be the death of many businesses. Evolution is a harsh and unforgiving process.

At the other end, once hugely profitable Web consulting firms serving large business will continue their decline. Large businesses can now hire most of the expertise they need in-house at more attractive rates. There's plenty of "Dot.bomb" refugees desperate for jobs.

Profits go to companies that proceed carefully and with due consideration to all traditional business practices. Amazon has lost 2 billion selling books, while Powell's Books (I2) has been profitable all along.

Yes, there will still be room for "Web only" retail businesses, and perhaps Amazon.com will someday recoup its massive losses. Right now, Web sales are working best for highly specialized products and services with a very scattered clientele. If S&M gear is what you sell (I12), for instance, e-commerce could be your best bet for reaching your customers (it took me just a minute to find these WartenbergWheel guys).

The Internet will also be very strong in B2B (Business to Business) commerce, but not the way investors originally presumed. All the high profile customer / product / vendor match making sites and clearing houses went face to pavement, hard, and huge amounts of venture capital evaporated without a trace. Finding the lowest price vendor turned out to be unimportant compared to serving established business relationships.

The Internet will increasingly replace current EDI (Electronic Data Interchange) non-standards, handling document interchange between established business partners using XML and other Internet syntax standards.

Once again, things look good for modest sized consultants, integrators and contractors who can do highly customized work, but there will also be major opportunities for big consultancies like EDS and IBM Global Services. In-house staff can't do your customers' or vendors' systems, so substantial third parties will be essential to integrate larger businesses.

Internet Technologies

Not long ago, there were three network domains: LAN (Local Area Network), WAN (Wide Area Network) and "The Internet" (a very large peer-to-peer WAN). Today, there is only one: "The Internet". WAN traffic has become largely VPN (Virtual Private Network), encrypted traffic carried over Internet transport. LANs have become just local Internet subnets.

Protocols that were superior for LAN traffic, such as Novell's IPX/SPX have been dropped in favor of the Internet protocol, TCP/IP (except in organizations that want a very sharp demarcation between LAN and Internet for security reasons). The good news is that protocols that were inferior for any traffic, such as Microsoft's NetBEUI, are also being pushed aside.

Given this situation, we can talk of Internet technologies as if they applied equally to the LAN, because they do, even if the LAN isn't actually attached to the Internet (though that is becoming rare).

Not yet under monopoly control, Internet technologies are a seething hotbed of innovation - with one exception. Once Microsoft's Internet Explorer reached 70% market share, the once blazing hot evolution of Web browsers came to a sudden screeching halt. The only features being added to Internet Explorer now are features that allow Microsoft greater remote control of your network and computers.

The biggest things going on in Internet technologies are Web Services and XML. Both of these will deeply change the way your business does business in the future.

Web Services - XML, Java and .NET

Web Services is becoming a very big thing, with the bulk of new system development within the corporate environment being rapidly moved to Web Services (I10).

Web Services is a system where programs run on Application Servers and are accessed by client Web browsers. Parts of the program may download and run on the local client, but the main program stays running on the server, takes requests from the clients and hands back results.

Web services clients may be PCs, but don't need to be, they just need to support a standards compliant Web browser. Communications is by XML, SOAP and Java. Whether you're running Windows, or OS/2, or OSX, Linux, PalmOS, or what have you, is irrelevant (in theory).

You can access your Web services environment from anywhere you can get a network connection, and from any standards compliant platform. That network connection can be on the local network, or across the Internet (using a VPN, we hope, for security).

While doing any particular task, a client may be accessing Web services from several servers simultaneously, and application servers can even access services on other servers. This makes programming very modular - stuff needs only be written once and needs run only in one place to be accessed everywhere. This makes maintenance, upgrading and control very easy.

Web services can also be offered over the Internet by ASPs (Application Service Providers) for a fee, and these services will appear to be local to the client. Most Web services will be hosted on a company's own high speed network for best performance.

XML (eXtensible Mark-up Language) (I13), a critical key to Web Services, is an open standard syntax by which communication channels between very different computer systems can be established for exchange of documents containing data. For instance, a PC based accounting system could transmit an XML document that described a purchase order to a mainframe system, which could read and interpret the document and enter the information directly into its own order entry system.

XML is similar in principle to the HTML (HyperText Mark-up Language) so familiar for presenting and displaying Web pages, but XML is designed to handle data instead of page presentation. Web Services applications will take requests by XML document and return XML documents containing the requested response. Many expect XML to eventually replace EDI (Electronic Data Interchange).

XML is not a magic bullet that puts programmers out of work. It allows dissimilar computer systems to communicate with much greater ease than they traditionally have, but it does nothing to simplify the business logic within the system at either end. XML schemas have to be developed and interfaced with the business logic.

Numerous trade groups are developing XML schemas specific to the unique needs of the industries they serve. Interfacing these schemas to the business logic of individual participating companies will be done on a case by case basis by programmers, it'll just be a lot easier than with EDI, and use the Internet as a transport (in most cases, but proprietary networks can still be used with XML).

Java (I14) is a programming language well suited to implementing Web Services, and is actively promoted by three of the major proponents of Web Services, IBM, Bea Systems, and Sun Microsystems. Java programmers are in high demand now, and the language is being used especially on the server side of the Web Services equation.

Interaction among very dissimilar systems is a major goal of Web Services and XML. Java is available for all significant computing systems, so strongly supports this goal.

