Google’s failure to dent the Microsoft monopoly will simply notch up another failure for Linux (whose fans are quite happy to work for The Man, as long as it’s not the Man from Redmond) – and it’ll do nothing for consumers. How so? Because the computing problems we’ll have tomorrow will still be the same ones we have today.

MySpace Music is billed as the biggest music retail launch of the year. It’s a one-stop shop backed by the cross-media muscle of Rupert Murdoch’s media empire, with the three biggest record labels. The site promises to offer everything from downloads to ringtones to concert tickets, backed by the “street” cred of the MySpace brand, and a blockbuster launch is expected this week. Astronomical valuations – $2bn – have already been placed on the service, which MySpace insiders want to become the ‘internet’s MTV’.

The problem? Not everyone can play. Independents say they’re being frozen out of the new venture. No independent music company has inked a deal with the News Corp, and independent labels report that they’ve been blocked from uploading their music. And since MySpace Music is a joint equity venture between News Corp and the three biggest labels, which control 70 per cent of the US recorded music business, the trouble might only be starting.

Twice this decade, the independent labels have successfully challenged big music mergers. In 2006, the European Court of the First Instance kicked back the merger between Sony and BMG mooted two years before, as a result of a request by the independent music association Impala. Earlier, independent concerns had scuppered a proposed merger between Warner and EMI, and the indies won guarantees when the merger proposal was briefly revived last year.

There’s also an ominous precedent for News Corp. and the major labels in the shape of the digital TV company, Project Kangaroo. The Office of Fair Trading has already referred the joint venture between the BBC, ITV and Channel 4 for antitrust scrutiny – even though it hasn’t yet launched. Ironically, the noisiest petitioner against Kangaroo happens to be … News Corporation.
Indies: Where did our uploads go?

MySpace Music offers a service, using technology from Audible Magic, which allows indie labels to upload their own music. But scores of labels have reported they’ve been blocked from uploading their catalogs, even though they own the rights. A stumbling block appears to be the metadata database administered for MySpace by Audible Magic. If, as is commonplace, a major label owns territorial rights to a piece of indie music somewhere in the world, then the “ownership” is assumed to belong to the major label, not the independent. Which means that a US major pockets the royalty revenue for a British indie label.

“The MySpace brand is built on artists uploading their own music, particularly indies,” a source familiar with digital rights licensing told us.

So why wasn’t the system working? Audible Magic’s manager for EMEA Mike Edwards stressed that the Audible Magic’s database covers every global territory.

“We simply record what the rights holders register with us, and give it back to the people who use the database. We can register territorial rights in great detail.”

He couldn’t comment on this or any other specific instance, as the company is obliged to honour NDAs, but added:

“We have asked for more details about these issues and offered to help AIM [the Association for Independent Music] and [independent licensing body] Merlin resolve these quickly.”

One source familiar with the complexities of licensing pointed out that the blame should be placed with the meta data customer, not the intermediary:

“If MySpace doesn’t have the territorial rights data, it’s because MySpace hasn’t asked for it, or has asked for a specific set that doesn’t contain territorial rights,” he said. “Audible Magic do what the client asks.”

In some ways this is a hangover from the traditional way of dealing with rights:

“Most majors are not set up to do territorial rights. By default, they do ‘world’, and if they find you own it, they go ‘Oops…’”.

But the broader concern is that MySpace Music is a party to which the independents haven’t been invited – an arrangement which strengthens the major labels’ dwindling control over music distribution in a digital era.

In the shadow of the Commission

“We’ve asked the EC to look into the development of the online market,” Helen Smith, Impala’s secretary general, told us from Brussels.

“There appears to be a fair degree of parallelism in the deals – similar deals with similar timing – across a number of different services, which is normally a bit suspicious. This raises the question of whether there is some co-ordination or collective approach which may have the effect of excluding the rest of the competition.”

The Commission has been asked whether to consider whether the market is as diverse as it could be, she added.

Charles Caldas, head of Merlin – rights licensing body for independents – said negotiations with MySpace were ongoing, but expressed his disappointment.

“For all of the PR about how much they loved independent music, and how it was the lifeblood of MySpace, when they went to commercialise it only three major labels were invited to take equity,” he told us.

“We want MySpace to treat independent rights according to the value it brings their business,” said Caldas.

He said MySpace will find it hard to fulfil its promise of offering ‘all the music in the world’ without the independents on board.

Indeed, it’s hard to imagine the much-hyped launch of MySpace Music gathering such attention without the participation of the MySpace brand, and the eyeballs that the world’s biggest social networking site can bring. Would anyone care if the headline was merely, ‘Universal Sony and Warners do another download store’ – or compare it to MTV?

MySpace’s UK PR company declined to comment.

©Situation Publishing 2008.

The US Senate today embarks on what could become years of antitrust investigations into Google by the IT, telecoms and media industries.

