Podcast: Play in new window | Download

Microsoft co-founder Paul Allen filed suit this week against a litany of Internet companies claiming they had violated patents awarded years ago to Allen’s now-defunct Interval Research. Many writers, including one passing himself off as me, claimed this made Allen a so-called “patent troll. ”

I don’t think that is the case.

Patent trolls are individuals or companies that habitually sue others over obscure patents. While the Interval patents generally are obscure, that doesn’t make them invalid. And the fact that Allen and then-partner Dave Liddle paid $100 million for the basic research behind those patents, well that hardly sounds like troll behavior.

If Paul Allen actually were a patent troll. he would have sued in South Texas, where all the whopping patent judgements are handed-down, not in Seattle.

Suing in Seattle is bad trollmanship.

What we have here is a guy who may be the 37th richest person in the world, but he used to be the second-richest. He’s pledged to give away his fortune and maybe wants more to give. In short, I don’t see a problem with these legal actions.

That doesn’t mean, however, that Allen will prevail. The odds are against him. While Interval developed upwards of 300 patents, that isn’t like the thousands of patents now controlled by Nathan Myrhvold’s company, Intellectual Ventures. Myrvold has acquired baskets of patents creating a strategic mass of IP and an associated legal team he can use to bludgeon almost any company into cross-licensing. Allen has no such depth (or power).

He’s just trying to turn lemons from lemonade.

Podcast: Play in new window | Download

Near the eve of Apple’s tablet announcement, I’d like to turn my 2010 predictive eye again to the mobile space where, as my title suggests, there are only three software players that matter — Apple, Google, and RIM (Blackberry).

But wait a minute, isn’t Nokia the big Kahuna in this space and aren’t they right now suing the heck out of Apple? Yes, but that’s an act of desperation, a stalling tactic intended just to slow Apple down or, possibly, send some useful license revenue from Cupertino to Finland. It doesn’t change the inevitable.

So-called “feature phones” are going away, to be replaced within two product cycles (three years, tops) entirely by smart phones driven by mobile app stores and the need for carriers to generate additional revenue. It’s not like you’ll even be able to find a feature phone to buy.

The smart phone marketplace will consolidate around three operating systems — Android, Blackberry, and OS X. Though there will be some ups and down in the market and the complete transition will take longer to complete than my usual 12-month timeline, Symbian, Windows Phone, and every other smart phone OS that isn’t from Apple, Google, or RIM, are likely to die or be reduced to insignificance.

None of these platforms expect to die, but that’s the way it is with these things. You don’t expect to lose until you’ve lost, generally.

On some level Nokia even thinks it still has a chance to win the war, but it doesn’t.

Nokia has faith in its very popular cross-platform application development environment, Qt, which it acquired in 2008 with the $153 million acquisition of Norwegian company Trolltech, father of Qt. Nokia sees Qt as its secret sauce — a potent weapon against Apple.

Qt, like any of a number of 4GLs can write once and deploy a lot of places. Where Qt is different from the other 4GLs (in the mind of Nokia at least) is that it manages to do what it does without killing app performance, probably because Qt began as a mobile product and mobile apps have to be lean and fast.

So Qt is growing up at just the time applications and OSes are growing down, thanks to OS X and the iPhone. Qt has made notable progress supporting 3D apps and a huge variety of processors, chipsets, and GPUs. They showed at CES the same apps running from the same source on a ton of different hardware platforms from handsets to desktops to set top boxes. And now Nokia has reportedly done the unthinkable, which is to rewrite Maemo, its Linux, in Qt.

Meanwhile, Apple has been rolling forward with its PA Semi strategy, the first fruit of which we’ll apparently see announced next week. I sense that Apple is headed toward a family of devices from handhelds to servers all linked to a cloud and ostensibly running the same OS. Apple is mining the ARM ecosystem for this move in addition to its own PA Semi extensions.

Nokia thinks that, through either Qt or various legal moves (or both), it can slow Apple’s mobile juggernaut. They won’t, and here’s why.

Apple hires the meanest lawyers it can find, paying extra bucks for that “kick them for good measure” attitude. I know a company that had long legal battles with both Microsoft and Apple and they said Apple’s legal team was far worse than Microsoft’s, hands down. So while Nokia’s appeal to the World Trade Organization (WTO) to punish Apple, is an act of desperation, Apple’s similar response is just the way they do these things.

This legal situation is going to get uglier and uglier but in the end it will be settled with patent cross-licensing, no monetary damages or license fees, and Nokia feeling relieved to get out of the negotiating room alive.

This will happen, I believe, because Apple doesn’t really give a damn about Qt or Nokia. They care much more about Google and Microsoft.

Nokia is going to fail in using Qt and Symbian to compete with Android or iPhone application frameworks because Nokia just doesn’t understand software. Nokia is a hardware company that does software and hardware companies aren’t fighting this new war, they just build the weapons.

Remember Apple is a software company that sells its products in an expensive hardware box.

Ultimately (more than 12 months from now) there will be a shakeout and Nokia will drop Symbian and even Maemo in favor of Google’s Android and Nokia custom apps, UI, and hardware.

Meanwhile Microsoft will cut its rumored (and incredibly expensive) iPhone search deal with Apple, then it will introduce Windows Phone 7, which will fail to gain market traction for Redmond. Microsoft will ultimately align with Apple to avoid the embarrassment of working with Google, but this alignment will be solely for mobile.

That is unless Microsoft buys RIM and then doesn’t screw it up.