Obviously, Java, XML and open standards provide too much freedom, flexibility and local control to be at all acceptable to the fourth major proponent of Web Services. We'll cover Microsoft's .NET Initiative (pronounced "DotNet") in detail in the Microsoft section. For now, .NET services may talk to other systems (yet to be demonstrated), but development must be done under Windows using mostly Microsoft tools, and .NET based services will run only on Windows.NET servers.

Wireless Networking

Wireless networking is the hottest item in the technology press today, and is touted as the savior that will raise technology markets (especially hardware) from the dead. The implication is that if your business is not converting to wireless, it's falling way behind. The truth is a bit different.

Wireless has been around for some time, but only recently has it been able to overcome its traditional value proposition, "We're a lot more expensive, but we're a lot slower". Today, the price and performance differential is still there, but wireless is fast enough and cheap enough for a variety of uses. You use wireless where it is impractical to use wire, and nowhere where it is practical to use wire.

Even those magazines pushing wireless most heavily are replete with articles on wireless security, or more accurately, on the lack of wireless security. Securing a wireless network is possible, but more difficult, and it tends to go insecure if not monitored very carefully. Wireless has already been ordered pulled out of places it has been installed due to security problems, both in business and government.

In many businesses, wireless links are being installed by users for their own convenience, often to connect a laptop computer or to avoid the hassle of stringing a cable to the next room. In their competition to make installation easy, manufactures ship their product with all security features turned off.

The proliferation of uncontrolled wireless access points has spawned the practice of War Driving, cruising the streets with simple detection equipment and marking buildings with graffiti indicating open access points for "free" Internet access. Industrial spies and thieves are doing the same, but without the graffiti.

Wireless in the home is growing quickly in popularity, because homes are relatively difficult to wire neatly, and the security risks are lower. Most home wireless systems are for shared Internet access, and with broadband access methods all less than 1.5-MB per second, low cost 11-MB/sec wireless networking is more than adequate.

Mobile Devices

Accelerating the application of Wireless Networking is the rapidly rising sophistication and falling cost of mobile devices, ranging from cell phones up to Microsoft's "Tablet PC".

Microsoft will be pushing the Tablet PC very hard because its similarity to a full function PC means they can expect a monopoly position with these devices. Tablet PCs will probably find strong early adoption in medical facilities where users move around a lot, but are never far from the electrical power needed to recharge the devices.

Short battery life is the bane of devices that approach full Windows PC function, and also plagues smaller PDA (Personal Digital Assistant) devices running Microsoft's Pocket PC version of Windows. Battery life, and the shortcomings of handwriting recognition, will limit general acceptance of the Tablet PC.

Opposite the move from PC down to Tablet PC is the expansion of cell phones upward, adding text and photographic features as well as computing, data communication and Internet access. Microsoft has entered this market with its SmartPhone version of Windows (formerly code named "Stinger" (and popularly known as "Stinker")), but it faces very tough going.

Most handset manufacturers are highly suspicious of Microsoft's intentions, and those that aren't are idiots, as Sendo has proven so well. Motorola has selected Linux and Java for its phones (A10), while Nokia and Sony Ericsson have selected Symbian and Java (A11, A12), other devices will use Palm OS and Java. Due to misbehavior, Microsoft is forbidden by court order from implementing Java.

Designed from the start for small size and non-mouse operation, Opera is the leading Web browser for Internet access on mobile devices (A13). Microsoft, unable to compete using its bloated Internet Explorer, attempts to sabotage Opera where it can (R11). Opera's entertaining response to the latest attack has become a public relations classic (R12).

Because Microsoft will not be able to gain a dominant position and crush innovation as it has done elsewhere, this will be a very dynamic field, allowing innovative companies both large and small to prosper, but there are dangers to be avoided.

A large number of VARs (Value Added Resellers) will develop specialized applications around devices using Microsoft mobile software, because that's an easy sell to clients so familiar with Windows. These VARs will stay small and specialized as a survival tactic - if their product's success results in a wide market, Microsoft will copy it and put them out of business.

Microsoft has become an extremely dangerous mobile integration partner, since it has acquired major accounting (Microsoft Great Plains), POS (Point of Sale - SMS QuickSell) and CRM (Customer Relations Management (B9) products, and no longer depends on third party business software products for integration. More ambitious (and smarter) VARs will select alternative environments and learn to deal with the selling issues.

Large scale mobile device integration by major vendors will increasingly deploy the Linux operating system, which is not only royalty-free and more flexible, but gives the developer complete control of their own future.


Since 9/11, network and computer security has become the hot topic of discussion. Other than huge amounts of discussion and thousands of column inches by "experts", formation of high level government committees and papers issued by them, nothing substantial has been done.

Further, nothing substantial is going to be done until there is a major disaster. When that happens, that disaster will be fixed and little more. Columnist Peter Stephenson relates the situation to Y2K ( I8). So much money was spent fixing Y2K problems that no disaster actually happened, so business executives feel they were ripped off (some of my clients weren't fixed in time and learned firsthand how serious the problem could have been). Now they think Network Security is just the latest rip-off.

In truth, the problems are very real, and will result in serious economic loss, and ruin for some businesses. Major avenues for disaster are:

  • Worms, Viruses and Trojans prey on the extreme vulnerability and seamless integration of the Windows monoculture. Business has been lucky that the fast moving worms launched to date have been unarmed, but that luck won't hold forever. There is no defense for the first few days after release of a new worm.

  • Home workers and business executives have access to company networks over secured access links, but their home computers aren't secure, leaving wide open holes through which crackers and industrial spies can access business networks and through which passwords can be stolen. Microsoft's corporate network was raided by Russians this way.