The hearing today is just that – a piece of political showboating ordered by antitrust subcommittee chairman Herb Kohl. It’s not a formal investigation, let alone a lawsuit. Yet with the destiny of much more than today’s precious “Web 2.0 economy” now in one company’s hands – 90 per cent of paid search advertising goes through Google – it’s surely just the start.

Whether regulation will be able to put but a dimple in Google’s ascendance remains to be seen. Google’s vast data centres and its own private networks promise to give it de facto control over the delivery of content. A parallel business strategy is to squeeze the life out of access networks, the one area where it shrewdly doesn’t want to play. Google is content to leave “last-mile” and wireless operators as unprofitable, commodity conveyors of bits. If the strategy is successful, it will ensure that no one will be able to make money from the internet except Google itself – leaving the public internet effectively in one company’s hands. (Forget about the TV, newspaper, movie and music industries. By the time they wake up to the Google threat, they will by then be smoking ruins…)

So Google has been readying itself for regulatory intervention for several years. It lobbies extensively, and thanks to its reach-out program to politicians and wonks, now owns a fair chunk of mindshare among the political elites. With its private “Zeitgeist” conference – an annual orgy of self-glorification – it reaches over the heads of representatives and and hacks to the political leaders and media owners themselves. In the UK, there’s a revolving door between the two major parties and Google.

Politicians can sprinkle a little of the future on themselves just by rubbing up against the web giant.

As Microsoft discovered, fortuitously, this is money well-spent. A sympathetic Bush administration dissolved the DoJ’s will to impose tough penalties against Microsoft more effectively than any lawyer or economist.

And as Microsoft demonstrated, too, regulatory scrutiny is no obstacle to the real business at hand of winning large state IT contracts. Microsoft remained a favoured supplier, despite the years of antitrust litigation in the US and Europe. Google is well-placed to bid for giant IT projects such as health and data integration.

Google also pays careful attention to academia and think-tanks. A $2m donation to Lawrence Lessig’s Stanford University law centre saw him swing into battle for the internet giant in its litigation against copyright holders, with snidey bloggers dubbing him “Professor Google”. (Google’s cost of business falls when the awkward business of paying creators goes away). And Lessig’s cohort, Berkman co-founder Jonathan Zittrain recently offered a very romantic view of network innovation, with the threats to this blissfully happy landscape coming from consumer electronics and telecoms companies. Google’s threat wasn’t mentioned once. But perhaps this isn’t surprising when you look at who sponsors Zittrain’s Berkman Center. In each case, the puppetmaster calls the tune.

Google is able to achieve such mastery over politicians, the media and hackademics not only because they don’t know what they’re doing (that’s a given, these days) but because Google offers to uniquely “know” something that they don’t – a new form of “knowledge”. Google offers to tell them what the cow (at the top of this post) is thinking (The picture is a slide from a Google analyst presentation from 2006).

So what’s the beef?

Well, there are a limited number of ways you can make money on the web. You can take a cut of transactional revenue, as eBay and Amazon do. Or you can opt for advertising. There’s big buck brand advertising – for which you need to hire a sales team and woo large advertising agencies, which means you need scale, and large investment. Or there’s classifieds – and it’s this segment that has powered the growth of Google, Yahoo! and smaller web start-ups in the past five years. And this is what’s under scrutiny.

Regulators should thank Yahoo! co-founder Jerry Yang, for accelerating a process that otherwise might have taken years to come about. Quite incredibly, Yang handed Google dominant market power in paid search advertising a few weeks ago, when he announced Yahoo! would trial Google’s Adsense. It was just a trial, Yahoo! said, but by giving its prime advertising competitor access to its own properties, it couldn’t be making a clearer statement. This destroyed any illusion that paid search advertising was a highly competitive three way market – and almost nobody noticed.

It’s ironic because Yahoo! “owns” the technology responsible for Google’s dominance today, thanks to Yahoo!’s acquisition of Overture five years ago.

Embarrassingly, Google had to license the patents from Yahoo! just before its IPO to avoid a damaging court decision. How Yahoo! owned the future, then threw it away, deserves a story to itself. But all we need to take away here is that Google won fair and square, by executing the same idea better. Yahoo! targeted SMEs and set barriers to entry for its ad program. Google realized that scale was important, and so opened the doors to all. If you merely had a one page website on Chihuahuas, for example, then you could join the market, and potentially get a share of advertising revenue related to Chihuahua products. Google made it a simple self-service model for both advertiser and hoster. Yahoo also failed to leverage its scale, and ran into execution difficulties with Project Panama, its second generation ad program.

Now for the crunch: what harm does it do? Leave aside for a moment that Google’s opponents here – including Microsoft and the telecoms companies – have less-than-fragrant reputations in the marketplace themselves.

