Betanews - Companies

EC still holds Intel accountable even after AMD settlement

Scott M. Fulton, III — Thu, 12 Nov 2009 13:03:39 -0500

Despite an historic resolution to AMD's and Intel's long-standing business practices and intellectual property disputes this morning, the official position of the European Commission -- which issued formal objections to, and fines for, Intel's alleged conduct last May -- is that nothing whatsoever has changed with regard to its ongoing prosecution of its Statement of Objections.

In a statement to Betanews this afternoon, EC spokesperson Jonathan Todd said: "The Commission takes note that Intel and AMD have settled all their litigation and that Intel is paying AMD compensation of $1.25 billion. Intel has an ongoing obligation to comply with the Commission's May 2009 Decision and with EU antitrust law. The Commission continues to vigorously monitor Intel's compliance with its obligations under the May 2009 Decision."

Although AMD is likely to continue cooperating with regulators worldwide, its active participation in their efforts is likely to subside, but not yet completely.

"The regulatory investigations and enforcement actions around the world are conducted by sovereign governments pursuant to law and their mandates to protect competitive processes and consumer value," said AMD Executive Vice President for Legal Affairs Tom McCoy this morning. "So the regulators will do what they are going to do; and what we would say is that, from our perspective, we are withdrawing, obviously, from all pending litigation. We will be withdrawing all complaints that have been lodged with regulatory agencies, and if asked, we will say that the agreement, to a great extent, resolves outstanding disputes between AMD and Intel under the antitrust laws. There are some exceptions, there are some practices that we believe are exclusionary, that we will, under the agreement, there are a narrow set which we will continue to advocate to the regulators should be addressed for the health of the industry; and Intel will have its own point of view of that, of course. So the regulatory agencies still have a role to play, but from our perspective, this agreement significantly resolves our concerns."

From Intel's perspective, all of the regulatory concerns that governments may have stem from AMD's original civil complaint. And now that that's over, Intel believes, the rest of it all should follow.

"In terms of regulators, I think in general, all of these comments that have been coming from regulators, and actions, have been as a result of the complaints between these two private parties," said Intel CEO Paul Otellini this morning. "Now that the issues between the private parties are settled, I think that should provide some degree of comfort for the regulators, at least in terms of our behaviors and how we're going to compete in the marketplace, and so forth. Beyond that, they may have their other concerns in areas like pricing, as we've mentioned, that we may still want to them and they may want to talk to us about."

Endpoint analyst Roger Kay later pressed the Intel executives for further clarity, including with regard to the New York Attorney General's antitrust complaint, filed last week.

"In the places in the world where AMD had complaints against us, those will be withdrawn," responded Intel Executive Vice President for Legal Affairs Andy Bryant. "In places where governments around the world were asking us questions, those will continue on. Actually the EU appeal will continue on...We are having discussions with the [US] FTC; currently, there are other countries in the world who have asked us questions, we will still continue to talk to them, answer their questions. And of course, we have the New York Attorney General situation to deal with."

This prompted a Fortune Magazine correspondent to ask whether A-G Andrew Cuomo's complaint -- which contained never-before-public e-mails from Intel execs, including Otellini, as evidence of improper conduct -- led Intel to conclude it must settle now with AMD to avoid embarrassment.

Otellini responded first by revealing that settlement talks with AMD actually began last April, before the EC's Statement of Objections. In fact, it's conceivable that had the EC suspended its operations for another month, it might have discovered it had less to complain about.

With respect to Mr. Cuomo's filed complaint, Otellini added, "On some of the statements in there that were attributed to me, yeah, I wrote some of those, at least the ones I remember. On the other hand, many of those documents are taken broadly out of context. When the full nature of the e-mails is exposed, I think that you'll see there's another way to interpret some of these statements. Remember, there were 200 million pages of documents produced, and these were four or five snippets out of 200 million pages. So we're anxious to talk about our side of the story and show our other halves of e-mails, and so forth, as we go forward."

Betanews has shared some of Otellini's statements with Attorney General Cuomo's office, and we may expect a response from him later in the day.

