MESSAGE
| DATE | 2003-12-12 |
| FROM | Michael Richardson
|
| SUBJECT | RE: [hangout] Microsoft's New Toll Road (MUST READ STORY)
|
Microsoft to the right, Microsoft to the left, Microsoft in front, Microsoft
behind, Microsoft under, Microsoft on top. O'Thou Foolish Mortal Into the
Valley of Microsoft ...
-----Original Message-----
From: Inker, Evan [mailto:EInker-at-gam.com]
Sent: Friday, December 12, 2003 11:01 AM
To: 'hangout-at-nylxs.com'
Subject: [hangout] Microsoft's New Toll Road (MUST READ STORY)
Microsoft's New Toll Road
By John O'Sullivan - Posted on 2003-12-12 06:56:34
at OSNews [http://www.osnews.com/]
Microsoft watchers have two interesting stories to follow this week. First
is the new Intellectual Property (IP) licensing scheme. The second is a
feverish round speculation (just a rumor) that Microsoft will buy AMD. Both
tie into an older story about plans for the next generation Xbox.
Toll Road, Page 1
Editorial Notice: All opinions are those of the author and not necessarily
those of osnews.com
The IP story alone is quite interesting. The AMD story, while a long shot,
is potentially huge. The older Xbox story has gained significance in light
of the other two. Together, these stories suggest Microsoft may be about to
launch a new hardware related business strategy.
Microsoft announced
[http://www.microsoft.com/presspass/press/2003/dec03/12-03ExpandIPPR.asp]the
ir new IP scheme with great fanfare last week. Read a more objective report
here [http://www.eweek.com/article2/0,4149,1403021,00.asp]. They positioned
this new scheme as a fit of generosity. On a side note, this is why MS is so
disliked in the industry. They come up with a self-serving gambit, and
solemnly tell you its entirely for your benefit. The infuriating thing is
that they really believe it. That explains their petulance when these things
are criticised.
Anyway, the two specific initiatives they announced were licensing regimes
for Clear Type and the FAT file system. The FAT regime requires 25¢ payment
to MS per formatted device. To a maximum of $250,000 per company. The main
effect of this will be on digital storage devices for things like cameras.
$250,000 will not break any manufacturer, and the 25¢ per device can be
hidden easily in the price. Microsoft is well within their rights here. They
hold patents on FAT and the fees are not excessive. However, hardware
manufacturers won't like to pay for what used to be free. And they're not
going to like paying Microsoft for using something that became the standard
because it was free.
In a Register story [http://www.theregister.co.uk/content/4/34391.html],
Andrew Orlowski reports Microsoft hired Marshall Phelps away from IBM in
June. Phelps was the man that monetized IBM's patent portfolio. The story
quotes Eben Moglen of the Free Software Foundation as saying, "from 1935 to
1984, IBM did not ever enforce a patent for license revenue." IBM's 2002
annual report states their patent revenue for that year was $1.1 billion.
This was down from a peak of $1.6 billion in 2000. Phelps is widely credited
with inventing this business.
We all know that Microsoft is desperate for new sources in income. Office
and Windows are the only divisions making money. Microsoft has acknowledged
that growth is flattening in these sectors as well. They have made big
investments in cable TV, game consoles, an ISP, embedded operating systems,
and phones. None of these have paid off so far. A new income stream based on
Microsoft's patent portfolio is a no-brainer.
Orlowski observes that Microsoft is well positioned to push Linux and Linux
distributors on patent issues. He writes
"Microsoft's actions so far don't constitute a full frontal attack on free
software. It's often been rumored that Microsoft has a number of patents -
the number varies - on the Linux kernel itself. But it has chosen not to
pursue such an inflammatory tactic, just yet, and may not even need to at
all in order to succeed."
He reckons by crippling the likes of RedHat and Novell with legal threat, MS
may be able to manage the Linux contagion. Things may not be so simple
anymore, however. SCO has radicalized the community and make it clear that
while fractious, the open source community is no pushover.
Too much pressure could also bring unwelcome anti-trust attention. John
Ashcroft will not run the Department of Justice forever. And the individual
states have shown they are not shy about acting on their own. A convicted
monopolist using patents to cripple technological development would be a
tempting political target. Even a pro-business regime like the Bush
administration needs to throw an occasional scrap to the hounds.