And leave aside too the red herring of “Search”. Yes, you can change a search engine with a mouse click. But this isn’t about search engines at all.

Setting the bar

It’s about the cost of doing business on the internet, and if a monopoly exercises its power, then that cost rises. Long-time Google advertisers have already seen prices go up with no explanation. Remember that Google is a “black box” – and Google alone sets the price of advertising through its programs. It does so based on demand – and a magic fudge factor, which critics say represents how much it needs to meet its quarterly numbers.

As Scott Cleland, who represents telecoms clients pointed out this weekend – “there is no competitive substitute for search advertising”. And he’s right.

This is also a market that’s a lot less “dynamic” than many suppose, because of something we heard a lot about in the 1990s, the “network effect”. IBM and Apple offered superior PC products to Microsoft’s Windows – but application developers went for volume, and people went where the applications were, creating a circle that was hard for any competitor to break into. Similarly, advertisers go where the market is. If Yahoo! and Microsoft with their respective scale can’t crack paid search advertising, then who on earth can?

Much like Microsoft, Google’s company ethos leaves no room for competition. Its network strategy is to own the middle tier of the internet, where its large data centers will dominate, while squeezing the profits out of the access networks.

Google’s singular triumph has been one of misdirection. Thanks to “Net Neutrality”, Richard Bennett pointed out in a recent San Francisco Chronicle op-ed, Google’s subtle war on P2P is designed to usher content “consumers” into its datacenters, and away from exchanging material person to person.

Where it differs is that while Microsoft dreamed of dominance, Google succeeds. Microsoft never had the power to change the meaning of words, as Google does today. No media company ever has.

But for now, antitrust regulators need to demonstrate that there’s actual harm. Is the cost of business really increasing? That’s the immediate challenge for the DoJ and State Attorneys. The greater challenge is to wean our political, media and academic elites off their Google addiction.

A good question the regulators may want to ask is – if “Web 2.0″ is everything the politicians, wonks and newspapers hype it up to be – the future of business – then why should only one company be permitted to control it?

Is Google a cult, or is Google a corporation? It’s hard to tell, and from the company’s official literature it seems like it would really, really like to have it both ways.

There’s a big difference. Cults demand obedience, while corporations are obliged to be accountable. It’s tricky to reconcile the two.

And while it ponders, and makes up its collective hive mind, Google has let its hiring do the talking. Google has been recruiting the kind of people who you can rely on to enforce a cult-like mentality, inside and outside the organization. In the UK, Google has hired spin doctors from the ruling “New” Labour party, which itself is steeped in Californian cult-speak, borrowed from 1970s fads such as NLP. In the United States, Google has been more pragmatic and focussed, hiring chief neo-con headbanger and former Carlyle Group bagman Dan Senor to make its case in DC.

Is Google a cult, or is Google a corporation? It’s hard to tell, and from the company’s official literature it seems like it would really, really like to have it both ways.

There’s a big difference. Cults demand obedience, while corporations are obliged to be accountable. It’s tricky to reconcile the two.

And while it ponders, and makes up its collective hive mind, Google has let its hiring do the talking. Google has been recruiting the kind of people who you can rely on to enforce a cult-like mentality, inside and outside the organization. In the UK, Google has hired spin doctors from the ruling “New” Labour party, which itself is steeped in Californian cult-speak, borrowed from 1970s fads such as NLP. In the United States, Google has been more pragmatic and focussed, hiring chief neo-con headbanger and former Carlyle Group bagman Dan Senor to make its case in DC.

(Dan’s role is so er, covert, that his name isn’t listed in the Google company directory. So don’t even think about asking him how the war’s going.)

But Google is cultish in many more obvious ways. Google’s cash cow, from which it derives 99 per cent of its income, is as an advertising broker. And at the core of Google’s advertising business is a black box. It’s an auction system in which Google controls the price. Whether you’re a buyer – selling stuff you want to place on Google – or whether you’re a seller, Google sets the terms. No arbitrage is permitted.

(Keyword arbitrage was a VC favourite a couple of years ago – until the VCs realized you couldn’t buck a market controlled by an entrenched oligopoly of two: Google and Yahoo!)

For financial experts who believe that derivatives markets and hedge funds are a safety valve that insures the integrity of the market – and let’s suspend disbelief for a moment and assume that they’re being rational – this news comes as quite a shock. No matter how slowly, and how gently we explain it, the shock is palpable.

Permitting a company to “define” the market, then control it, was demonstrated in a far distant era many readers may not remember – by a company called Enron.

Enron created something called the “energy market” and worked hard to control it. Millions of Californians felt the effects, when Enron imposed artificial blackouts on the Golden State.

But this is now, and technology utopians pin fables as the “Long Tail” onto economic evidence as threadbare as Google’s “advertising model”. When businesses are entirely reliant on Google’s integrity and transparency, where are the founders?