  • Wireless Networking is a severe security problem for business networks everywhere. Employees are adding wireless links to corporate networks for their own convenience, and small businesses owners are using wireless to save the trouble of pulling cable. Manufacturers of wireless gear compete for ease of installation, so they turn security features off by default.

    "War Drivers" are cruising around identifying businesses with insecure wireless links, and even spray paint symbols on the buildings indicating how to access the network. Industrial spies are doing the same, but without the graffiti.

  • Web Services are being deployed before security is worked out, providing many new avenues for invasion. In particular, Microsoft's .NET initiative aims for the same level of tight integration Windows has (it locks out competitors and promotes "ease of use"). This will result in similar security problems - once you're in, all the resources of the system are yours to exploit.

  • "Social Engineering" made Kevin Mitnick the most famous cracker of all, even though his technical skills were admittedly not that great. His new book, "The Art of Deception" (I9) shows both the extent and "ease of use" of this weakness, and presents suggestions on how to mitigate the problem.

  • File Sharing systems like Kazaa, Morpheus and the now defunct Napster, not only bog down your network, but expose your systems to worms, viruses and "spyware", create avenues for outsiders to steal sensitive files, and expose your business to multi-million dollar lawsuits from the entertainment industry.

Once the specialty of a very few highly skilled hackers, data theft and destruction is now an entertaining pastime for thousands of unskilled "script kiddies" and a standard tool for industrial spies, saboteurs, and even law enforcement. Losses will continue to climb out of control.

Spending on data system security will increase as companies try mitigating sharply increasing losses from worms, viruses, espionage, crackers and data theft, but this spending will be ineffective, because top management won't commit to the resources and sweeping changes required to secure their data systems effectively. They'll instead buy "band aid" fixes with big promises and little effectiveness.

The potential for massive destruction is shown by the recent spread of the W32/Klez.H worm (which is still raging out of control). Had Klez.H carried a destructive payload timed to go off about 15 days after release, the economic damages would have been stunning, and many business would have failed. Instead, it's only cost $9 billion to clean up (so far), because the Klez.H perpetrator disarmed it before release.

The potential for espionage is exemplified by the recent conviction of a prominent loan shark based on evidence from a "trojan" program (X9). Such programs are easily available to the public, and conveniently email the information they collect to the perpetrator (X10).

Don't think not being connected to the Internet will protect you either. Multi-gigabyte storage devices with the size and appearance of a key fob are now economically available, and plug into any convenient USB port. Not only can your critical data walk out on a ring of jingling keys, spy programs can be easily injected by anyone with brief access to your internal network.

While all systems have vulnerabilities, as recently demonstrated by the Slapper Worm (X42), the vast breadth and extent of vulnerability is a uniquely Microsoft problem, and for very specific reasons, which we'll cover in detail in the Microsoft section.

The Microsoft "Road Ahead"

With over 90% of the desktop PC operating system and office suite markets, "proven in court" monopolies yielding 85% and 79% profit margins (R2), $43 billion in the bank, the highest capitalization (stock value) of any company, and having just been let off a major antitrust conviction with no punishment whatever, you might think Microsoft would be worry free.

Actually, Microsoft has something of a siege mentality, and that mindset is increasingly justified as the company fights too many battles on too many fronts. Expansion into new markets is meeting heavy resistance, and the old monopolies face unexpected threats. Open-source software and Internet protocols are leading concerns, as iterated by departing executive, David Stutz (R10).

In a recent shareholder meeting, Microsoft executives stated the company would pay no dividend from its $43 billion because it still faced legal and other challenges, and needed all that money to defend itself (R3). In actuality, Microsoft faces many very real challenges of such magnitude that $43 Billion may be a bit thin.

Other threats proved greater, however, so two months later, Microsoft announced a dividend. It's just 16 cents / share ($850 million) (R6), a token dividend, but it's a dividend just the same, and another step on the path from "high growth" to "granny stock".

Why the dividend? There appear to be several reasons. For one, it served as a distraction from poor earnings projections, and the fact that Windows Desktop (Client) sales actually fell by $10 million vs. the same quarter in 2001 (R8). Microsoft Office (Knowledge Worker) sales rose, but only by 8%, far from the 20%+ growth Microsoft is noted for.

Some have suggested the dividend was to get Bill Gates another $100 million per year, which will be tax sheltered if Bush's "stimulus" plan prevails, but this seems an unlikely consideration for so major a policy change,

Most important was probably Microsoft's stock price, which has trended down for three years. Paying even a tiny dividend allows funds that require dividends to buy Microsoft shares for the first time. Microsoft hopes more buyers will bring the stock price up.

At the same time, Microsoft announced a 2 for 1 stock split. Now this looks really strange. Companies normally split their stock on the way up to make it more affordable by the share. Why is Microsoft splitting a stagnant stock? Apparently it's a desperation move to make the stock look cheaper, so "bottom feeders" will buy and move the price higher.

At the root of Microsoft's problems is its financial structure. Leveraged by stock options and other financial tricks (R7), it depends heavily on rapid revenue growth and increasing stock value. When you've saturated your market (over 90%), and that market is stagnant, rapid revenue growth becomes difficult. Should future growth look poor, holders of stock options are likely to cash out, and much of that $43 Billion evaporates.

By necessity, Microsoft must expand into new markets. Problem is, they've never been particularly successful in entering any markets where they could not leverage their monopolies. As is true of other monopolies, they simply aren't competitive in open markets. While Windows has a profit margin of 85%, and Microsoft Office has a margin of 79%, every other Microsoft division is losing money in reams (R4).