Podcast: Play in new window | Download

This should be my 2010 predictions column and it is, sort of, but if you’ve noticed I’m writing shorter columns these days but posting more frequently. There’s no way I can do a comprehensive predictions column in less than 3000 words. So what I propose to do instead is to write several prediction columns today, tomorrow, and maybe even the next day, covering in some depth what I think is happening and where we are going in the coming year as a technological culture. This first 2010 prediction column deals with Microsoft.

In the simplest terms what we’ll see from Microsoft in 2010 is more of the same. The company will continue to push its strengths, which are Office, with a new release, Windows 7, with an upcoming service pack and tablet support, the Bing “decision engine,” xBox, which has become a clear winner, Sync, the automobile technology that should expand beyond Ford, and a number of other products and technologies that are less visible but just as important to Microsoft. All these developments follow a theme that I think has been generally missed in the press and that is the continued maturing of Microsoft into its ideal — IBM.

IBM doesn’t even make PCs, remember? They sold that business to Lenovo for not very much money because it hadn’t made any profit for Big Blue in many  years. Yet IBM continues to thrive by offering a broad menu of products and services for its core customers. Microsoft does, too.

At this point I wouldn’t say Microsoft has many serious business vulnerabilities. Their efforts to diversify their business seem to be going in the right direction.

For every corporate desktop, Microsoft gets:

$50 for Windows, give or take

$200 per PC for Office per year

$2200 per Windows server

$30 per user Client Access License (CAL) to access the Windows server

$3700 per Exchange server

$65 per user CAL to access their Exchange server.

For any company with lots of employees, these numbers — which don’t even include any client or workstation apps other than Office –  quickly add up to a lot of money.

For a company with 10,000 employees, setting them up to use Microsoft technology will cost you $3,360,000. Over half of that will be for Office and you’ll pay that Office tax every year.

These are enterprise sales — a market that Apple, for the most part, doesn’t even address. So in the popular scheme of Apple nuking Microsoft, no Apple nukes yet exist in this space so they can hardly be a threat… yet.

Yes, there is strong motivation for corporations to cut costs and if good alternatives to Microsoft products existed, they’d jump all over them. The problem is there are few good alternatives and no comprehensive ones. The quality of Microsoft software is now pretty good. It works for the most part. Microsoft is supporting its products pretty well, too. For corporations to switch there needs to be a cost savings, a quality alternative, and low risk.

Open Office is getting progressively better, but it is not there yet. Red Hat and its Linux competitors do not offer a comprehensive alternative for enterprises. Understand, however, that Linux already dominates industrial-strength Internet applications and is likely to continue to do so.  In that space Microsoft is the little guy and unlikely to get bigger.

Apple has too many holes in their product line to adequately replace Microsoft at this time, nor do they appear to be making any serious attempts to address the enterprise market.

Microsoft CEO Steve Ballmer knows his first obligation is to these enterprise customers. That doesn’t mean, however, that Microsoft lacks ambition in the client and consumer spaces. Look at Bing for example. It is nice to see some creativity and innovation coming from Redmond. Even if you never use Bing, it will still help you, giving Google an incentive to try even harder.

Where Microsoft appears most vulnerable is in the mobile space as I wrote a few days ago. Windows 7 Phone (Windows Phone 7?) may not be enough.  A Microsoft purchase of Palm would be interesting, especially if they let WebOS live and grow. Or they could buy Palm to kill it, too. We know all about that Microsoft technique. A more aggressive move would be Microsoft buying Research In Motion (RIM). I see this as unlikely but not impossible and I’d frankly love to see it happen, not just to shake up the smart phone market, but also to throw some Waterloo DNA into Redmond.

As far as standalone and client applications are concerned, it is a whole new ballgame thanks to Apple’s App Store archetype. If the new platforms will be smart phones and netbooks, then they will need new applications. It will be hard to use the old applications on these new platforms. The iPhone gives us a good view of the future of applications, what works and what doesn’t.

Another area where Microsoft has been quiet of late is communication services. This begs an interesting question — when do the telcos become irrelevant? As Google and Microsoft (and Yahoo?) bulk up their ability to support smart devices, what value add does an AT&T or Verizon really offer? What if Microsoft (or Google) bought, say, Sprint and converted their network to purely data? They could use VoIP with QoS for all voice calls. They could hook their giant information and application infrastructure directly to the data network. It could change the game.

In one sense such a bold move is more likely from Google or even Apple than Microsoft except for one thing — its likely negative effect on earnings and stock price. Neither Google nor Apple can afford the hit of absorbing Sprint’s lousy profit margins. But Microsoft, whose stock has trailed the market for much of a decade, probably wouldn’t be hurt as much by such an acquisition. Heck, it might even be viewed as a bold move despite the earnings hit and drive Microsoft shares up.

These latter ideas require scale and financial muscle and I think that fairly characterizes where Microsoft is headed. Bill Gates is gone and Redmond is settling into a comfortable middle age. While this may not be good it was probably inevitable as Steve Ballmer rebuilds the company in his own image. What’s sad is it probably means an end to changing Microsoft strategy over a weekend and sending the company into a tizzy as Gates liked to do. Recent layoffs at Microsoft, for example, have much more to do with remaking the internals of the company in a new, more pinstriped model, than with cost savings.

Mature companies don’t have tizzies and Microsoft is becoming just that — a mature company — but they’ll remain a significant player for another decade at least.

Next Topic — Homeland Security.