Apparently, they’ve fallen out over their sleeping arrangements. They can’t decide where to put the hammocks in the “Party 747″.

It’s nice to see version two of the “new economy” is in such safe hands.

This time, Robertson shot first: suing EMI in September. EMI counter-sued two months later. MP3tunes automatically syncs your iTunes or WMP collection online.

“They’re playing tough and mean and nasty,” he says. “There are five safe harbour provisions in the DMCA. The third one (512c) says that if you’re storing the file at the direction of the user, you’re exempt. That’s exactly what we do.”

On the other hand, 512c is what covers Google’s YouTube service – and Google has vowed to clean up the service from infringing material. But Robertson says there’s no sharing, in contrast to other services.

“You can’t play music out of a locker, and there’s no anonymous access or wink-wink nudge-nudge sharing where we look the other way. Xdrive – pick anyone – everyone has anonymous access where you can share it with the world.

“Here’s how I like to think about this. Our business is the delivery of the music. You have it at home and play it at work. The labels never thought about the delivery.

“The business we’re in, the distribution business, doesn’t have to be a threat. It could be a best friend to the retail side. We can be your best partner.”

All good points. I thought what the labels feared was what Robertson might do, once everyone had a digital locker. In that sense, it was like the book authors and publishers litigation against Google Books.

But Robertson has noticed something that we hadn’t noticed before.

Which is quite spooky.

“If you look at the lawsuits that are pending, they seem to be doing a very good job of divvying up the litigation. Warner is suing some, EMI are suing others – and I find that very curious. There’s not one where they’re suing the same company!”

Indeed not. Universal Music is going after Grouper, Warner Music is taking on Seeqpod, and EMI has sued MP3Tunes.

It’s odd, since the Big Four are acutely sensitive to anti-trust allegations – to the extent that they can’t co-ordinate anything positive.

So was he mulling a formal anti-trust complaint?

“I have never really thought about that,” he told us. “I’m not a government intervention kind of guy. I’d rather let the marketplace settle it out.”

We pointed out Scott McNealy is another instinctive libertarian – who nevertheless believed in anti-trust action. But he wouldn’t be drawn.
The new Microsoft of Music

Much of the litigation by the big record labels against internet companies is being settled with the majors taking an equity stake. Robertson noted how the new MySpace music operation was jointly-owned by the labels and News Corp.

“News Corp is creating another entity that’s a MS Music Inc. to the labels. But if you’re small you don’t have that option. We don’t have a Microsoft sugar daddy to lean, to bring 100 million customers to the door, or big name branding.”

Robertson was also sour on the prospect of major labels and network operators striking one-off deals – covenants not to sue – then walking away.

“If the companies get payment up front there’s no long-term alignment of interests – but that’s not what’s happening. There’s equity and it guarantees payment to the label, so they don’t need to care.”

He warned that if the case was lost, record companies would go after other services next.

“How many MP3 attachments are on GMail’s servers now? I’ll go out on a limb and say they have an equal number of MP3s on their servers right now. So… our case is an important one.”

“The subscription model is the only way to save the music business,” Rubin has said. “If music is easily available at a price of five or six dollars a month, then nobody will steal it.”

As an example of third-parties’ willingness to subsidise music to the point of it being “free”, UMG recently signed a deal with Nokia to bundle free downloads with selected handsets, which the punter can than keep.

However, since the four major labels supply 80 per cent of the market with sound recordings, the issue of price-fixing has never been far from formal regulatory scrutiny. Executives are schooled in avoiding trigger words that indicate the major labels are acting in concert. In 2000, the Federal Trade Commission concluded that the labels’ “Minimum Advertised Price” programs constituted wholesale price fixing, which had cost consumers $480m.

Fear of being seen to act like a cartel has paralyzed progressive licensing initiatives.

In December 2001, the majors backed two music subscription services called PressPlay and MusicNet, and came under immediate antitrust attention. PressPlay was backed by Universal and Sony, while MusicNet was backed by Warner, EMI and BMG together with Real Networks. The DoJ investigated a number of complaints, the strongest of which was that the major labels refused to license their catalogues to competing music service providers.

The investigation was overtaken by the launch of iTunes, and with it Apple’s creation of a licensed market for digital music downloads. The DoJ formally concluded the probe in December 2003 with a few harsh words at the subscription offerings. While investigators couldn’t find support for price fixing, the services were extremely unpopular and loaded with restrictions.

This backed the idea, the DoJ suggested, that the goal of the programs was to “impede the growth of the Internet” for music distribution, and steer users back to the “bread and butter of the music industry”; physical CD sales.

But that’s a luxury the major labels don’t have today. With physical sales of sound recordings showing a 25 per cent year-on-year decline, labels are prepared to lose many of their traditional paranoia and technophobia, and take the risk. They have nowhere left to go.