Even where they can leverage their monopolies (corporate data centers, on-line services) Microsoft is meeting unexpectedly heavy resistance. Part results from serious weaknesses in Microsoft's products, part from battle hardened opponents now familiar with all Microsoft's tricks, In markets they already control, customers are becoming very reluctant to upgrade anything, because experience has proven it's a lot of expense for very little gain.

Another really big item is open source software. Open source products like Linux are rapidly locking Microsoft out of the midrange server market and are even becoming a threat to Microsoft's desktop monopoly, especially outside the U.S.. Microsoft's 10K filing with the SEC reflects this with warnings Microsoft could be forced to lower prices (R9).

Outside the PC arena, Microsoft faces entrenched adversaries with management far more astute and aggressive than anything they saw in the PC market. XBox for example, is taking heavy losses on each unit, but still not selling enough of them to create the critical mass needed to generate interest among top game developers and gamers.

In the market for Interactive Television, Microsoft expected to dominate, and invested heavily in potential customers "just to make sure", yet they have been almost completely defeated there. The market has become dominated by companies like Liberate, OpenTV, and TiVo, with mostly Linux based products. Microsoft was unable to deliver an acceptable product, on time, and at competitive cost.

To compensate, Microsoft is squeezing ever more revenue from current fully saturated markets by raising costs to their customers, mostly by changing licensing terms. This is creating resentment in formerly docile customers, many of whom consider the new terms extortion, and has them seriously looking at alternatives for the first time. It is also generating resistance to Microsoft's .NET initiative, now seen by many as a "vendor tie-in", ripe for exploitation.

Microsoft's public image, carefully crafted through billions (literally) spent with PR firms, continues to erode under the weight of license extortion, anti-trust action, license compliance raids, buying political influence, endless lawsuits over stolen products and patents, insecure and unstable products, obvious astroturf (fake grass roots) media campaigns, and much more

Innovation is another place where Microsoft is under-performing. They are fond of boasting about how much money they are pouring into R&D (Research and Development), yet not much new comes out of R&D. Some suspect the R&D efforts are financed simply to keep talented people away from startups and competitors, but it's probably simpler than that. Any innovation has to be retrofitted back onto the obsolete and hopelessly overcomplex Windows platform. This is highly limiting.

Some expect a combination of Microsoft's financial situation, market difficulties and erosion by open source software to result in an Enron style meltdown. This is highly unlikely. Microsoft management is too smart and not nearly corrupt enough to do an Enron, and they are coming up with many innovative ways to leverage their PC monopolies and squeeze more blood from any handy turnip.

Given a huge company that must grow rapidly, but which is encountering severe limits to growth, you can expect a lot of major changes in both products and policies, and that's what you are going to get.

Longhorn - Big Changes for Windows

The very disappointing uptake of Windows XP has convinced Microsoft they must force upgrades. License 6 does force customers to upgrade on Microsoft's schedule, whether they want to or not, but a majority of the market has not adopted License 6, despite Microsoft's threats. Clearly drastic changes are needed to Windows to generate renewed upgrade revenue.

The successor to Windows XP (due in 2004, and rapidly slipping to 2005) is currently code named Longhorn, and it will not be compatible with your existing software, hardware or methods. Microsoft has already stated that backward compatibility will not be a design feature.

Some expect the name Windows will be dropped completely. The antitrust agreement with the Bush DoJ specifically states "Microsoft Windows" throughout. By maintaining incompatibility (already planned due to design considerations), making it look different and calling it something else, Microsoft can free itself from antitrust oversight. "It's not Windows, it's a different product - the agreement doesn't apply."

The most important feature of Longhorn is replacement of the familiar DOS/Windows filesystem with an object database (W0). You will no longer copy files to a floppy or CD-ROM or attach them to an email, because there will be no files. Database records will be copied from one database to another, probably through a .NET server. Large organizations will have their own .NET servers, but everyone else will use one of Microsoft's, a service for which you will pay a fee.

The Longhorn filesystem will be based on the technology of a re-thought and expanded SQL Server database (the project coded Yukon) (W8). Obviously, SQL Server being so tightly integrated with the filesystem (W19) will have a negative impact on publishers of other database engines for Windows. Not strange then that market leaders Oracle and IBM are heavily pushing the Linux platform and barely mention their products run on Windows any more.

Current Windows based software will not be compatible with the Longhorn filesystem. Microsoft has already stated that all their own software has to be rewritten for it - so will everyone else's. This will eliminate a huge number of software titles which are useful, but not sufficiently profitable to justify rewriting them. Others will fail because their conversion won't be done in time to compete with Microsoft products.

Coming with Longhorn is a new user interface, code named Sideshow (W5), so if you're currently trying to make sense of the new Windows XP user interface, 2005 is when Billy intends to yank your chain again. If you're a Windows programmer, you get to learn a new API framework named Avalon (W6) too.

Given Microsoft's enthusiasm for "rich data formats", I expect Longhorn is going to eat disk space at an alarming rate. Perhaps this is why Microsoft has suddenly taken a strong interest in storage technology and services (W9). It's also going to be a major backup problem, so watch for Microsoft to start offering .NET backup services (for which you will pay a fee). Others already offer ASP backup service, but expect incompatibilities with them that "assure security and data integrity" (unless, of course, they pay a large license fee to Microsoft).

I find it probable Longhorn will largely end the use of reliable, low cost servers (Linux, NetWare) for Windows users. This will set the stage for serious increases in licensing costs for already costly Windows server software.