Now that Microsoft has lost its appeal (ain’t that the truth) and has to pay $290 million to Canadian company i4i and take the docx file format out of Word 2007, is it just me or doesn’t that sound like an improvement to the product?

The whole point of docx didn’t seem to be to help users, but rather to make life difficult for both Microsoft competitors and for users who decided not to upgrade from the previous Word versions that used only the .doc format.

Microsoft deserves to lose this one.

Podcast: Play in new window | Download

Last week Google made a preemptive strike against Microsoft, revealing details of its Chrome OS months before that product reaches its near-infinite beta release.  The idea is simple: who needs a big OS if you are doing everything in a browser?  It’s a huge threat to Microsoft and Apple.  But then it struck me I’ve heard this all before, so I went back and found this video clip from my show Triumph of the Nerds, circa 1996, where Larry Ellison predicts the future, not knowing he was actually describing 2010.

The biggest news was simply that Google was finally taking Microsoft head-on. The rest of the news, at least to me, was that Microsoft should be worried, very worried.

While we’re talking about operating systems here, Google’s real target is Microsoft Office.  Redmond makes money from Windows but makes a lot more money from Office, its productivity app monopoly.  Google already has its Google Apps pitted against Office, but Brin and Page know they won’t crack Office’s hold on corporate America without addressing the Windows flaws that effectively underlie both Office and Google Apps in their current incarnations.  That’s where the Chrome OS comes in.

The Chrome OS strategy comes down to services, servers, security, and an iTunes-like app store (this latter part having been missed by nearly all the pundits).

An operating system with a user interface done through a browser is a completely practical idea and a vastly superior way to code User Interfaces than the Windows API.  It wasn’t always so, but now we have Java and Java extensions in the browser, so the UI capabilities are much better.

Remember Google makes its money differently than Microsoft, taking a few pennies here and there.  It is doubtful that either the Chrome browser or Chrome OS will ever cost users anything, but Google will make plenty from providing services and servers that run using these interfaces, with the real gold mine being that app store.

Under the Chrome OS, security is drum-tight so users can’t install unapproved software that might break the OS.  The client is small, light, secure, and easy to support. The back end can be in Google’s cloud or in one of those Google shipping container data centers dropped into the parking lot at a Fortune 500 company.  Either way Google makes money at the expense of Microsoft/IBM/Sun/Oracle.  Larry sure didn’t anticipate that part.

Google will make tons of money from its app store.  Remember that unapproved applications won’t be able to run on the Chrome OS and the best (maybe only) way to find approved apps will be through a Google store as pioneered by Apple with iTunes.  This wasn’t lost on Eric Schmidt during his days on the Apple board.  Through such an app store, Google will get a percentage of all third-party software sales — something Microsoft has never been able to do with third-party Windows apps.  The potential revenue from the app store alone is billions per year.

We know that under the Chrome OS Google Apps will be very secure.  Any tampering will trigger the download of a new and pure OS image.  But will the Chrome OS have enough performance to compete with Microsoft Office?  I think it eventually will, based, for example, on extensions like Google’s recently announced O3D API, which will allow Google Apps and approved third-party apps to grab spare GPU cycles to improve performance.

What’s left to be seen here is whether these improvements will be enough to beat Office or if Google will have to make a standalone (local PC-based) version of these apps.  Only time will tell.

The most interesting part for me will be Microsoft’s response.  This strikes at the very heart of Redmond’s business success and Microsoft will not take it lying down.  Expect thermonuclear warfare.

A couple times per year the New York Times calls me up asking for an Op-Ed column on some technology topic.  I don’t know how they found me but I’ve been writing these pieces since 1995.  I think they call because I’m good at meeting tight deadlines.  Lord knows that if there was a piece I actually wanted to get in the Times (my idea, not theirs) I have no confidence that I could get them to run it.  Op-Ed at the Times — at least to me — is a sort of black box.

Here’s the column they asked for on Google’s Chrome OS: http://www.nytimes.com/2009/07/13/opinion/13cringely.html

The opinions expressed, as always, are ruthlessly my own.

Podcast: Play in new window | Download

Intel last week bought for $884 million Wind River Systems, a venerable embedded operating system company — yet another of the chip giant’s recent forays into software. The reason for this purchase is both simple and grand — to help Intel vertically integrate and to further its Linux ambitions.  Intel’s ultimate target with this purchase is Microsoft.  It’s all about kicking Redmond out of the netbook business.

Netbooks are the big hardware success of 2009 and most are powered by Intel Atom processors.  The problem with PC’s in general and netbooks in particular is that they aren’t very profitable for Intel campared to the good old days.  Microsoft makes more profit from every Windows PC sold than does the PC manufacturer and LOTS more profit than Intel makes despite its massively dominant market share in microprocessors.  And with Netbooks retailing under $400, compared to Microsoft Intel makes hardly any profit at all.  So Microsoft has to die.

This is a huge change for Intel, which has for decades acted as Microsoft’s bitch, doing pretty much whatever Redmond demanded for fear of being written-out of the next Windows PC hardware spec in favor of AMD or even IBM.  But that was the old Microsoft.  The Microsoft of today isn’t nearly as powerful, whether they yet know it or not.

Netbooks and mobile handsets are the first products from Intel’s Linux strategy.  But Intel’s Linux platform — called Moblin — can be extended to the desktop as a direct competitor to Windows 7 if the company finds success in the netbook space.  Microsoft isn’t stupid, so of course there is a huge battle brewing.

Here’s the problem for Intel: the company lacks key software capabilities despite having more than 5000 software engineers on staff. This is true especially for system software.