Breakthrough: AMD and Intel settle antitrust dispute, reach new cross-license agreement

Scott M. Fulton, III — Thu, 12 Nov 2009 09:55:16 -0500

By Scott M. Fulton, III, Betanews

Intel has made a statement to Betanews this morning that it and Advanced Micro Devices are settling their long, outstanding legal disputes, including pending antitrust litigation in Delaware court, with Intel agreeing to pay AMD $1.25 billion.

Intel will also agree to abide by a new set of business practices, which may be announced in a matter of minutes. It's over.

"While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development," reads Intel's statement this morning.

10:55 am EST November 12, 2009 · "The agreement to us signals a new era. It's a pivot from war to peace," announced AMD Executive Vice President for Legal Affairs Tom McCoy, in a statement that could entitle the opening of a new chapter in the x86 computing era.

With poignant and historic language, AMD executives this afternoon announced the end of the intellectual property and business practices dispute with Intel that at one time, from a marketing perspective, defined AMD as a company. Intel's executives' statements remain forthcoming at this time. But AMD CEO Dirk Meyer explained today's agreement has three categories:

1. Intel will agree to new ground rules for corporate business practices.

2. A new, five-year patent cross-license agreement between AMD and Intel will give both companies broad access to each other's technologies.

3. GlobalFoundries, the manufacturing arm of AMD that was spun off as a subsidiary, may now be completely separated from AMD and operate independently. Under the previous cross-license agreement with Intel, GF had to operate as an AMD subsidiary in order for AMD to share Intel intellectual property with it -- the old agreement prohibited AMD sharing Intel trade secrets with another company. The new agreement permits such sharing specifically with GF.

However, we learned this morning, not all business practices to which AMD and certain other governments had been objecting, will be covered by Category 1 of the agreement. Specifically, from AMD's point of view, it appears only Intel conduct with regard to limiting end users' choices between AMD and Intel technology, will be curbed. But business practices such as volume rebates to OEMs may (perhaps) be allowed, so long as they are not exclusionary -- specifically, as long as they are not structured in such a way that OEMs promise not to purchase AMD parts, or to hold AMD purchases to specified caps.

We'll learn more from Intel's point of view in a few minutes. In advance of Intel's statement, that company has already released an update to its financial guidance, increasing its business expenditures to account for the one-time charge of $1.25 billion to be paid to AMD.

12:25 pm EST · Intel's business conduct agreement, we learned from Intel this morning, will not extend to the practice of volume rebates with OEMs such as HP and Dell. Without acknowledging any wrongdoing -- in fact, while continuing to defend its prior business practices with all OEMs, including Dell and HP -- Intel executives today stated they now openly promise not to do in the future any of the exclusionary tactics which AMD accused it of doing, while saying it never did so anyway.

Or maybe not. When directly asked by a Financial Times reporter this morning whether Intel's take on the agreement means it's not changing anything with regard to its business conduct, Intel Chief Administrative Officer Andy Bryant heaved a great, audible sigh, and responded emphatically, "No changes at all. Again, I'm just gonna say the same thing over again, so bear with me: AMD believes we have conducted business in some fashion that they believe is inappropriate. We have said we don't do what they actually accuse us of doing. We are confident that -- in fact, it's in the contract, we wrote down exactly what those provisions are, what we will and mostly what we won't do, and then those can be monitored at any time."

Then after what sounded like a pause for Intel CEO Paul Otellini to pick up where he left off, suddenly Bryant decided he needed to correct a little something: "I don't want to say there's absolutely no change to what we're doing. We have met with the EU, we have changed some business practices because of that. There are issues around pricing, which we think that the regulators may want to talk to us about -- we'll talk about those things. So I don't want to say we're not changing any of our business practices. The things that AMD was concerned about in the contract are things that we don't do, and we readily agreed to not do, because we don't."

The patent cross-license agreement reached today is a five-year extension of the existing agreement -- an extension that had been threatened by Intel's concern over AMD's restructuring. Specifically, if GlobalFoundries were to split completely from AMD ownership to become independent, AMD's sharing of x86 technology necessary for GF to produce chips would violate the previous licensing agreement.