Today it’s the harsh economic reality of doing business that most hampers the launch of licensed services that can effectively compete with free ones.

Only huge telecomms companies and large global hardware manufacturers – Apple, Nokia and Sony are all individually much larger than the entire record industry – can afford to license the music. As so often, the internet is portrayed as redistributing power from the few to the many; but with music, it may simply concentrate power with a small number of players. One or two faces may change.

Independents have a different business model, and have embraced digital networks as an opportunity, not a threat.

In the past few years the indies have organised, and successfully fought mega-mergers in the European Courts; they licensed the original Napster, and shunned DRM en masse. More recently, the indies have pioneered a one-stop stop for global digital licensing, Merlin, something beyond the organisational abilities of the RIAA.

So after hearing from IFPI chairman John Kennedy here this week, you’d expect a very different view of the music business from Martin Mills, chairman of British indie the Beggars Group – and you’d be right.

[full interview at The Register...]

He couldn’t care less that employees were “wasting” time on Facebook – that was a “problem” for their line managers to deal with, and not an IT issue. (Why should IT be blamed if staff played with Rubik’s Cubes all day?) He had always encouraged people to try new software, so long as it remained within the firewall. The real problem, he thought, was that the Web 2.0 cult is loyal to what’s perceived to be good for the greater “Hive Mind”, not the organisation.

This resulted in staff with conflicting agendas.

For example companies were being urged to “share” IP that would prove valuable (even life saving) to them in the future. (There’s a new book Wikinomics, that preaches this, with little discrimination). Or projects were being rushed through with little cost/benefit analysis – or consideration of the consequences – because they fulfilled the evangelists’ buzzwords.

The cult-within-the-organisation is a fascinating subject – one that we’ll be reading about aplenty in the management columns, and eventually on sociology courses for years to come. A more detailed examination of this cult/religion is beyond the scope of this article, but I’ll highlight two very relevant characteristics.

This group of people looks cultish for several reasons. (I first observed the cult-like properties of the web utopians several years ago, reporting on what was the forerunner to the Web 2.0 conference.)

It’s a consensus culture that brooks no disagreement – except from the top-down, ironically enough – and reacts to criticism as if being personally attacked.

They also speak their own language: a strangulated and weirdly dehumanized collection of buzzwords: “nodes”, “community”, and “conversation”, for example, have had the life flogged out of them. But most of all, the blog and wiki evangelists give the impression that they have arrived, fully formed, with no recollection of history or economics prior to 2003.

For the Emergent People, everything is new again!

As we know, if we ignore history, we’re doomed to repeat the same mistakes over and over again. If we disregard basic economics, we’re at the mercy of people who pay just a little bit more attention. This came to mind reading the latest submission from the legal departments of the ten US States to the ongoing antitrust regulation process against Microsoft.

Just as Web 2.0 has been a gift to Rupert Murdoch, it’s also a PR gift for Microsoft. Now Microsoft is turning this mood music to its competitive advantage.

Microsoft, you’ll recall, agreed to a gentle program of regulatory oversight in the US five years ago. Now that program is up for renewal, Microsoft says it doesn’t need to any more oversight. Why not? Because of the software as a service revolution!

The war of words has been ongoing for some time. Marco Iansiti from Harvard Business School has been making the 2.0-case for Microsoft. Two experts, John Kwoka and Ronald Alepin, have been deployed to rebut it on behalf of the Ten States.

On November 6, both parties filed an update.

Microsoft filed a supplemental written by Iansiti: you can download it here [PDF 660kb, 12pp]. It’s a must-read.

“The Internet as an alternative platform is ubiquitous,” he claims. Microsoft also adds that the pace of innovation since 2002 has risen – and Web 2.0 is proof.

(Yes, all those lame excuses for websites that are mercilessly lampooned by Uncov, are actually bleeding edge innovation. Fancy that! )

According to Iansiti, Google, Salesforce.com, Mozilla and Tim 2.0′Reilly’s mighty army of JavaScript-typing, buzzword-spouting monkeys are all cited as proof that Microsoft doesn’t need to be regulated at all.

But if Microsoft prevails, then even the small fissures opened up by the “Seattlement” may soon close the door on new opportunities, the States Fear.

“The ‘Internet Platform’ … does not even exist, much less constitute for the foreseeable future a practical or viable alternative to the desktop platform,” responds Alepin, in a filing made the same day.[PDF, 223kb, 32pp]

(Props to IDG’s Greg Keizer -the only reporter to follow the arguments).

Such worries aren’t shared by the Web 2.0 cultists however – they either don’t have any worry cells in their heads, or their worry cells are fully preoccupied with persecution fantasies about the dying record industry, or telecoms companies.

These evangelists think that Microsoft is dead, dying – or at the very least, irrelevant. This utopian optimism has affected others, too. CNET blogger Matt Asay voiced similar thoughts in a recent Open Season podcast here. Listening to Matt, Microsoft belonged to a distant era, such was the magical power today of “open source”. He didn’t really care how it was regulated.