Of course, Longhorn is going to be very late, so Microsoft is already hinting, then denying, they'll bridge the revenue gap with a Windows XP "Second Edition" upgrade (W10), or simply redefine "Longhorn" so they can get a partial product out in time. License 6, practically promises a major upgrade every 3 years or so, so I wouldn't even be surprised if they issued another all but unusable "end of the line" screw up like Windows Me.

The biggest risk to Microsoft is that the Longhorn effort falls apart, as did its "universal filesystem" predecessor, Cairo (W22), still an embarassment to Microsoft. Cairo became later and later, was then "repositioned" as a "suite of technologies", and swept under the carpet. Failure of Longhorn would be more serious, because that would severely impact Microsoft's upgrade revenue stream.

Already, "Longhorn Server" has been dropped. The Longhorn filesystem will instead be an update to Windows Server 2003 (formerly Windows.NET Server 2003) and other features have been shoved down to "Blackcomb" (W21), the next scheduled Windows upgrade.

If you find all these Windows codenames confusing, a translation table is available (W20).

Microsoft Office

Microsoft Office, not Windows is Microsoft's true cash cow, and it is Office, much more than Windows, that ties customers to Microsoft's expensive licensing plans. Currently, Office Pro costs about $500 per computer, but some research firms expect it to reach $700 per computer by the end of the decade. This will be combined with tough "one license per machine" enforcement measures.

Microsoft simply cannot allow inroads on Office's market share, yet the high and increasing cost of office, especially in view of License 6 (see below) has many businesses looking very hard at Sun Microsystems' low cost StarOffice and its "no cost" sibling, OpenOffice. Both run on Windows and Linux, and OpenOffice is being ported to Apple Macintosh. Both have excellent compatibility with Microsoft Office files, and native integration with XML.

Microsoft is also having a very hard time getting users to upgrade to the latest Office versions. Office 97 has long been replaced by Office 2000, which in turn has been replaced by Office XP, yet a huge number of Office users are still on Office 97 and show no signs of upgrading.

Microsoft's answer to both these problems is Office 2003 (formerly named Office 11), currently in beta release and scheduled for final release in mid 2003. Office 2003 features a degree of tight integration with other Microsoft products that is impossible for other software vendors to achieve. It is also a degree of tightness Microsoft's customers will find nearly impossible to escape once committed. These features will be required by .NET and other Microsoft initiatives.

Office 2003 and Windows Sever 2003 will include a Rights Management Services feature for document security (W25). If Microsoft can convince businesses to use this feature, Office 2003 documents will be completely unreadable by OpenOffice / StarOffice, WordPerfect Office, Lotus, and by all older versions of Microsoft Office, forcing a total upgrade of Windows, Office and the computers it runs on.

Update: A correspondent has told me that Rights Management interfaces for Office 2000 and Office XP can be downloaded from the Microsoft beta site. We will have to wait for formal release to see if these are available for the shipping product. This does not change the picture for Office 97 or for products that compete with Microsoft's.

Office 2003 will not run on Windows 95, 98, 98SE or Me. Microsoft is very clear that it will run only on Windows XP and Windows 2000 with SP3 (Service Pack 3) applied (W17). Currently over 60% of Microsoft's business customers are still running Windows 95/98, and would have to purchase all new computers for an XP upgrade - new computers soon to be obsoleted by Longhorn and Palladium.

Note that applying SP3 for Windows 2000 requires you to accept a license that allows Microsoft to enter your computer systems, examine their contents and make changes without your knowledge or permission. Some companies are refusing to apply SP3 even though it includes important security patches. The Windows XP license also includes these terms.


Palladium, a chip based "security" initiative, is another major part of Microsoft strategy. Since Microsoft has seized control of PC design from Intel and the PC manufacturers, they are in a position to dictate how PC hardware will integrate with Windows.

Microsoft promotes Palladium as a boon to user privacy, security, and a stopper of worms and viruses. They claim it has nothing at all to do with unpopular DRM (Digital Rights Management), which prevents playing, displaying or copying copyrighted content (music, videos, documents, etc.) on a PC.

That is a lie. Truth is found in Microsoft "help wanted" ads: "Our technology allows content providers, enterprises and consumers to control what others can do with their digital information, such as documents, music, video, ebooks, and software. Become a key leader, providing vision and industry leadership in developing DRM, Palladium and Software Licensing products and Trust Infrastructure Services" (W7).

You can be sure the primary "digital rights" Palladium protects will be Microsoft's. You will find it impossible to run Microsoft software on any computer other than the one to which it was originally registered - or anything else Microsoft doesn't want you to run.

Palladium requires computers to have a special chip, which both Intel and AMD have already agreed to incorporate. "Protected content" will not run on a computer lacking the chip, or with the Palladium features turned off. You will have to buy all new computers to run Palladium enabled software.

Of utmost interest is Microsoft's statement that Palladium will allow creation of content that has an expiration date, and which cannot be used or viewed after that date. We will look at this again in the section on Licensing and Ownership.

Palladium has been highly controversial from the very first announcement (W3), because many, including many security specialists, feel it allows Microsoft excessive control over what software you will be able to run on your PC, and the company has already stated they will not allow it to be ported to non-Windows platforms. Academics fear it will hinder the flow of ideas and destroy the doctrine of "fair use" (W24)

In fact, Palladium has become so controversial, Microsoft has done exactly what they always do when the image of one of their products becomes tarnished, they changed the name. (W32). It's now "Next-generation Secure Computing Base". The name has obviously been chosen to be unsuitable for slogans and titles of articles such as this one. Unfortunately for Microsoft, it's just too cumbersome, so everyone's going to stick with "Palladium".