Intel’s new strategy (now 3-4 years old) is to be a platform company rather than a processor company. To become a platform company, Intel needs both silicon and low level software to tie all those pieces together.

Think about Intel’s Centrino as a platform. Centrino has: 1) a low-power processor; 2) a wireless chip, and; 3) software to manage wifi/wireline connections. Intel makes more money selling these three parts together as the Centrino brand and less when they sell the individual pieces. So software to Intel is glue to connect chips together and maximize revenue.

New chips at Intel require more system software (firmware) than Intel ever anticipated. For example: Intel’s Active Management Technology (AMT) requires firmware to wake up chips and apply patches when the computer is sleeping. This is true for both virtualization and security. In recent months Intel has stumbled delivering some key platform technologies simply because the firmware wasn’t ready.

Now Intel is searching for the next wave of applications for non-PC (typically embedded) computing devices — autos, healthcare, gaming to name a few. All these non-PC based applications will require even more system software capabilities.

Intel’s efforts with the Atom processor are beginning to pay off. They have the right process technology to produce Atoms at a low price. But the market is not paying much for Atom and Intel is at risk of cannibalizing its traditional markets with OEMs designing Atom-based netbooks that consumers buy instead of more profitable notebooks. In this environment Microsoft is not helping, since Windows makes netbooks more expensive and limits the profitability of both the PC maker and Intel, which is essentially making a netbook-on-chip.

Moblin is Intel’s answer to Windows – an Open Source Linux entirely funded by Intel.

Moblin is also Intel’s answer to Google’s Android operating system.  Since Android is also Open Source and free, Intel might have relied solely on Google to take on Microsoft.  But Intel as a platform company is too strategic to rely on any third party, even Google — hence Moblin.

The Wind River acquisition is Intel’s $884 million acknowledgement both that Moblin is strategic for the company AND that the Linux campaign isn’t going as well as Intel would like.  Wind River, as a major force in embedded software, will quickly move Moblin into a variety of non-PC devices while also giving Intel more of the low-level software expertise that it has so sorely needed.  If it works, we’ll see Moblin everywhere in 18-24 months.  If it works really well, we’ll see Intel challenging Microsoft on servers and desktops, too.

Intel CEO Paul Otellini is determined not to be anybody’s bitch.

Podcast: Play in new window | Download

My last column generated a lively debate on the prospects for various business and technical options for the delivery of Internet TV so it makes sense to continue this topic and build it into a more full-featured model.  I used to write quite a bit about this back when I was trying to get NerdTV going.  The core of what I’ll write here can be found in a couple dozen columns from back then — columns that would seem to have been for the most part forgotten given the direction last week’s discussion took.  You see the future of television IS Internet television.  There is no other in sight.

No business or technology exists in a vacuum.  They all have customers, users, competitors, and make use of resources in an environment that is not one of total abundance.  This means that if there is going to be something like television in the future it is going to adapt to the distribution model that offers the highest price/performance, which is to say the highest performance for the lowest cost.  That is not how one would traditionally describe the Internet, but then times are changing.

Whatever country you live in there are generally four models for live entertainment video distribution — broadcast, cable, satellite, and Internet.

Broadcast is a limited local resource and therefore more highly regulated than the others but it has traditionally featured the lowest cost per marginal user.  That means it costs a lot to build and maintain a TV station but additional viewers within the service area can be added pretty much for free.

Cable offers more channel capacity than does broadcast but requires building a distribution network that’s fairly expensive.  While one could imagine a cable TV “station,” the way the industry has grown is through cable operators becoming content aggregators offering many services over their expensive networks.  That’s the most efficient way for cable companies to serve the broadest audience and the only way that enables them to sell extra-cost services like pay-per-view, premium movie channels or, indeed, Internet service.  Remember, though, that cable operators pay for nearly all of the content they carry, which is different from broadcast, where a lot of content is free to the broadcaster and some content even comes with money attached.

Satellite operators pay for their content, too.  Satellite initially used wireless technology to offer cable content in rural areas where it was too expensive to build a wired network.  Having gained economies of scale in the rural markets cable couldn’t compete for, satellite has come to town competing generally on price.  But satellite offers no practical Internet service.  I know there are some and I tried one years ago (Starband) but they don’t work well.

Internet TV is different from all these others.  It began as a parasite on telephone and cable networks so the cost of building the network generally wasn’t there, having already been covered for the most part by those earlier services.  Internet TV is less of a network than a conduit; at present the Internet Service Providers don’t pay for video content but then neither do they get paid for it.  Yet this common carrier attribute also makes Internet service often more profitable for telcos and cable companies than the core services those companies were established to provide.  Whatever you pay for Internet service, it is mainly profit for your ISP.

The important lesson to learn when it comes to these competitive services is that the first three — broadcast, cable, and satellite — are all going up in cost to their providers while the cost of providing Internet service is going down.  In the USA, broadcast viewership is dropping, which means the cost per viewer is rising.  Same for cable where viewers are stagnant, viewership is declining (number of hours of viewing) and the cost of content is rising.  Satellite has been growing marginally but that could end at any moment and it shares the same content cost increases as cable.  Meanwhile Internet service just gets faster and cheaper thanks to a Moore’s Law double whammy.

Remember Moore’s Law works in two ways.  It makes digital products ever cheaper AND ever more powerful.  This has profound meaning for Internet TV because it continually increases the bandwidth we can get for the same dollar while giving our devices the capability to do even more with the same bandwidth.