That's important, because GF plans to do business with other companies; and GF's other current co-owner -- Abu Dhabi government-run investment firm ATIC -- reached an agreement last month to acquire Chartered Semiconductor. That makes GF, which was once just a manufacturing company, into a full-scale CPU innovator and manufacturer on the order of what AMD was in 2007. Chartered doesn't exactly expect its IP to be shared with Intel; and Intel would not want the reverse.

But borrowing the term "peace" from his AMD counterpart this morning, Intel's Andy Bryant told reporters that Intel was usually at peace with foundries, so striking an independent deal with GF wasn't too much of a problem. Intel isn't worried about losing its x86 IP, and is trusting GF just like it previously trusted AMD. This enables AMD to complete the last part of its restructuring: separating GF completely as an AMD subsidiary, into a firm that is majority-owned by ATIC, and minority-owned by AMD. That resolution also officially took place this morning.

Both Intel and AMD are expected to file paperwork with the Securities and Exchange Commission today, either or both versions of which should detail the complete agreement between the two companies. Betanews will continue reporting on today's breakthrough as we learn more.

Microsoft damage control after marketer claims Win7 inspired by Mac

Scott M. Fulton, III — Thu, 12 Nov 2009 09:51:39 -0500

By Scott M. Fulton, III, Betanews

It's not like this sort of thing has never happened to someone at Microsoft before: a moment of clarity and candidness which may actually be close to, if not exactly, the truth, but which is nevertheless "off message." During a recent reseller's conference, a Microsoft marketing manager named Simon Aldous representing the Worldwide Partner Group gave credit to Apple for creating an operating system that folks in a Microsoft study appreciated. But then, according to PCR Online, a publication for computer and software resellers, Aldous went one step further and said Microsoft took that inspiration and, then with Windows 7, "create a Mac look and feel in terms of graphics."

It was exactly the phraseology that blogs throughout the Internet were looking for, and Aldous' comment became the latest water cooler conversation topic...even though the publication was incorrect in one very important respect: Aldous was not a "Microsoft exec," and therefore was not speaking on behalf of the company. The fact that the publication got Aldous' position wrong created suspicion in at least one person residing on planet Earth that perhaps it had gotten the quote wrong as well. Nonetheless, the headline "Windows 7 was inspired by Apple OS" rocketed throughout the Web.

The entire incident might have ended there, except for the fact that one of Microsoft's chief online evangelists, Brandon LeBlanc, publicly excoriated Aldous for having made the comment...rather than cast doubt on its authenticity. "Unfortunately this came from a Microsoft employee who was not involved in any aspect of designing Windows 7," LeBlanc wrote this morning. "I hate to say this about one of our own, but his comments were inaccurate and uninformed."

There is indeed one element of Windows 7 whose differences from Vista were probably inspired by Mac OS: the revised taskbar. When it was unveiled last year at PDC, Microsoft representatives were extremely careful not to characterize it as Mac-inspired. Staying on-message at the time, Microsoft design manager Samuel Moreau coined the term "delighter" to refer to visual elements derived from extensive examination of test results obtained from the opinions of people using Vista while being videotaped. The new taskbar was designed to be a staging area, he said, for several of these delighters.

But neither Moreau nor anyone at Microsoft at that time steered completely clear of the other "M" word, acknowledging the design impetus of Mac OS even when folks in the audience asked questions to the effect of, "You realize this is more like the Mac Dock, right?" No one said, however, that the taskbar had a "Mac look and feel."

HP to acquire 3Com for $2.7 B in cash, focus on China

Tim Conneally — Wed, 11 Nov 2009 17:07:15 -0500

By Tim Conneally, Betanews

HP announced this afternoon that it has entered into an agreement with network switch, router, security, and solutions company 3Com for approximately $2.7 billion in cash.

"By acquiring 3Com, we are accelerating the execution of our Converged Infrastructure strategy and bringing disruptive change to the networking industry," Dave Donatelli, executive vice president and general manager, Enterprise Servers and Networking, HP said today. "By combining HP ProCurve offerings with 3Com's extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data center."

This acquisition will not only give HP 3Com's property, but also that of network security company TippingPoint and former joint venture with Huawei, H3C.