Palladium is not, of course, technology Microsoft originated. As usual, they have commandeered technology developed by others (W4) and reinterpreted it in a way that gives greater advantage to Microsoft.

The one thing that can slow Palladium is massive consumer resistance to the way it prevents "fair use" (and well as outright theft) of copyrighted entertainment content (videos, music, games). There will be no government resistance to Palladium. Your elected representatives represent money, and their votes have already been counted.

Will consumers resist? Some evidence says they will. Warner Music Group, Sony Music and Universal Music Group have already bent to consumer demand by putting a lot more titles up as singles, for download, free of "protection" schemes, and at lower prices than they original planned.

On the other hand, consumers have shown they will accept almost any level of abuse to not have to think about alternatives to Windows, so use of Palladium to protect Microsoft software (and repress competing software) can proceed apace.

Licensing & Ownership

You pay plenty for Microsoft software, but you do not own it - you have a non-transferable license to use the software as Microsoft sees fit. Microsoft owns it and they are not at all shy about exercising their "property rights". Further, the license terms can be changed retroactively (and are) any time Microsoft pleases. It says so right in the license terms.

When Kmart filed to sell their Internet unit, bluelight.com, Microsoft told the bankruptcy court the sale could not proceed because bluelight.com held Microsoft property (software licenses), which could not be transferred to a new owner without Microsoft permission, (L14),

Despite the ownership issue, Microsoft has long chafed under the traditional PC software license. Once they license a program, they can only keep revenue flowing by releasing "upgrades" and convincing people the upgrades are worth purchasing. Producing these upgrades is a lot of work, and they are finding it increasingly difficult to convince anyone the upgrades are worthwhile.

Clearly, the solution to this problem is to shift software licensing to a subscription model. Under subscription, Microsoft can continue to enjoy steady income from products they do not need to upgrade at all. Microsoft has long lusted for subscription, but was held back by competition - but now competition has been pretty much eliminated.

On August 1st, 2002, Microsoft's volume license agreements (volume = 5 or more) changed dramatically to a "pseudo subscription". Under License 6 (L0) companies can no longer update their Microsoft software when they please, they must run the versions Microsoft dictates, and must upgrade when Microsoft says to. This is not a true subscription, but it's now just one short step to a true subscription.

Any business that didn't sign up for License 6 by the end of July 2002 is cut off completely from discounted upgrades. Should a business later decide it needs the upgrade program, it must first purchase all new software at retail price to get current. Higher cost Individual consumer license upgrades for home and very small business are still available until further notice, but volume license upgrades outside of License 6 are a thing of the past.

Coming as it did in the depths of an economic downturn, forcing immediate expenditure and increasing the cost of Microsoft software about 30% on average, License 6 has been unpopular (L1). Nontheless, so many companies felt they had no choice, Microsoft's revenue increased 10% for the quarter. Extortion is a wonderful thing!

A side-effect of License 6 was to further depress the already severely depressed PC market as money had to be diverted from hardware purchase to fattening the coffers of Microsoft.

In June, 2002, surveys by "Microsoft friendly" groups were showing 40% rejecting License 6, and another 30% undecided. Many said they just didn't have the money to comply, even if they wanted to. Many were looking seriously at alternatives for the very first time (L5, L7). About 42% of Microsoft's customers scrambled to get renewed with License 5 before it was discontinued, to put off the License 6 decision for a couple of years.

In early 2003, with less than a third of corporate customers signed up for License 6, Microsoft has been making some concessions (though not big ones) to make the program easier to swallow (L15). License 6 has raised costs for 60% who participated, even double for some, and many who did not participate still don't have free cash available to even qualify. Despite the early outcry, fewer than 4% of Windows shops are actually in the process of moving entirely to competing platforms - it's scary, and immediate costs for many may be higher than License 6.

Oh, yes, one other note: License 6 volume licensing doesn't include any actual Windows licenses. You still have to buy a Windows License with each and every PC you purchase (L10, L9).

License 6 is certainly not the end of the matter. If you run Windows XP, or have downloaded the Windows 2000 SP3 (which includes imporatnt security patches), you have legally agreed to allow Microsoft to enter your computer systems, examine them, and make changes (which would include disabling software) (L13) without your knowledge or consent, and without liability for any damage that may result from such acts (L6).

If you doubt Microsoft is really serious about these details of license, note that they are the principal financial backer of the push for UCITA (G2 through G6), which is intended to codify these points into state law through the Uniform Commercial Code. UCITA includes the right to enter your computer and disable software for any real or imagined violation of license or payment, and to unilaterally change terms of license after the fact, license terms which apply even if you are not allowed to read the license before purchase.

Eventually Palladium is to take over license enforcement. Palladium supports firm cut-off dates, so if you don't pay your subscription fees, you will not get a new Palladium key and will not be able to use Microsoft programs, or the data you created with those programs. In other words, you pay, or you are out of business.

For small business, the real revelation will be discovering just how horrifyingly expensive it is to run Microsoft software legally. Right now, I can count the number of small businesses I know of that are 100% legally licensed on the fingers of one hand, without using any fingers.

The cost of Microsoft software is already so high, they're offering financing plans (L4) to help small businesses comply with License 6. These plans will be just so easy to convert into subscriptions, once businesses become used to the monthly payments.