Here’s an example.  My primary Internet connection is an 8 megabit-per-second business cable line with a service level agreement and static IP addresses.  I pay more than you do but then I get more, too, though even my service is crap compared to what you can get in Japan, Korea, and much of Europe.  My primary computer WAS a Mac Pro G5/1.6 circa 2004.  I should have replaced the G5 a couple years ago, I know, but my kids are in private schools and I keep buying airplane parts. I finally replaced the G5 last week, though, with a dual-core Mac Mini 2.0.  Both the old and new computers had four gigs of RAM.  Though my Internet connection can easily carry one or more 1080p H.264 video streams, there is no way that old G5 (which cost me $1999 in 2004 dollars) could play it.  It didn’t do much better with 720p for that matter.  But the $750 Mini (small drive but lots of RAM) can easily decode 1080p.

This is the trend, then: our available bandwidth will go up while our devices will become more powerful, making better use of the bandwidth.  The result, as always with Moore’s Law, is either better services or lower total cost or maybe a little of both.

What this means for the future of television is that we’re approaching a point where Internet service will equal and then be lower than the marginal per-viewer cost of the broadcast TV model.  This crossover will inevitably happen with the only question being when. That’s a function of bandwidth costs decreasing at 50 percent per year and processing power increasing at 50 percent per year.  My calculations suggest the crossover will happen around 2015, which used to seem like a long time away but no longer does.

When Internet TV becomes dramatically, unequivocally, and inexorably cheaper than the other three distribution models, those other models will quickly go away.  That’s why I argued in PBS meetings to forget about spending $1.8 billion to upgrade local stations for digital TV and instead sell or lease that spectrum for commercial data use and throw the resulting $3 billion (lease revenue plus the $1.8 billion savings) into rebuilding the network solely as an Internet service.

Nobody listened.

So there is a cliff rapidly approaching for television.  Five years from now local TV stations will have the same complaints that local newspapers have today as many of them go out of business.  Cable TV operators will become ISPs, period.  Phone companies will be ISPs, too, and analog voice service will be gone completely.  The regulatory implications of these changes should be interesting.

Who, then, will be the players in this future TV?  For the most part they will be the content providers, which probably doesn’t mean traditional networks.  And the networks know this, by the way. Hulu.com isn’t called NBCFoxABC.com and TV.com isn’t called cbs.com for a reason. Networks will go away.

But content will endure, bringing new value to I Love Lucy episodes and almost anything else people like to watch.

The TV networks are throwing their lot together.  CBS chairman Sumner Redstone will come to his senses one day and merge tv.com into Hulu, I am sure.  Their big competitors will be Google, Apple, and a player yet to be even founded (definitely NOT Yahoo OR Microsoft).

Google will differentiate itself as always through technology.  Those shipping container data centers I first wrote about in 2005 exist not just because they are easy to stack inside big Google plants.  Why botehr with weatherproof containers if they are to be used exclusive indoors? Because they are even easier to put in the parking lot at the telephone company central office or at the cable company head-end, both of which will by then be strictly ISPs.  Google will proxy content at every major ISP in America.  And they’ll do this because Google has no idea what people want to watch on TV, nor do they particularly care.

Apple, on the other hand, cares.  Following the content development scheme I laid out last time Apple will attempt to become the dominant content provider to the 20 percent of the market that spends 80 percent of the money, with margins high enough to use Google distribution and still come out ahead, leaving to Page and Brin the 80 percent of content that generates 20 percent of revenue.

But wait, isn’t Apple just a maker of hardware?  Don’t they do iTunes just to sell iPods?

No.

Apple is a software company that has traditionally packaged its software in attractive hardware boxes.  The fact that any new Mac is essentially a Windows computer proves that.  But price points have been eroding in every hardware category and will continue to do so.  Microsoft right now makes more profit from every Windows PC than does the maker of that PC.  Apple is not immune to this trend.  So the company needs to find ways to sell more and more software.

Content is software.  TV is software.  And the great thing about entertainment is that it is software we can be induced under some circumstances to buy over and over again like those teenage girls who paid to see Titanic dozens of times.

What does that leave, then, for that player to be named later?  I’ll get to that next time.

Podcast: Play in new window | Download

What happened to Neokast?  It’s a mystery to me.  But I suspect the answer will surprise us all soon enough.

Neokast, as readers of my old PBS column will recall, was a peer-to-peer live video streaming application developed by graduate students from Northwestern University near Chicago.  That’s me talking about it there on the left, back in 2007.

I loved the company instantly. It was out of the Silicon Valley limelight, away from the technical mainstream for such software (Neokast was a .NET application and therefore pretty much Windows-only), but most important of all, it seemed to actually work.  The potential was extremely compelling.  Here’s how I described it back then:

“…the more people who watch your Neokast the more efficiently will your server bandwidth be utilized. According to Birrer, under normal circumstances the server bandwidth should plateau at 3-4 times that of a single stream NO MATTER HOW MANY VIEWERS ARE BEING SERVED. With a per-stream bandwidth of 700 kilobits per second, this means that Neokast would never require more than a continuous three megabits per second of server bandwidth per video channel. Let’s put that in a real-world context. Three megabits per second is almost precisely 1000 gigabytes per month, which is half the allotted monthly throughput for a $6.99-per-month web site at 1&1. So if Neokast’s claim is valid, it would be possible to broadcast American Idol or the Super Bowl or friggin’ CNN worldwide for $7 per month.”

I called it “The $7 Television Network.”