Toll Road, Page 2
An Inquirer story by Arron Rouse notes that with its co-design deal with IBM
for the Xbox2 CPU, Microsoft is directly entering the hardware business. He
also cites the FAT license and puts the two together in an interesting way.
The opportunity, he says, is not just to collect royalties for existing IP,
but to get new MS intellectual property into silicon. Then they can collect
on every device sold. Not to mention the boost for Trusted Computing and
content control. Rouse speculates Microsoft could bootstrap their IP via
Longhorn extensions in the Xbox2 CPU. They could also play AMD and Intel off
against each other. They may not need to. This CNet article
[http://news.com.com/2100-1006-5104656.html?tag=nefd_lede] says,
In a sense, "Microsoft is becoming a fabless semiconductor design firm,"
said Peter Glaskowsky, editor in chief of The Microprocessor Report. These
companies--without their own chip-fabrication factories, or "fabs"--design
their processors but outsource manufacturing to foundry companies...
Commercially, Microsoft will differ from other fabless companies, such as
Transmeta, in that its main customer will be itself. Still, Microsoft could
conceivably leverage its investment by using the chips in many products."
Not only will Microsoft co-design the CPU, they are partnering with ATI to
design a custom graphics chips, and with SIS to design the chip set. This is
a big difference from their experience with the first Xbox. For that, MS
bought off the shelf OEM components. As another story
[http://news.com.com/2009-1043_3-5113175.html?tag=nefd_lede] today on CNet
reports, the stakes in the set top box war are going up. Both Sony and
Microsoft are determined to win at all costs. Microsoft has never been shy
about using control of one technology to advance another.
Which brings us to AMD. Microsoft moving into the CPU business doesn't seem
as big a stretch anymore, does it? I have no idea where this story
originated. It may be a leak, it may be wishful thinking, it may be a trial
balloon, or it may be rank speculation. Another Inquirer article by Phil
Trent discusses the advantages of such a move. I think this article as
mostly correct but Trent under estimates the potential antitrust trouble.
There might also be significant resistance in the Far-East. Not enough to
spoil the deal, but enough to make it difficult. It is no secret that
Computer OEMs and consumer electronic companies love Linux. They have
learned from 25 years of Sony taxes and the hated VHS royalty to support
open standards whenever possible. And they don't trust Microsoft, but then
they don't trust anybody. Apparently with good reason
[http://www.taipeitimes.com/News/front/archives/2003/12/07/2003078619]. The
disastrous Xbox experience in Japan and Korea may also indicate intrinsic
market resistance. Or, may simply indicate the Xbox's older demographic
focus doesn't work in those markets. But it can't be ignored.
AMD is a very good buy at the moment. The financial markets have yet to
digest the magnitude of their 64 bit victory. Microsoft also has piles of
cash and very little that they can buy. Since the Intuit purchase of 1995
fell through because of antitrust concerns, Microsoft has been constrained
in its purchases.
I tend to think AMD would be more trouble than they're worth to Microsoft. I
also don't see a master plan in play. Except for initiatives like Longhorn
and the Xbox, Microsoft tends to try lots of things and then reinforce
success. All of these potential initiatives carry significant risks.
Microsoft has historically been poor of dealing with strategic problems, but
has effectively offset that failing with brilliant tactics. And Ballmer must
be looking for an opportunity to put his own mark on the company. Not to
boost his ego, he seems to have that under control, but to cement his
regime.
Linux is clearly gaining momentum in the marketplace. In particular Sun's
Java Desktop appears poised for some big wins. It must be clear in Redmond
that margins in the operating system business are in decline. The delay of
Longhorn puts their traditional means of boosting income out of immediate
reach. The need for new sources of revenue is about to become acute. If they
intend to move decisively into the silicon business we can expect that to
happen quickly. However, the monetization of patents is going to move ahead
smartly. I'd be very surprised if we don't see almost weekly announcements
on this front. This is likely to become a significant revenue source for
Microsoft, and a major cost of doing business for the rest of industry.
( Original Story URL at http://www.osnews.com/story.php?news_id=5386 )
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____________________________
NYLXS: New Yorker Free Software Users Scene
Fair Use -
because it's either fair use or useless....
NYLXS is a trademark of NYLXS, Inc
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