HP's announcement put special weight on the H3C aspect of the acquisition, as it will "significantly strengthen the company's position in China -- one of the world's fastest-growing markets -- via the H3C offerings. In addition, the combination will add a large and talented research and development team in China that will drive the acceleration of innovations to HP's networking solutions."

Since buying out Huawei's share of the H3C joint venture, Huawei had an agreement to not compete against 3Com. That agreement, however, expired in 2008 and 3Com has lost a large portion of revenue from strong Huawei's sales (an estimated 17% of its total) in China.

Qualcomm: $1.3 billion Samsung licensing deal unrelated to fair trade violations

Tim Conneally — Mon, 09 Nov 2009 16:11:24 -0500

By Tim Conneally, Betanews

South Korean consumer electronics giant and number two mobile phone seller worldwide, Samsung has re-negotiated its cross-licensing agreements with Qualcomm to the tune of $1.3 billion plus continuing royalties.

Though most of the terms and conditions of the deal are confidential, Samsung has said that the deal will give Qualcomm access to 57 of its mobile technology patents, and in turn receive access to Qualcomm's 3G CDMA/WCDMA and 4G OFDM patents for the next fifteen years.

Samsung said this deal is "more favorable than the previous one."

With such a substantial amount of money, it's hard to imagine how costly Qualcomm patent licensing used to be.

In July, the South Korea Fair Trade Commission hit Qualcomm with the largest fine it's ever levied on a single company for abusing its dominant market position to obtain higher licensing fees.

That fine was the result of a three-year investigation into Qualcomm's collection of royalties, which the Commission alleged were unfairly stacked against companies that didn't use Qualcomm chips. The Commission said Qualcomm would impose higher royalties on handset makers that used modem chips from Qualcomm's competitors.

Qualcomm told the South Korean media that this deal with Samsung has nothing to do with the company's fair trade violation there.

"We anticipate accelerated CDMA device growth in calendar year 2010 as the global migration to 3G continues," Paul E. Jacobs, chairman and CEO of Qualcomm said.

Thanks, iPhone: Google buys mobile advertiser AdMob for $750 million

Tim Conneally — Mon, 09 Nov 2009 13:03:33 -0500

By Tim Conneally, Betanews

Google today announced it will acquire mobile display advertising company AdMob for $750 million.

"For publishers of mobile Web sites and applications, this deal will mean better products and tools and more effective monetization of their content, allowing them to focus more on their users and less on how to generate revenue. For advertisers who want to reach users when they are engaged with mobile content, this deal will bring better, more relevant ads and greater reach. It will also mean more interesting, engaging ad formats. Last, but certainly not least, we believe users will benefit from this deal: through more mobile content and through better mobile ads that deliver useful information," vice presidents of Product Management and Engineering at Google Susan Wojcicki and Vic Gundotra posted in Google's Official Blog today.

AdMob gained a good deal of media exposure thanks to its continuous stream of market pseudo-statistics which were pulled exclusively from its mobile advertising network. While not indicative of the mobile market as a whole, the company at least provided frequent behavioral metrics on iPhone/iPod and Android, the platforms most widely supportive of AdMob's in-app and mobile-formatted Web display ads.

"We launched the first iPhone ad units focused on the web and quickly added the capability to run ads in applications. Now with the addition of excellent devices from Palm, Nokia, RIM, and plethora of Android powered smartphones, we have all the preconditions necessary for what will be a tidal wave of mobile browsing and app usage. But let there be no mistake. Our business, and the mobile industry in general, owes Apple a debt of gratitude," AdMob's Founder Omar Hamoui said today.

How RIM can avoid a premature endgame for BlackBerry

Carmi Levy — Thu, 05 Nov 2009 12:23:41 -0500

By Carmi Levy, Betanews

Once not so long ago, if you wanted bulletproof e-mail on a mobile device, you bought a BlackBerry. Research In Motion, the company that practically defined wireless messaging a decade ago, has done quite nicely for itself since then, garnering over 56% of the market for smartphones in the US and about 20% of the overall wireless handset market that includes smartphones as well as conventional feature phones. Its end-to-end encryption and still-unique service paradigm that routes messaging traffic through secure Network Operations Centers further endeared the platform to enterprise buyers, even as the company was successfully pushing the franchise into the consumer space.