Response to that column was electric, as was the reaction to Neokast, itself, when the beta software was shown shortly thereafter at a trade show in California.

Neokast was on a roll.  Now all they had to do was deliver.

But apparently they didn’t because now Neokast is gone.  Their web site is dark.  The entire technical team, as far as I can tell, left last September to start a new company in an new product space – content management.  The company’s sole patent application even lost its legal representation in January when a Chicago-based law firm withdrew.  Only NeoKast CEO Adam Johnson remains with the company and that’s only according to his Facebook page, where he appears with a remarkable variety of very attractive young women.

It’s a familiar story, right?  The idea was good but the code wasn’t.  OR the code was good but they ran out of money.  OR the code was good and they had enough money but the founders had a falling-out.  OR any other mundane reason that you might care to come up with.  Neokast is gone, so what?

I’ll tell you so what.  My 32 years in this industry tell me that none of those possibilities is true and that some aspect of Neokast is alive and well, though probably under a different name.

I put these guys on the map.  I wrote about them in a way that gained them a huge amount of attention at a time when they were getting no attention from anyone.  All that means, really, is that their mothers would teach them to be nice to me.  And sure enough, on January 28th, when Adam Johnson and I happened to share a birthday, though almost 30 years apart, we wished each other well within hours on Facebook.

But Adam DIDN’T tell me then that his company was effectively dead.  It took a reader to point that out to me a couple weeks later.  And when I went down that same Facebook path I’d used to wish Adam a happy birthday — this time to ask what happened to Neokast — I got no reply at all.  So I tried again, more forcefully.  Still no reply.

So I tried a couple of the ex-Neokast technical guys at their new startup.  No answer.

No answer?  Don’t these people want to promote their new technology?  They know what I can do for them; don’t they want me to do it again?

No answer.

This doesn’t happen, not to me.

So what’s the deal?  I don’t know.  But I have a theory.

I think Neokast was bought for a lot of stock or money by some well-known company. The way the technical team was handled in this transaction it looks like the acquirer wanted the code, not the coders, which suggests a company with confidence, even arrogance, and technical depth.

The reason I can’t get anyone to respond is simple under this scenario: they have to all be under a particularly onerous non-disclosure agreement that will take back the money if they say anything – ANYTHING – about the deal.  They aren’t prohibited from just discussing it, they are prohibited even from ACKNOWLEDGING it, hence the total silence.

At one point last year I was told that Microsoft had made an offer for Neokast but was rebuffed.  So maybe Microsoft came back again, this time with the BIG checkbook.  I think this is most likely.  But there are other possibilities.  Apple could have acquired Neokast to kill it.  IBM could have acquired it to become a player in the streaming video business.  Or Sun.  Or Cisco. Or some other company, up to even a Comcast, though I don’t see the cable company as being so techie as to rebuff the coders.

If you’ve been paying attention to entertainment news you may have read lately that there is a lot of shuffling for position going on between cable companies, telephone companies, cable and broadcast TV networks, and various startups for dominance of  live or on-demand TV channels over the web.  But all this talk so far seems to be based on using content distribution networks, not peer-to-peer.  Even Joost, the p2p video site from the founders of Skype, has publically given-up on using peer-to-peer distribution, leaving only Grid Networks, as far as I can tell, ostensibly in the live p2p space, if just barely so.

Let’s guess for a moment the acquirer IS Microsoft.  Because there has been no public announcement of such an acquisition the buyer has to be a big company like Redmond, where the size of the deal wouldn’t be considered “material” to their business, so they could avoid being required by the SEC to even issue a press release.  Of course it could just as easily be the other suspects I named.

But there are many reasons to believe the buyer is Microsoft.  They took a run at the company before, remember.  They are perfectly equipped to handle the technical job on their own, provided they keep the number of hands to a minimum.  They could still screw it up.

There’s no indication, by the way, that Microsoft has done this.  Certainly none of my friends who know Microsoft have heard anything.  But that could just mean they changed the name and Neokast is now MicroKast or some such thing.

Now here comes Windows 7 – a perfect place to stash a Neokast p2p client.  On the other hand, Microsoft could put Neokast code in its regular monthly update and get it running on 20 million .NET nodes overnight.  That’s what I would do. What’s funny is if a startup did that there would be an uproar about security, but if Microsoft deploys Neokast overnight it will be seen mainly as a clever move.

Microsoft is desperate to have something new to control and media distribution is their target.  They want to control movies and television the same way they have long controlled software.  But right now Apple and Google are both doing better than Microsoft is in this space.  Ballmer will do anything to beat Apple and Google and the only way to do that – the ONLY way to do that – is by introducing some new game-changing technology like massive, really cheap, delivery of LIVE video.  Bring the TiVO video experience to the World Wide Web without requiring a cable box OR an antenna.  Well Neokast takes a good shot at doing just that.  And bringing the horsepower of 20 million servers to the task would make it even easier. 

Maybe the acquirer isn’t Microsoft.  But I’ll tell you right now that some big company somewhere has snapped-up Neokast, is continuing to develop the software and intends to introduce it soon with a big splash.  I just wish I knew who it was.

Podcast: Play in new window | Download

As promised, here’s part three of my series on fixing Microsoft for the 21^st century.  This assumes we’ve already spun-off the Internet properties to Yahoo as I suggested a few days ago and a Bank of America/Merrill-Lynch analyst quickly copied.  Does that copying qualify me for a Federal bailout?

