by Dana Blankenhorn
Volume V, No. XLV
For the Week of November 12, 2001

This Week's Clue: The Second Consent Decree

This Week's Clue: The Second Consent Decree

SSP (Shameless Self Promotion)

SP (Shameless Promotion)

The Wall of Worry

What Could Google Charge For?

Software Abuse

Clued-in, Clueless

Bill Gates isn't Henry Ford. He's Tom Watson Jr.. Watson Jr. retired from the top of IBM and then saw his monopolistic control over computing vanish before his eyes. 

Gates won't be so lucky. 

Gates stole the mantle of monopoly from IBM in the 1980s, after IBM lost sense of where control lay. IBM's basis of control was the proprietary nature of its operating system, which gave it a virtual monopoly position the U.S. Justice Department fought for 30 years. This resulted in two consent decrees, in 1956 and 1981. IBM eventually won its case in court, but the struggle helped it lose its focus on the centrality of operating system control, which it yielded to Gates' intensity and focus. 

The control was a poisoned chalice. It didn't take the government long to refocus its attention on the new controlling agent, much to Gates' annoyance. The result, as with IBM before, was a 1995 consent decree, and then this 2001 consent decree.  

As with IBM, it's in the form of a "conduct remedy." A three-person panel will control access to Windows code, with one member appointed by the company, a second by the government, and a third by the two parties jointly. This is supposed to assure that Microsoft will play nice. It will actually offer huge benefits to companies like Gateway and Dell, who can now force Microsoft to pay them for access to their desktops, and sell "control" over ISP service and key applications to the highest bidder (although that will usually be Microsoft). 

The ink was barely dry on the 1956 IBM agreement before competitors charged it was cheating. Over the course of the following decades billions were spent, and thousands of lawyers grew wealthy, serving the case. Some got rich fighting against it, while others got rich fighting for it. Some fought it on grounds of principle, others on practical grounds, while still others defended it in the same ways. 

The same thing is happening now with Microsoft. Its friends are making ideological arguments on its behalf , hoping thereby to win its largesse, or that of its allies. The anti-Microsoft industry is also gearing up, with reports already out about how the company is trying to cover up its security problems or claiming the agreement contains a "killer clause" that lets Microsoft continue extending its monopoly in all directions .

Both sides are right, and both sides are wrong. Anti-trust laws are an attack on pure capitalism, and consumers do pay more money for less service as a result. But monopoly also imposes costs on consumers, as well as the capitalistic system, and whether the monopolist is Standard Oil, AT&T, IBM or Microsoft those costs are real. 

Even while it was under its first consent decree Microsoft expanded its monopoly. Microsoft won the browser wars while this case was going on, and for proof we need look no further than its attempt to ban others' browsers from its Web sites

Do you want more proof? Could any company come up with something as stupid as Windows for Pens, which Microsoft introduced 10 years ago, yet survive through failure-after-failure (Windows CE) for a decade, until it could overwhelm the industry with its Pocket PC? Why should anyone invest in a new, major software technology knowing that, eventually, their position will be worn away and they'll be broken by Microsoft's use of its monopoly and monopoly profits?

But history moves in fast forward. The IBM saga took three decades to play out. I predict Microsoft's saga will take one-third of that time. The end, in other words, is in sight. 

The reason for this lies in the nature of software development and of the Internet. When the Web was young, in the mid-1990s, U.S. traffic ran through four major Network Access Points, or NAPs. But the NAPs couldn't handle the load, so increasingly ISPs created their own Private NAPs (P-NAPs). This de-centralized the Internet's structure, created redundancies, and allowed the system to grow organically.

The center simply cannot hold. The Von Neumann architecture of the 1950s was replaced by parallel processing in the 1990s, because parallelism can scale. As with the Von Neumann system the NAP structure couldn't scale, which makes the CIA's reported plans to centralize the U.S. Internet through a single set of servers simply laughable. 

The same thing is true for software development. Microsoft's system cannot scale the way Linux can. Amazon has figured this out . The only thing holding Linux back today is the lack of a business model. The folks in the peer-to-peer area are on the case . IBM is also on the case. 

The problem of creating a viable business model exists in Linux and in peer-to-peer, but this is just a business problem, and it's not an insurmountable one. Once it's solved, you have money coursing through a system that is more scalable than anything a single company (no matter how big) can support. As with the Internet, there's no single point of failure, and users can re-route against any business or person who goes toes-up or who abuses their position.

This is what will end the Microsoft era. It won't be a single company that defeats the monopolist, but the changing nature of the medium. The Internet, parallel processing, peer-to-peer and Linux are like water . In time they can even wear away Bill Gates. 

SSP (Shameless Self-Promotion)

The October update of my book, "Living on the Internet," is now available, free, to all members of this list. If you can help me get the actual book onto a shelf that sells PDF or LIT files (or even paper ones) I'll be eternally grateful.