( This is an odd position to take. One of the small concessions Redmond was forced to make was to agree to document and license its protocols. It’s a tiny crack in the monolith, and it has permitted a small number of MS-compatible open source companies to spring up. Zimbra, for example, was acquired by Yahoo! for an improbable $350m. Zimbra’s is a rock-solid open source email service, but its inflated valuation is because it also offers a very limited Exchange-compatible client. )

Nor does the happy-go-lucky Digg crowd, many of whom weren’t born when the first FTC investigation began in 1991.

Who are you kidding?

Not to labour the point, here are some inconvenient facts.

OS innovation has never been slower: Windows and Mac users have never had to wait longer between OS releases. They’ve never been unhappier, either: many users of the latest incarnations of these operating systems – Vista and Leopard – feel like abused guinea pigs. And Microsoft and Apple? Never wealthier, thank you very much.

So this is what the 2.0 revolution looks like: a concentration of power with the people who had it already.

Take this example from former teenage dot.commer Benjamin Cohen – who was six when FTC first trained its lawyers on Redmond. After taking a pop at the at “anti-Microsoft lobby”, he declared on the Channel 4 News website:

The judgement is based on an old case and in many ways an old world – where Microsoft really was the dominant player in information technology

Stop kicking the kindly old man in the Windows outfit, he said.

It’s hard for it to have too much relevance today.

You’d think from this brilliant piece of insight, that there is hardly anyone left who uses Microsoft Windows or Office. Maybe, like the Acorn Archimedes, it’s a hobbyist system lovingly kept alive by a few, devoted enthusiasts! Benji even sounded slightly resentful at being torn away from Facebook (or Sadville) for a few minutes, to write about this piece of computer history.

But the question of “how we deal with Microsoft” is more relevant than ever for two very important and reasons: the second follows from the first.

It’s Microsoft’s game

Firstly, the proportion of national wealth that goes to Microsoft is higher than ever. More people have Windows PCs at home, and as more countries acquire more PCs, so the dependence on Microsoft software grows. As a measure of how much, look at the earnings. Microsoft earned $36bn in 2004, and is projected to earn $63bn in FY 2009. Some “declining relevance”.

In addition, Microsoft now has the desktop computing franchise for as long as it wants it – because its rivals have given up and gone home, or carefully avoid competing too hard with it. This is a hard truth for many people to accept.

Linux has failed to compete on the desktop because it isn’t up to the task of being a consumer operating system, and Apple avoids competing because its focus is on digital media, and the Mac is a nice little earner as it is. Why should it rock the boat?

These days, Steve Jobs is a director at Disney – and Apple isn’t even called “Apple Computer” any more.

Even with Mark Shuttleworth’s benevolence, Ubuntu is still a long way from providing the ordinary user from a drop-in Windows replacement.

And Microsoft has countered the threat of the institutional adoption of Linux, particularly in emerging markets, by lowering the price. Few could would have predicted a few years ago that China and India would go Windows. Few anticipated Western public sector bodies continuing to pay large license fees to Redmond. But a slightly lower license cost, and the more abstract notion of “software freedom”, weren’t enough to win the day for F/OSS.

As the FSJ [aka Forbes' Daniel Lyons] wrote recently:

You’ve lost. You’ve had sixteen years to try and build a desktop operating system, and you still can’t get your shit together. Nobody wants your software. It’s not Microsoft’s fault. It’s yours.

All of which makes Apple’s position all the more frustrating. For a small premium it offers a substantially better and more secure experience than Windows. When ordinary users and businesses have the chance to use it, they like what they see. They’ll typically opt for Windows, however, with consumers put off by the perceived price difference and the Mac’s niche status, while enteprises are wary of lock-in to a single hardware vendor – especially with Apple dropping the “Computer”.

… and Apple won’t play

Yet Apple could remedy both if it embarked on a carefully selective licensing program, and permitted chosen OEMs to offer the Mac in more diverse forms. The company has never been in a position to do so before. Today, it can: in the last quarter Apple earned $2.53bn from computer sales, while $2.17bn came from iPod and music and phone products – and this before selling 1m iPhones.

It isn’t hard to envisage Mac OS X reaching 25 per cent market share – which would address the last remaining reason for choosing Windows: there’s more good specialist software written for it. But Apple won’t allow it. With the Mac it’s not a case of “can’t compete”, but “won’t compete”.

But ahh, you say – what about some great paradigm shift? Twenty years ago the PC wrenched control of the industry from IBM and other big vertically integrated companies, and handed it to Microsoft and Intel. What Nick Carr calls “The Big Switch” may make expensive desktop computers redundant. Just as Marc Andressen promised to make Windows “a poorly debugged device driver layer”, Google’s service bureau model of computing promises to make a PC an off-line backup, for those rare moments when the network goes down.