The big Microsoft news this week, at least from the press it has received, is Redmond’s decision to open a chain of stores.  Nearly all the pundits think this is stupid, while I think it was merely inevitable, given the nature of current Microsoft management, which seems to be more and more from Bentonville, Arkansas, home of Wal-Mart.

See that guy in the picture?  That’s Microsoft Chief Operating Officer Kevin Turner, who spent his entire pre-Microsoft career rising through the ranks at Wal-Mart.  I’ve interviewed the guy and he’s smart and a lot tougher than he looks.

Microsoft has drawn heavily from Bentonville and for good reason: those Wal-Mart folks sure know how to make and manage money.  Wal-Mart and Microsoft make about the same amount of profit each year, though Wal-Mart has over four times the sales of Microsoft.  This makes them more similar than they are different, because each exists in a rarified financial atmosphere where the amounts of money involved dwarf the budgets of most nations.  When these companies hiccough, the world economy sneezes.

So it seems inevitable to me that as Microsoft is operated more and more by executives from a giant retailer, that Microsoft will try doing some giant retailing of its own.  And sure enough they are doing just that through this new plan to open Microsoft stores – a plan that could equally be laid at the feet of Apple as yet another Microsoft tactic copied from Cupertino.

Only Microsoft stores are different from Apple, stories, we’re told, and that’s true: Apple needed distribution while Microsoft HAS distribution, in spades.  In fact Microsoft has so much distribution that this chain of stores could be viewed very negatively by Microsoft resellers but probably won’t be because I doubt that Microsoft will be actually trying to sell much stuff, and what they do sell will be at full retail unlike everyone else.  It’s like buying wine at the winery: you never get a deal, but the samples are free.

So you can try out that cool game computer at Microsoft but actually BUY it at Best Buy, just as you would have before.

Why even do it, then?  Why have these stores? 

Propaganda.

Phil Schiller of Apple made the point back in January when he explained that Apple stores had 400,000 visitors per day or the equivalent of 20 Macworld shows EVERY DAY.  Microsoft wants the same thing.  They want to bypass the press machine that they feel has tainted users against Windows Vista, making sure the same thing doesn’t happen to Windows 7.

If Microsoft can achieve that one goal – just that one – then the Microsoft stores will have been worth doing even if they never have a dollar of retail sales.

So Microsoft will build those darned stores and they’ll build them fast because they’ll want 100 or more to be open for business by the time Windows 7 officially launches, which we’re told is this year.

In this economy finding retail space is easy, Microsoft has lots of money, so of course this retail build-out will be simple.  AND I predict that Microsoft will achieve its goal of disintermediating pundits like me.

In my case I have long made it clear that for the right price I’ll simply go away, but Microsoft never takes me seriously. 

There was a time in the late 1990s when I had an interview scheduled with Bill Gates.  His net worth back then was growing at a calculated $34 million per day or more than $1 million per hour on a 24/7 basis.  So I offered to give the hour back to Bill for half price — $500,000 – but for some reason he didn’t see it as such a bargain.  Nor will they this time.

So look for the Windows 7 roll-out to go a lot smoother than any other Windows release, ever, simply because in every major media market there will be real people down at the mall in Microsoft shirts ready to explain how to do all the arcane crap required to keep running Windows – even Windows 7.

The Microsoft stores are a brilliant move.

But the impact on Microsoft of the Bentonville Mafia hasn’t been entirely positive.  They ran out of town Jeff Raikes, for example – one of the best Microsoft executives.  The Bentonville crowd, you see is brutal even in Microsoft eyes and Raikes just couldn’t take it any longer, which is why he “retired” and then un-retired a minute later to run the Bill and Melinda Gates Foundation.

Enough about the stores, already — now should be done with the rest of Microsoft?

Break it up.

This is not, by the way, a prescription for justice or vengeance or an attempt to get really good service the next time I visit Paris.  It’s a 1980’s “greed is good” style prescription for giving current Microsoft shareholders better value for their money.  Simply put, the parts of Microsoft are worth separately more than the whole, mainly because of all those anti-trust shenanigans but also just because Microsoft forced itself to get too fat simply to keep its earnings growth in line.  Well it is time to release some of those excess divisions and let them find their own values, which I guarantee will be uniformly higher,

Here are my quite specific – AMAZINGLY SPECIFIC – recommendations, then, for the restructuring of Microsoft.

1) Cut by job category.

Don’t simply cut products. Cut by job function. There are too many testers and Project Managers across the company. Probably too many developers, too, but it’s hard to imagine Microsoft ever conducting a mass layoff of developers, since they form the core of Microsoft’s corporate culture, and most are valuable employees.

There are scores of new job functions at Microsoft, many of dubious importance. For example, one of the latest buzzwords at Microsoft is “business intelligence.” As in, “We need to look at the BI for this project.” There are many new “BI analysts” who look at spreadsheets and analyze all sorts of business and customer data, looking for trends. There’s nothing wrong with this, but a lot of these people could be cut with little impact on the company, since they’ve clearly had little to no impact and left all this crap for me to clean up.

Total cuts by job function — 5,000 Project Managers, testers, business intelligence analysts, and other job categories with more people than Microsoft needs for its surviving products.

Microsoft should balance this with 1,000 new hires in the areas of usability, design, and Project Managers who actually want to create more usable software.

 2) Microsoft Research  

This has long been a favorite pet area of Bill Gates, but Gates is gone now and Microsoft Research has ballooned during years of fat profits to thousands of PhDs scattered around the world. Hundreds of these highly paid people could go, and many others could be transferred to product teams.