Unfortunately for RIM, nothing stays the same in the increasingly competitive wireless market. The BlackBerry is no longer a market of one, and many of the features that defined the platform -- including push e-mail and enterprise-class security -- are no longer unique. Worse, the critical feature set for a modern smartphone has expanded to include rich Web access, broad application availability, and an integrated, Web services-aware operating system. It's no secret that the BlackBerry platform lags in all of these areas with its fine-for-the-1990s browser, relatively paltry app ecosystem, and an OS that despite regular incremental updates still betrays its decade-old roots.

As investors push RIM's share price down, and the drumbeats grow louder to aggressively address these shortcomings, the company finds itself at a crossroads. Either it radically changes the strategy that's driven its growth to-date or it risks becoming an also-ran in the US market. Nokia, whose devices once accounted for over 35% of all US sales, lost the script when it misread Americans' growing taste for affordable, feature-packed, and well-integrated smartphones. Today it's American market share languishes at barely 7%.

It's a lesson that RIM would do well to learn, because at this critical inflection point in its history, a stay-the-course mentality could doom RIM to a Nokia-like fate.

To maintain leadership in a market that grows more competitive by the day thanks to continued strength from Apple's iPhone and a rapidly building frontal assault by Google's Android, RIM needs to focus on some fundamental changes, including:

Simplify the product lineup. The almost overflowing BlackBerry product tree stands in stark contrast to the singular focus of Apple's iPhone hardware. RIM sells dozens of devices through countless carriers, often so subtly differentiated that even hard-core fans can't keep track. Sure, most BlackBerry aficionados know that a device number that ends in 30 has built-in GPS, while one that ends in 20 includes Wi-Fi. But the finely sliced marketing messages demanded by such a broad product line tend to dilute the branding effort. As beneficial as multiple devices and form factors have been in terms of appealing to consumers (and carriers) with different needs, they've also dimmed how the BlackBerry is perceived in the minds of potential buyers.
Get serious about courting developers. Application developers care about two things: development effort and profit potential. As it stands now, RIM loses on both fronts. The tools to develop software on the BlackBerry platform are too cumbersome to use, which extends development time and effort. And since the BlackBerry app market itself is just a fraction of the size of its major rivals, there's less opportunity to drive revenue. Compared to iPhone and, increasingly, Android (which already has well over 10,000 apps to RIM's 3,000 or so) it's a no-brainer: BlackBerry development loses every time. RIM has had ample time to bring a streamlined SDK to market along with easily accessible training and support resources for developers. It's also had lots of time to go for Apple's jugular and point-for-point pick off the things about iPhone development that tick developers off (I'm looking at you, opaque approval process). And to be fair, it's making progress. Just not as fast as it should.
Fix the browser. You can't write a product review of any BlackBerry without calling out its lame browser. While competitors have moved on to multitouch-capable interfaces that closely mimic the conventional desktop Web, RIM's offering hasn't changed much since it was first introduced. The result is a stripped down, slow, often frustrating online experience. In fairness to RIM, it's doing something about it. This summer, it acquired Torch Mobile, which makes the WebKit-based multiplatform Iris browser -- a deal that's expected to bring a new standard browser to the BlackBerry sometime in 2010. It can't come a moment too soon.
Find a new differentiator. Rock solid, enterprise-class, push-based e-mail is yesterday's news. And even if it wasn't, consumers don't much care about it anyway. Apple's got the application ecosystem to end all application ecosystems. Google has tight Web services integration. Palm has an innovative UI that blurs the line between local apps and the cloud. What's RIM's unique story going to be? The company isn't saying, but unless it comes up with something to differentiate itself, its good-enough strategy that matches competitors feature for feature will guarantee a long, less-than-comfortable decline as newer, more unique solutions hit the market. Motorola's Droid may hold some lessons here, as it illustrates how a hardware vendor can come back from the dead with an offering that moves the mobility bar solidly beyond basic e-mail and Web browsing.
Learn from the Storm. RIM's first touchscreen device, rushed to market to capture holiday shoppers' interest, was by all accounts a botch. Yes, it ultimately sold well, but its rocky launch tarnished the formerly invincible brand and illustrated the perils of timing product releases to unrealistic seasonal buying patterns. If the engineering isn't fully baked, no product should ever see the light of day. Similarly, devices without Wi-Fi have no place in today's market. While RIM avoided ticking Verizon off by deleting the feature from the first generation Storm, it alienated consumers who simply expect this in anything they buy today. RIM repeated the no-Wi-Fi mistake with the Tour, and one hopes it won't happen again.