Also, if you haven't gotten a-clue.com in your e-mail box lately, it could be that your e-mail server "bounced" it. We're pretty aggressive on pruning the list, and drop all addresses that bounce six times. So if you're seeing this online and miss it in your e-mail box, just hit the "subscribe" button on the home page.

You can join the A-Clue.Com discussion at I-Strategy , our shared e-mail digest produced with Adventive.Com. You can also read me at ClickZ , B2B, and Boardwatch. I'm also on the mast-head at Bottom Line Personal , a great print newsletter. Remember that it's journalism that keeps the Clues coming...

Shameless Promotion

You have a little list, but how do you make the most of it? You turn it into a database, you query the database, you audit the results and you deliver market research to yourself and to others.

Permission is just the first step. An audit is the second step. Building interactive relationships with every name in your database is the greatest business asset you can have.

You can take the first step toward making your little list truly valuable with help from my friends at Whitehat Interactive - click here to begin that journey.

Takes on the News

The Wall of Worry

Markets don't rise when everyone believes in them. They only rise against a "wall of worry," predictions of doom that exert selling pressure and let others get in at what they consider a reasonable price.

The best kind of worry, at a market bottom, is a prediction that the world is coming to an end. If it is, of course, nothing will save you. If it isn't, this is a great buying opportunity.

Gerald Celente, director of the Trends Research Institute  in Rhinebeck, NY, is today's Pollyanna.. He sees overproduction, over-capacity, open markets, and an online world that can force the lowest price on all markets creating deflation. There are too many sellers, not enough buyers, so prices of all commodities (including manufactured goods) plummet while everyone winds up unemployed, unable to afford them.

This is precisely what happened in the Great Depression, Celente says. The latest Bush tax cut, tilted again toward investors (instead of shoppers), could be the Smoot-Hawley tariff of our age, the final straw that breaks the camel's back and sends the world economy plummeting into the abyss, where await fascism, communism, and war.

Yeah, well, maybe. But the Great Depression of the 1930s happened against a backdrop of peace. Even warriors had trouble finding work until the dictators employed their people and forced us to employ ours turning plowshares into swords. Today we have a war, a big war, a World War, so there is going to be a great deal of demand for the tools and technologies of war for the foreseeable future.

Celente also fails to take into account Moore's Law. This accelerates the pace of all technological change, including medical, environmental and scientific change. While radios, movies, and punch card machines (the advances of the 1920s) did boost productivity in the short run, these were one-shot improvements. Moore's Law (and Nielsen's Corollary, which applies Moore's Law to bandwidth) mean tomorrow's goods won't just be cheaper, but will have much higher value, than what they replace.

This is not an ideology, any more than evolution is an ideology. It's fact proven by observation. It's not hope, it's reality. The world is not coming to an end. This makes Celente's prediction a wonderful buying opportunity on a par with Paul Erdman's "The Panic of '89" and Paul Ehlrich's "The Population Bomb."

What Could Google Charge For?

Google is facing a crossroads. Having won its battle for the search market, and having done all it can with ethical advertising (holding costs down and, we presume, earning a modest profit), it must now find new revenue streams in order to keep growing .

They didn't ask me, but here are a few they may (or may not) have thought of:

Google is one of the best companies to emerge from the rubble of the dot-bomb. It has become an essential piece of the Web's infrastructure. Anything I can do to help it is worthwhile. So feel free to put your own two cents in.

Software Abuse

There is a non-too-subtle difference between the aim of permission marketing and the abuse of customers. Companies do (and perhaps should) push the envelope in seeking a greater "share of the customer" but when competitors are excluded (or nearly so) by your tactics you risk the whole game.

A lot of the Microsoft case revolved around how the company abuses users in this way, forcing them into using only its products and services to the exclusion of others. This is especially true regarding its Passport, MSN ISP, and Windows Media Player systems.

But the fact is they're not alone in this. RealMedia does this, and most shareware nags you constantly to pay before-and-after you install it. AOL certainly does it even after you go online , constantly pushing unrelated media properties (either its own or those entertainers it charges for the privilege) and now Yahoo is doing it as well . The original model for this, of course, is The Walt Disney Co., whose them parks charge $100/day so you can live inside commercials for its movie and TV properties.

The developing problem here isn't monopoly, but oligopoly. Only a few companies can afford to write and massively-distribute these kinds of unfair advantages. The only thing the Microsoft anti-trust settlement has really done has been to let a few other companies play the same game. Users and smaller businesses are being endlessly abused by software that is difficult to replace, let alone uninstall. The tactics of the major players are becoming increasingly obnoxious, and the real risk is that people are becoming increasingly reluctant to upgrade anything for fear they'll be forced to ditch tools they like by an abusive install procedure.

Clued-in, Clueless

Clued-in is Federal Express. It launched a program to renew its e-mail list, asking permission for people to double-check their listings, then gave away a small "helper" application to everyone who responded.

Clueless was Key3Media, the owner of Comdex, which panicked in the wake of September 11, "improving security" with useless procedures that only scared people who were scared enough. The show was going to be bad - this last-minute move killed it.

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