 3) Product lines

Here’s where the bulk of the cuts should be – 15,000 to 30,000 jobs. When deciding what products to cut and keep, the devil is in the details.

Products to cut:

MSN – We’ve dealt with this already – MSN should go to Yahoo as I described recently, or absent Yahoo it should go somewhere else, just not in Redmond.  Why is Microsoft in this online business that keeps losing money year after year? Microsoft is not a content company. The cuts should include:

MSN Home Page – persuade MSN users to create a Windows Live home page instead.

MSN’s many individual websites – MSN Money, MSN Music, MSN Entertainment, MSN Video, MSN Celebrities, etc. Why is Microsoft creating a big new website for celebrity news? Is there anything more ridiculous for a software company to be focusing on?

Microsoft adCenter (online advertising system) and Display Ads Platform – Microsoft is not an advertising company. They should hire advertising companies to do this work, and sell this business to Yahoo.

MSNBC – Microsoft is not a news organization – sell to Yahoo or GE.

MSN Games

Tools

Microsoft Expression – Does anyone actually use Expression? This is a weak attempt to compete with Adobe in the graphics market.

Windows Live – This is a major future push for Microsoft, and Microsoft is doing a lot of experimenting by tossing out dozens of Windows Live programs and services to see which stick and people actually use. Microsoft could definitely do some cutting here, and focus on a core group of popular Windows Live services, such as Windows Live Mail, HotMail, Messenger, and Photo Gallery.

It is probably cheaper for Microsoft to ACQUIRE future Windows Live services than to create them.  That’s how Cisco does it.

Don’t know if Microsoft should keep or cut:

Live Search – This is a tough call. I don’t know if Microsoft should give up on search or keep trying to compete head-on with Google. But I think it’s sunk too much money hiring the right people to give up now before giving these smart new hires more time to try. And they have a big new launch planned this spring, with a new name, so what the heck.

Windows Embedded and Windows CE – I don’t know how successful these are. They seem like niche products.

Keep some, cut some:

Office – Obviously, Microsoft should not get rid of its most profitable Office products. But the product line has ballooned in recent years and could use trimming. SharePoint is successful, but Microsoft could cut:

MapPoint

Office Live Meeting

Office for Mac (does Microsoft really need to sell Mac software?)

Office Accounting (sell it – there are buyers)

Probably some other small Office products

Microsoft Dynamics – I don’t know much about Microsoft’s business solutions division. But they sell a whole line of products (Dynamics AX, CRM, Enterprise Reporting, GP, NAV, Retail Management, SL). Some should probably be cut.  Or better still just sell the whole darned group to some private equity firm.

Server products – Microsoft’s line of enterprise server software is huge and constantly growing. Many of the products are undoubtedly successful and Microsoft should keep them. But the product line appears to have ballooned out of control to more than 40 products.

Figuring out exactly what to cut and keep here would take some work. I’m no expert on this, but Microsoft should keep Exchange Server, SQL Server, and its other big server products.

But a lot of small products like these should probably go:

Forms Server

Groove Server (sorry, Ray)

Identity Lifecycle Manager

Keep and grow:

Windows client = Cash cow. ‘

Internet Explorer – Microsoft needs to offer a free web browser, despite the antitrust headaches this causes for the company in Europe.

Windows Server – Another big cash cow, and the basis of its server product line.

Office – Keep most Office products, but cut some (see above). Another cash cow.

Office Live – Microsoft needs to start pushing its successful Office apps onto the web.

Hardware – Microsoft has sold millions of mice and keyboards over the years. This seems like a successful and profitable business, but Microsoft should be careful not to let the product line grow out of control. It’s already expanding into presentation pointers and other dubious new hardware peripherals.

Microsoft Auto – Ford Sync seems to be successful, and other auto companies reportedly want Microsoft to create similar software for them. Although the auto industry has tanked recently, it should recover when the economy recovers.

Microsoft Surface – A small product with promise.

Xbox – Although Xbox lost a lot of money for years, it reportedly is profitable now. It seems too successful now to cut. But Microsoft should be careful how much it invests in Xbox and give up on casual games. Stop trying to compete against the Wii and position Xbox as a great family gaming system. It’s not and never will be. The Xbox is all about Halo and other violent shooting games and racing games played by teens and young men.

It would help, too, if Microsoft would respect its customers and support the Xbox better.  Look for a sad story about this from me soon.

 Zune — Many people say Microsoft should give up on Zune, but I think Microsoft should keep its Zune software and hardware and work to merge Zune with Windows Mobile, perhaps forcing Apple toward a music subscription model.

Windows Mobile – I think Windows Mobile is too promising to cut, even though Microsoft has screwed it up by being extremely late with its long-promised Windows Mobile 7 touch-screen update, now not due out until mid-2010. A lot of carriers still sell Windows Mobile phones, which are popular with business people.  Heck, the future of personal computing IS mobile.

Have you noticed I didn’t mention any of Microsoft’s languages?  I have long felt that these should be spun-off as a group.  This is controversial, I know, but if Microsoft was forced to use third-party languages we’d see a lot fewer undocumented APIs and other nasty surprises.  And I think it would get the Europeans off Microsoft’s back entirely.

And there you go – 30,000-50,000 heads later Microsoft would be smaller but stronger, more focused, agile, and better able to compete on a level playing field.  Call it the Cringely Plan.  Ballmer can implement it, drive Microsoft stock to $150 and then retire a gazillionaire, leaving the Bentonville Mafia to spend the next decade doing what they do best, optimizing processes.