While the BlackBerry franchise doesn't face an immediate risk of extinction, its long-term success -- and the success of the company that spawned it -- could be compromised...unless RIM drops the overly conservative mentality, and starts swinging for the fences. Nothing short of a radical re-think will keep the BlackBerry as dominant in the future as it has been in the recent past.

Carmi Levy is a Canadian-based independent technology analyst and journalist still trying to live down his past life leading help desks and managing projects for large financial services organizations. He comments extensively in a wide range of media, and works closely with clients to help them leverage technology and social media tools and processes to drive their business.

CinemaNow streaming movies coming to Best Buy

Tim Conneally — Tue, 03 Nov 2009 14:22:23 -0500

By Tim Conneally, Betanews

It was a short couple of weeks ago that Best Buy announced it had partnered with Netflix to equip its in-house brand of Insignia connected Blu-Ray players with support for Netflix Instant streaming like Sony, LG, and Samsung all had done to their own players.

Now, Best Buy is following the lead of companies like TiVo, LG, and, Pioneer by partnering with Sonic Solutions to include CinemaNow streaming in more devices. The company says CinemaNow will become a standard feature in "connected consumer electronics devices sold throughout US Best Buy retail stores," and online.

CinemaNow's business model differs from Netflix Instant, in that it is not subscription-based. Rather, it offers titles in pay-per-view for $2.99-$3.99 per 24-hour viewing window, and it lets users download movies to keep for unlimited viewing on up to three devices. CinemaNow's downloadable titles cost between $9.99 and $19.99 and include movies, TV shows, and music videos. The two services can complement each other on the same device without too much redundancy, similar to the way Netflix Instant and Amazon On Demand successfully coexist on devices like the Roku set top box.

Blockbuster On Demand is powered by Roxio CinemaNow, and Sonic Solutions yesterday said that their partnership increased video-on-demand attach rates by more than 50% over other CinemaNow powered services thanks to the familiar Blockbuster brand name.

Neither Best Buy nor Sonic Solutions went into great depth about which devices will be included in the multi-year deal announced today, but Sonic Solutions is holding a conference this afternoon to go over the specifics of the agreement with Best Buy.

Insider trading scandal claims former AMD CEO after IBM SVP indictment

Scott M. Fulton, III — Mon, 02 Nov 2009 12:06:36 -0500

By Scott M. Fulton, III, Betanews

In what may become the most wide-ranging insider stock trading scheme to be uncovered this decade, evidence uncovered last month by the US Securities and Exchange Commission led to the indictment last week of IBM Senior Vice President Robert Moffat, believed to have been the next-in-line for the CEO post. Moffat was indicted on October 16, arrested on criminal insider trading charges, and has posted $2 million bail, according to reports.

Now, the latest name to become linked to the alleged scheme has submitted his resignation, effective next January, and will take a leave of absence in the interim. Dr. Hector Ruiz was chairman of GlobalFoundries, the manufacturing entity spun off from AMD, which Ruiz led as its chairman and CEO during the dawn of the multicore era.

Last Wednesday, a Wall Street Journal report identified Ruiz as an individual responsible for communicating information about the timing and scope of AMD's spinoff of GlobalFoundries, to a team of traders that included McKinsey director Anil Kumar and New Castle portfolio manager Danielle Chiesi, whom the SEC says were working with Moffat. The SEC complaint itself (PDF available here) does not actually specify that any AMD individual delivered Kumar and Chiesi that information, only that it was communicated.

However, if the WSJ's report is accurate, the communication would have taken place before October 2008, while Ruiz was still AMD's chairman and before the spinoff was publicly announced. GlobalFoundries is the chip manufacturer that was spun off from AMD last March, in a massive restructuring operation whose objective was to save AMD by slashing its overhead.