Well, we were here before with thin clients, and today it’s called SaaS, or software as a service – and each time the economics are compelling. This time there’s evidence of some steak behind the sizzle: Salesforce is a great example of businesses doing more work in a bureau model. But to think of one model entirely superseding another is quite wrong: IBM is still here, and the unique flexibility of the PC means it will be around for a very long time too.

In addition, the sheer inefficiency of the browser-based “Web 2.0″ environment (Yahoo! 2.0-ified Mail Beta brings a dual core PC to its knees) pretty much guarantees you need some hefty hardware. So for the foreseeable future, SaaS services will be another application you run on your PC.

And once you’ve got a PC, you’ve got Windows. Now what?

Savour this irony.

Last week, we learned that incompatibilities Microsoft hadn’t written into its operating system posed a grave threat to users. Last week, we also learned that genuine incompatibilities Microsoft had deliberately written into its operating system posed no threat at all.

In the first instance Microsoft had primed a public relations campaign to warn of the dire consequences posed by these bogus incompatibilities. In the second instance, and times must be tough up there, Microsoft avoided using its public relations professionals to tell us that the genuine incompatibilities were harmless.

Are you still with us? If you’re feeling bewildered, your confusion is understandable.

The first instance refers to incompatibilities between Microsoft’s Windows 386, 3.x and Windows 95 products and DR-DOS. This was an operating system developed by Digital Research, and later acquired by Novell, which was 100 per cent compatible with Microsoft’s MS-DOS. Thanks to citizens in Iowa, who are pursuing a consumer class action lawsuit against Microsoft, these ancient malpractices are being aired once again, and Microsoft executives have been on the stand in Des Moines defending the company’s conduct.

Microsoft wanted users to believe that interoperability between DR-DOS and Windows was problematic.

The second instance refers to incompatibilities between Windows Vista and next-generation High Definition DVDs, BluRay and HD-DVD. The incompatibilities are deliberate, and part of the specification Microsoft gave hardware manufacturers so they could design Vista-compatible hardware. Just before Christmas, Peter Gutmann published a technical analysis of the Vista incompatibilities, listed some of the potential security and stability threats they posed, and some of the situations where they might cause real harm.

In this instance, while Microsoft has gone to great lengths to booby-trap its software to disable functionality when certain media discs are being played, and to degrade performance when it finds what it thinks is counterfeit media, or “unauthorized” copying — it wants us to believe this will not have serious consequences for users.

(Until Vista is tested in real world conditions, we won’t know for sure if Gutmann’s claims are alarmist and Microsoft is telling the truth, or not — or somewhere in between.)

We’ll deal with the most topical first.

Gutmann analysed the hardware specifications and declared several problem areas. When “premium content” was being played some functionality was deliberately disabled, specifically video I/O. Vista uses “tilt bits” to detect fluctuations in voltage and severely degrade the operation of the computer. He also said the specification posed problems for programmers developing free software device drivers, and would make the Vista-compatible hardware more expensive than it should be. Finally, Gutmann described catastrophic consequences for users who discovered their driver had been “revoked”.

Rather than address questions from Gutmann himself, or from the technical press and analysts, Dave Marsh, Microsoft’s lead program manager for video chose his own questions to answer, and passed them along to a colleague, who posted them on his blog.

Naturally these include several answers to questions Gutmann didn’t ask, but avoiding the press by selecting awestruck bloggers instead is Microsoft’s preferred way of dodging hard questions these days: at CES this month, Gates would only be interviewed by bloggers.

“Gates seems really relaxed unlike in many other interviews I have seen,” noted a blogger after watching one of these grillings, conducted by … a former Microsoft marketing guy.

Gutmann hadn’t asked whether Vista’s “content protection requirements apply equally to the Consumer Electronics industry supplied player devices such as an HD-DVD or Blu-Ray player”, but Marsh answers anyway. From then on, it’s a mixed bag.

Marsh agrees that Vista’s DRM taxes the CPU. He dodges the issue of Vista’s specs making hardware more expensive by saying that integrating DRM onto the chip in volumes will eventually bring the price down. (That’s a “yes”, then).

He agrees that S/PDIF, component video and audio are degraded, but says they are already in Windows XP and invoked when requested – and he passes the blame onto Hollywood. He refutes Gutmann’s claim that playing back protected content degrades the rest of Vista video output. (Gutmann cited the hypothetical case where medical images would be displayed in lower than optimal resolution when a protected High Definition DVD was being played at the same time – although if your radiographer is watching Porkys III Hi-Def Edition while looking at your scans, we suggest you find a new radiographer).

