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Weekly Column

Killing Us With Kindness: At Microsoft, Even Good Deeds Are Predatory

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

A reader took me to task recently for being too hard on Microsoft. I'm a cynic, he said, for predicting that bad things would come of Redmond's decision to offer free anti-virus and anti-spyware services. All I can say is that I looked again at recent events, reconsidered my own motivation, and sure enough, I was not completely correct in my previous analysis. On further deliberation, I have to say that Microsoft's entry into these businesses is far, far worse than anything I predicted. It is a disaster both for users and for the software industry. But the good news is these same tactics may well backfire for Microsoft, and could even lead to the company's decline from desktop dominance.

How can giving away software tools be bad? Look at how Microsoft is doing it. Their anti-virus and anti-spyware products are aimed solely at users of Windows XP SP2. This has very different effects on both the user base and the software industry. For users, it says that anyone still running Windows 98, ME, or 2000 has two alternatives -- to upgrade to XP/SP2 or to rely on non-Microsoft anti-virus and anti-spyware products. Choosing to upgrade is a 100+ million-unit windfall for Microsoft. That's at least $10 billion in additional revenue of which $9 billion is profit -- all of it coming in the next 12 months.

That $10 billion, by the way, comes from you and me, and comes solely because of Microsoft's decision to offer "free" software.

Of course, you can decide not to upgrade to XP/SP2 and rely instead on third-party products to protect your system. But Microsoft has set the de facto price point for such products at zero, zilch, nada. By doing this, they have transferred their entire support obligation for these old products to companies like Symantec and Network Associates without transferring to those companies any revenue stream to make it worth their trouble. Maybe Peter Norton will say, "Screw this, I'm not going to support all these millions of people for nothing." Well, that's Symantec (not Microsoft) apparently forcing users into the same upgrade from which Microsoft (not Symantec) gains all the revenue.

Of course, inside Microsoft this looks like a brilliant strategy. But the inevitable result of Microsoft's decision is to hurt users and competitors alike.

Look how this decision transforms Microsoft. By choosing to no longer support a long list of products (is that even legal?), hundreds and perhaps thousands of developers will be switching to new duties. If this were any other company, I would predict layoffs, but a key strategy for Microsoft is hiring the best people simply to keep them from working elsewhere, so I don't think layoffs are likely. What IS likely is an exodus of voluntary departures. What's also likely is that those hundreds or thousands of reassigned developers will be moved to some other doomsday product -- something else for us to eagerly anticipate or fear.

I doubt that the extra labor will be shifted to Longhorn -- the next version of Windows -- simply because Longhorn has suddenly become less strategic to Microsoft. Tired of waiting for an ever-retreating ship date, the new decision to release a new version of IE for XP/SP2 makes Longhorn less necessary to Microsoft.

Remember that the objective of any Microsoft product upgrade is to stimulate sales. There are two ways to stimulate sales -- forcing users to pay for software upgrades or forcing users to pay for hardware upgrades that carry software upgrades with them. The new anti-virus and anti-spyware products perform the former function for current users of Win98, ME, and 2000, while the impending new version of IE 7 will perform the latter function for many of those same users (again) as well as for the rest of us who are already using XP/SP2. That's ANOTHER $20 billion, again most of it pure profit, and again, all of it coming from us.

I don't blame Microsoft for their behavior -- they simply can't help it. It would have been nicer had they taken the course of improving Windows to make it less vulnerable -- a course that itself would have stimulated sales, though not as much -- but that isn't in their corporate DNA.

But I think this approach is shortsighted not only because it is disrespectful to customers, but also because it means a large segment of users who see themselves as having to get new hardware might well consider abandoning Windows at the same time.

Enter in this drama two new characters -- Intel and IBM -- with Intel playing the jester.

Look at the top end of the PC market, where profit margins are thickest, and you'll notice that there are lots of servers and workstations running multiple Intel processors and hardly any running multiple AMD processors. Why is that? Why, just this week, did Dell first suggest that it might start making PCs with AMD processors then reaffirm its commitment to Intel? In order to protect its most valuable market, Intel has been essentially paying OEMs not to use AMD chips. This is done through the allocation of Market Development Funds (MDF) -- essentially a kickback to the OEM. MDF pays for marketing and pays for retail shelf space. Threatening to withhold MDF is what keeps retailers from deviating from suggested pricing. In this case, a big chunk of MDF from Intel came with the strong hint that 8-way Opterons are not a good idea, so we simply haven't seen them. And this week's feint from Dell toward AMD I'm sure resulted in a further Intel cashectomy.

In the case of IBM, I'm told, that bounty for not building multi-Opteron systems has been funneled into Cell Processor workstation and server development.

Here is where I guess I'm updating some of the information from last week's Cell Processor column. I mentioned in passing IBM's Cell workstation only to hear this week from some people who have seen prototypes. Those (9 nanometer) prototypes were running both SUSE Linux and IBM's own AIX and represent IBM's post-Lenovo micro strategy.

First the performance numbers, which I am told are comparable to systems running a pair of Xeon processors, which would cost roughly $3,000 from Dell. IBM's price point, however, is $1,000.

The IBM hardware strategy is to sell a box that contains no Microsoft code at all, and so requires no license payments to Microsoft and possibly no license payments to ANY company, including Intel.

If you are a CIO facing the forced upgrading of half or more of your PC-installed base immediately and probably the other half a year later, the opportunity to move away from Microsoft and toward IBM while saving money at the same time has to be compelling. If you are a home user in the same position, you'll feel the same way.

This won't put Microsoft out of business by any means, but it does take some of the profit out of the forced-march upgrade cycle. It certainly will hurt Intel. And it will be yet another sign of the fragility of Microsoft's monopoly that Bill Gates worries about so much.

But in this case, Bill has only himself to blame.

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