An ESL (End User Subscription) license for Microsoft Office XP was test marketed, and withdrawn (L11) after a year and a half because (typical for Microsoft licensing) it was too complex for users to understand, and involved dealers as well as customers. Expect ESL to be back in simplified form and with added incentives in conjunction with Office.NET (Microsoft never gives up on something they really want).

Even subscription is not the true objective. Microsoft's long term goal is "Software as a Service", through the .NET Initiative (pronounced "Dot Net"). Software won't be loaded onto your computer at all, it will run "as a service" from Microsoft .NET servers. Your business data will also reside on Microsoft .NET servers somewhere out on the Internet. For access, you will have to be authenticated by a Microsoft Passport server.

Bill Gates was recently asked if Microsoft software might eventually be available only for rent through .NET, and replied "I believe in the long run things will be architected that way" (L3).

Microsoft Office .NET (N5) is far enough along that Microsoft has been doing focus group marketing studies for it (one of which escaped onto the Internet). Why will businesses sign up for Office .NET? Because it will be a lower up-front cost for each workstation, and Office .NET will offer attractive features not available in the boxed version.

So, why is Microsoft messing around with subscription software at all, instead of just going directly to .NET? That's what they wanted to do, but it's now obvious the broadband Internet access required by .NET will not be universally available in the near term.

Meanwhile, just to make sure you can't use copies of Windows you already paid for on the new computers you buy, Microsoft has forbidden computer makers from shipping computers without an operating system, under threat of "renegotiating" their OEM distribution licenses (L8).


Microsoft's .NET Initiative (pronounced "DotNet") is Microsoft's take on Web Services, and is being deeply "integrated" into every Microsoft product to assure its wide distribution and wide adoption.

.NET differs very sharply from everyone else's concept of Web Services. While everyone else concentrates on making Web Services platform agnostic, .NET is designed to force the use of Windows to the maximum extent. While Microsoft pays lip service to "multi-platform", they have yet to demonstrate anything of that kind.

Under .NET, Microsoft provides the key services, running on Microsoft servers and accessed over the Internet. Services not provided by Microsoft will run on ASP partner's servers. Access to any and all is cleared through Microsoft's Passport authentication servers.

Microsoft software products such as Office, Project, Exchange, and Great Plains Accounting will be offered as ASP services, paid by the month, rather than licenses and CD-ROMs sold in a box.

Clients, of course, must run Microsoft Windows if they expect to be anything like fully functional. Any and all .NET services must run on Windows.NET servers - no "platform agnostic" services here, thank you.

Java, used as the main programming language for Web Services elsewhere, is not used with .NET, because Microsoft was a very bad boy and is forbidden by court order from implementing Java. To replace Java, Microsoft has had to write a new Java-like language named C# (pronounced "C Sharp").

Due to problems implementing Hailstorm services (see below), .NET is now loosely segmented into two domains: business and consumer. The version for larger businesses has moved closer to generic Web services, with more control held by the customer (for now). The small business and consumer domain remains truer to the original "Microsoft controls all" vision.

Software as a Service is Microsoft's holy grail, and they are developing .NET enabled ASP versions of all their software as quickly as possible. Microsoft Great Plains, for instance, is on a crash program rewriting all their accounting software in C# to make it .NET enabled.

The beauty of the ASP model for Microsoft is that all your business data, as well as the software to access it, resides on .NET servers, not on your own machines. This gives them a single choke point, Passport, and tremendous leverage in raising prices (remember their revenue growth imperative). Very large organizations will have their own Passport authentication (a painful concession for Microsoft) but for everyone else, it's Microsoft servers.

Microsoft is pressuring (and sometimes bribing) Windows software publishers to quickly rewrite all their software using Microsoft's Visual Studio .NET programming tools so it will be .NET compatible. Actually, Microsoft means for many of these publishers to perish in the transition, but right now they need a show of support.

Microsoft is also heavily promoting .NET among prospective ASP partners, because there's no way they can provide a full range of services right from the start. Many will be intoxicated by the smell of Microsoft's money and invest in setting up .NET services to tap into that revenue stream. Their eventual fates are exemplified by RealNames.

RealNames came up with a very useful service allowing regular names of companies and agencies to be typed into Internet Explorer instead of the cryptic http://url names. This was particularly important in Asian countries because they could type in names in their native character sets and RealNames would translate and bring up the site.

In 2002, Microsoft abruptly canceled the RealNames contract and removed the essential link from Internet Explorer. completely ignoring loud protests from its Oriental customers. RealNames was forced to close and all its employees were without jobs (N2, N3).

Why did Microsoft kill a company with such a useful product, a company that was showing solid signs of becoming profitable? Several reasons have been given, but are not convincing, Microsoft had already hired several former RealNames employees, so I expect to see them incorporate this technology into their products without paying for it. They just wanted RealNames too thoroughly dead to sue them,

This same fate has befallen numerous Microsoft "partners" in the past, and awaits those that sets up .NET services. Either your service is not successful and you go out of business, or it is successful, Microsoft commandeers it, and you go out of business.

All is not, however, going as smoothly as Microsoft would like. The key .NET services were bundled together into a package called My Services (code named Hailstorm). Unfortunately, My Services had to be withdrawn, because most of the big retailers and financial services refused to sign up because they didn't trust Microsoft (Yes, even corporate executives learn - it just takes longer). In fact, most of these organizations have signed up with the competing Liberty Alliance (N14), recently joined by the U.S. General Services Administration and the U.S. Department of Defense (N15).