Marsh confirms that “tilt bits” will cause problems, but he ducks the question of what circumstances will cause tilt bits to be set, and throws the responsibility back on to the hardware vendors. He writes:

“It is pure speculation to say that things like voltage fluctuations might cause a driver to think it is under attack from a hacker. It is up to a graphics IHV to determine what they regard as an attack. Even if such an event did cause playback to stop, the user could just press ‘play’ again and carry on watching the movie (after the driver has re-initialized, which takes about a second).”

And… then what? Wait for another tilt bit reset, we guess, from speculative causes.

That sure sounds like a fun evening in!

And we throw Marsh’s reply to the F/OSS drivers issue open to you. Marsh asks,

“Do things such as HFS (Hardware Functionality Scan) affect the ability of the open-source community to write a driver?” And Marsh answers… “No. HFS uses additional chip characteristics other than those needed to write a driver. HFS requirements should not prevent the disclosure of all the information needed to write drivers.” Gutmann, who isn’t named in Marsh’s ventriloquist routine, isn’t impressed.

“Saying ‘we were only following orders’ has historically proven not to be a very good excuse,” he told the BBC News Online website. “If you have got the protection measures there, the impulse is to use the most stringent ones at your disposal.”

We’ll deal with events taking place in freezing Iowa in a more detail in a follow-up tomorrow, but the basic facts are as follows. The case has been a replay of Caldera vs Microsoft, with evidence brought in from other investigations. Caldera had inherited DR-DOS from Novell. Suit was filed in July 1996, and discovery continued throughout 1998 and 1999, with a serious of unfavourable judgements against Microsoft, one of which expanded the scope of the lawsuit. Microsoft settled just a week before it was due to go to court in January, paying Caldera $275m in damages. The Register covered the trial in detail at the time (list of links here, juiciest quotes (http://www.theregister.co.uk/1998/10/20/microsoft_on_trial/) here (http://www.theregister.co.uk/1999/05/24/unsealed_caldera_documents_expose_ms/).)

As with Internet Explorer, and Windows XP, Microsoft had failed to add new features to MS-DOS for several years. Microsoft adopted several tactics to destroy DR-DOS, the most damaging of which was tying PC makers into secret per-processor license agreements, which meant that they paid for Microsoft’s MS-DOS whether they shipped it with the PC or not, foreclosing the most important route to market.

But as DR-DOS matured, and Novell developed an alternative retail channel for the product, Microsoft adopted a campaign of disinformation. With the growing popularity of Microsoft’s Windows 3, which ran on top of either DOS, Microsoft wanted users to think that performance would degrade if using Windows with Novell’s rival product.

The formidable talents of Waggener Edstrom were enlisted. Microsoft’s DOS product manager Richard Freedman took the campaign to the press, vowing to “FUD DR DOS with every editorial contact made,” and to “develop key DR DOS FUD points for all press tours”.

“We’ll basically be covering all the key editors … We recommend that we ‘informally’ plant the bug of FUD in their ears. ‘Have you heard about problems with DR DOS?’ ‘That security feature is a neat idea and, gosh, such a feature would be great, but it’s just too easily circumvented.’ ‘Gee, it’s unfortunate that DR DOS can’t be loaded high all the time. MS-DOS 5.0 can.’ We’ll do this very tactfully. ‘If Digital Research came to Microsoft for help making DR DOS work with Windows, would Microsoft help them? Maybe not?’”

On Friday the Des Moines court heard this piece of testimony. It’s a video from an FTC hearing from 1993, and in the dock was Phil Barrett from Microsoft. It makes for an interesting comparison with the offering from Dave Marsh, above.

Question: Mr. Barrett, you were just asked if you had any knowledge of any Microsoft effort to produce any incompatibility between OS/2 or DR-DOS and Microsoft Windows. How do you define incompatibility within that context? What was your understanding of what you meant by that?

Answer: To prevent the products from working together.

Question: Would you consider an incompatibility something that popped up in, say, a nonfatal error message when there was no error that was being detected by that software?

Answer: No, I would not call that incompatibility.

Question: How would you make the distinction between the two?

Answer: Well, there was nothing done explicitly to prevent Windows from running on that operating system.

Question: Mr. Barrett, you were just asked if you had any knowledge of any Microsoft effort to produce any incompatibility between OS/2 or DR-DOS and Microsoft Windows. How do you define incompatibility within that context? What was your understanding of what you meant by that?

Answer: To prevent the products from working together.

Question: Would you consider an incompatibility something that popped up in, say, a nonfatal error message when there was no error that was being detected by that software?

Answer: No, I would not call that incompatibility.

Question: How would you make the distinction between the two?

Answer: Well, there was nothing done explicitly to prevent Windows from running on that operating system. That’s what is meant by incompatibility. It’s simply a message. If we played a tune, that wouldn’t be an incompatibility. That’s what is meant by incompatibility. It’s simply a message. If we played a tune, that wouldn’t be an incompatibility.

Just fancy that!