According to the SEC complaint, Kumar, working in partnership with Raj Rajaratnam, the managing general partner of hedge fund Galleon Management, used non-public information about the spinoff to "two Abu Dhabi sovereign entities" as early as mid-August 2008 -- October 7 was the date of the spinoff's public announcement. In late-September, when AMD shares were trading as low as $4.23, Galleon then proceeded to purchase some 5.6 million shares of AMD. Once the deal was announced and share values rose, Galleon netted some $9.5 million from the transaction, according to the SEC.

Ironically, the hedge fund held on to AMD stock throughout October, when it took a dive along with the rest of the tech sector.

Abu Dhabi is the country which itself is one of the principal investors in ATIC, a parent company of GlobalFoundries. So it also seems ironic that Abu Dhabi would have learned about its own majority involvement in the spin-off from inside information allegedly obtained by the head of its minority co-partner.

Should the WSJ report prove correct, Ruiz would be the co-between between Kumar and Rajaratnam as depicted in this SEC chart released October 18. Moffat is charged with criminal involvement for allegedly providing information about IBM and Sun Microsystems, specifically with regard to IBM's interest in acquiring Sun, which was communicated to Sun last January. Although Oracle ended up the winning suitor, Moffat was part of the team conducting due diligence on Sun. The SEC complaint alleges Moffat communicated non-public information about Sun's fiscal Q2 2009 earnings to Danielle Chiesi, who may have also been a contact of the AMD informant -- allegedly Ruiz.

It does not stop there. The SEC also alleged that Rajaratnam continually received insider tips on Intel from the head of its own venture capital division and managing director, Rajiv Goel, also depicted on the SEC chart. Goel heads Intel's treasury group, which is an Intel subsidiary that is separate from its manufacturing operations ~~and reports directly to CEO Paul Otellini~~. Information allegedly obtained directly from Goel about Intel's rising fortunes in early 2007 helped Rajaratnam and Galleon to purchase Intel stock at a low, then sell short later in the year as the flagging economy forced Intel's profits to come in below estimates, according to the SEC complaint.

Goel was also knowledgeable about the WiMAX partnership between Sprint and Clearwire, especially because WiMAX is an essential part of Intel's technology portfolio, and thus Intel was involved in the discussions. For instance, when the once-dead deal between Sprint and Clearwire seemed to resurrect itself in February 2008, three months prior to its being declared on again, Goel communicated the news to Galleon in time for it to establish a long position in Clearwire, and reap some $780,000 from its rising stock value during the rumor period.

And another unnamed single source of deep inside news, referred to in the SEC complaint only as "Tipper A" (an indication that he or she may be cooperating with the SEC), learned from a Google financial consultant inside news about that company's Q2 2007 earnings -- specifically that it would report earnings per share 25¢ below street estimates. Tipper A then communicated that information to Rajaratnam, says the SEC, who acted on that information by exercising over $8 million in put options -- selling its holdings at a pre-agreed, higher price.

The scandal puts to an end the career of one of the more straightforward CEOs ever to grace the technology industry. Hector Ruiz was always beaming with pride when his company fared well against Intel, and was practically dripping with sorrow after Intel roared back in summer 2006. One hopes he will be remembered for his accomplishments, although the extent of this mistake, should the reports be validated, is indeed massive.

5:25 pm EST November 2, 2009 · By way of correction, Intel spokesperson Chuck Mulloy told Betanews this afternoon that Rajiv Goel -- one of the six individuals indicted on insider trading charges -- never reported directly to Intel CEO Paul Otellini, contrary to analysts' reports and contrary to the SEC's characterization of the position. In fact, as Mulloy described it, Goel reported to the company Treasurer, who in turn reports to CFO Stacy Smith, who then reports to Vice President Andy Bryant.

That would make Goel "a fairly low-level guy," as Otellini recently told reporters.