My Services didn't die though. Within a couple of weeks Microsoft had it renamed and the marketing pitch reformulated to present it for in-house use on corporate networks. Now, they're just building it into all their products so you can't escape it (N1).

The FTC (Federal Trade Commission) has already charged Microsoft with deception, misrepresentation of the security and privacy of the Passport service, and with gathering information that was off limits (N6). Caught with its hand in the cookie jar, Microsoft responded with its usual "We didn't do it but we won't do it again" and agreed to compliance audits every two years (N11). Meanwhile, they are canceling the electronic Wallet attached to Passport and setting it up as a separate service so they can pilfer information free of the privacy and security terms of Passport (N12).

"Well, I'm just not going to be part of that", you say? If you run Windows, you probably already are part of it. Hot Mail, MSN, Microsoft Instant Messaging - they all require a Passport account, and they are all being expanded into key parts of My Services. If you are attached to the Internet, your Windows computer is already chatting with Microsoft's servers, and if your run XP or Win 2000 SP3, you have already given Microsoft permission to examine your computer and make changes as they see fit.

Windows XP is substantially integrated into .NET, and future Windows versions will be completely integrated. You won't be able to tell where your network stops and .NET starts. The licenses you need to use the software you depend on will all be authenticated through Passport and Microsoft license servers on a daily basis.

All this sounds awesome, but there are a number of factors that threaten to seriously limit the success of .NET.

  • Microsoft's .NET vision depends on high speed Internet access. Universal high speed access is a lot farther away than Microsoft thought when .NET was launched, so implementation will be confined much more to in-house networks than Microsoft desires. High speed access is so important to .NET, Microsoft has set up a lobbying office in Washington to encourage legislation that would promote high speed access (N13).

  • Microsoft's ability to deliver viable product in a timely manner is questionable. Interactive television is an example where they have failed, yielding most of the market to competitors, many Linux-based. Two years after the .NET announcement, the Visual Studio.Net programming tools are the only .NET component substantially functional.

  • I expect a severe limiter to be the inability of Windows.NET to run on any but Intel based servers. The huge server farms required will be expensive, failure prone and difficult to administer. Microsoft has been trying for years to migrate HotMail servers from Unix to Windows, and the job is still incomplete. The transition crew found Unix much easier to administer than Windows (A15).

  • Security: .NET will be cracked early and often. It will bleed confidential customer information like a stuck pig, and portions of it will be brought down by DDoS (Distributed Denial of Service) attacks every now and then.

  • Antitrust action will be brought by private parties (easier now that Microsoft stands convicted of monopoly abuse), then by the U.S. government soon after the Bush/Ashcroft administration leaves office.

  • Java now has a lot of momentum. It's not going to be easy to convince corporate developers to accept a Web Services platform that isn't compatible with Java, and which ties them to a single company and single class of server.

  • Trust, Trust, and Trust. Just about nobody trusts Microsoft any more, not even after a few drinks. Not even after smelling the money. Particularly after the screwing they got with License 6, businesses are wary of tying themselves tightly to Microsoft products. This is becoming a major and growing problem for the Redmond empire.

All told, I expect .NET to be widely implemented, but ever changing and never completely defined. It will not deliver fully on functionality or performance and will suffer "significant" security problems. Many customers who build their business models on .NET will suffer chronic but generally sub-fatal dysfunction.

Consultants, integrators and contractors will make vast amounts of money trying to make .NET work right, but Microsoft will rake in the really big bucks.


Microsoft is enamored of XML, to the point they try hard to convey the impression that it's a Microsoft protocol, XML is an open standard for communications between systems in a Web Services environment. A subset of SGML, XML is under development by the W3C (World Wide Web Consortium) (N16).

Microsoft was involved in creation of SOAP, a remote procedure call protocol that works with XML, but David Winer of Userland was the principal architect of SOAP. Microsoft has promised complete compliance with the XML standard and did announce that the Microsoft Office file formats will be transitioned to XML.

Many people rejoiced, saying, "Microsoft is converting even Office formats to standard XML, so soon we will be free of all those problems with proprietary Office formats". This is just silly. "Extensible" fits perfectly with Microsoft's traditional approach for destroying standards: "Embrace, Extend, Exterminate".

Even a casual reading of XML specifications will show that you can define data types that require a special parser to interpret them, which could be a parser only available in a Microsoft product. Microsoft has already stated they will do this, "to protect our intellectual property".

Now it appears even that won't be necessary. Microsoft has backed off its earlier statements and now says Office 2003 will consume standard XML, but won't produce it (N8). It'll still be all proprietary formats. No prediction has been made as to when there might be an Office that saves in standard XML format.

A serious probelem with this strategy is that low cost competitor StarOffice and no cost competitor OpenOffice already use standard XML as their native format and will be much easier to integrate into enterprise systems. Further, OASIS, a leading industry standards organization, is developing an XML standard for office applications, using the OpenOffice formats as the starting point (I6, I17).

If Microsoft can get business to go along with their XML schemas, and many businesses will, then business to business, and even business to consumer activity can easily be diverted through .NET services controlled by Microsoft. For that, you will pay a fee.

Intuit is currently showing the way to do this by hijacking the traffic of QuickBooks users using the built in email invoicing feature (N4). This turns out to be an ASP service for which Intuit intends to start charging a fee. Further, Intuit reserves the right to add third party advertisements to your invoices and gather all the data they want to from those invoices, right down to customer addresses and line item prices, and use it as they please.

Expect Microsoft to be watching Intuit's work very closely, since they share the same cavalier attitude toward their customers (they tried to merge some years ago, but screwed it up).

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