Microsoft wins round one in its battle against Vista

Scott M. Fulton, III — Fri, 23 Oct 2009 12:45:52 -0400

By Scott M. Fulton, III, Betanews

Anyone who would continue to frame the consumer PC market in 1980s terms, as a continuance of the old war between Microsoft and Apple, would be sorely disappointed by this morning's earnings news from Microsoft. The measured candor that continues to emerge from CFO Chris Liddell suggests that Macintosh and iPhone are not even on the company's radar at the moment, and that his real battle is against a tougher and more menacing foe: Vista.

As of yesterday, it was officially okay for Microsoft to pronounce Vista part of its past, to "un-support" it from a marketing standpoint (though certainly not from a service standpoint). Steering Microsoft clear of the perfect storm -- the effects of the global recession, coupled with the peak in negative attitude toward Vista -- means putting Vista behind it, placing it in the adversarial role normally characterized by someone who looks a lot more like Justin Long than John Hodgman.

If Microsoft had continued on its unprecedented downward slope, as it was forced to report on last July, analysts might have concluded the company was in a recession of its own -- a kind of corollary of the "two consecutive quarters of decline" rule normally applied to the country's economic state. But the slope was not so down this time, and literally all the credit was bestowed upon the company's newest, bravest warrior, Windows 7.

"To put the quarter results into perspective, Q1 represented the highest number of Windows licenses sold in one quarter, ever," pronounced Investor Relations GM Bill Koefoed, "and September was the highest single month of Windows unit sales ever. In summary, it was a very solid quarter for the Windows division; and with Windows 7, we have a great product for the recovering PC market."

During the low point of the economic crisis, what kept the PC market from collapsing altogether was the ability to shift its product mix towards netbooks -- the lowest-priced segment, but certainly the lowest-margin end of the business as well. As Microsoft CFO Chris Liddell reported, netbooks went from 0 to 12% of the overall consumer PC market in just one year's time. During that same year, Windows was able to find itself installed on 90% of those systems.

"Find itself" is actually a very accurate phrase, because this wasn't really what Microsoft intended, and it actually became something of a real problem. At a time when the company needed to tout Service Pack 2 as the life saver for Vista, the netbook surge presented consumers with the single biggest confirmation of Vista's inadequacy to date: the presence of Windows XP, not Vista, on nearly all of those netbooks.

"People are clearly willing to pay for having Windows on their netbooks, so that's the first and most important fundamental," Liddell told a Deutsche Bank analyst this morning. "Then in terms of Windows 7 reaction, clearly [we've] yet to see, but early indications in terms of the OEM builds that we're having, and the mix that they're putting in terms of Windows 7, is encouraging...in terms of their expectations of the number of people who are going to want to see a Windows 7 on their netbook as opposed to an XP. In terms of the ASP [average selling price], clearly it's almost twice on Windows 7 what it would be on XP, or a significant premium...So it's going to be beneficial, but I think it's more important symbolically from our point of view that people see value in Windows 7 and are willing to pay for it. Netbooks, even though they've grown fast, are still a relatively small component of the overall demand, so it's not going to have a massive financial impact, but it'll certainly help in terms of ASP comparisons year-over-year, if we get the sort of good attach of Windows 7 that we're starting to see in the early days."

As it did during Vista's premiere, Microsoft has opted to defer about $1.5 billion of revenue from pre-orders of Windows 7 from OEMs and retail customers, until the following quarter. Still, the activity surrounding Win7 in this past quarter indicated that the period of time in which customers were deferring their operating system investments had clearly ceased. Operating income from its client division, now called the "Windows and Windows Live" division (reflecting the realignment of online software around the core product, and away from online services like Bing), dropped only marginally on an annual basis to $2.81 billion, on revenue just 3.3% lower at $3.98 billion. With Server & Tools and Entertainment & Devices income slightly higher on the year on revenue that was basically flat, the company was able to sustain a huge hit from the declining value of its stock awards -- essentially a $2.2 billion write-down.

So total income was down about 25.3% annually to $4.48 billion -- not good, but not unexpected in the wake of last quarter. And besides a little bit of credit given to the success of Halo 3 on the Xbox 360 game platform, Windows 7 enthusiasm was credited for keeping income from business operations stable.

"What I think we're seeing is the robustness of the concept of a PC," Liddell told an RBC Capital analyst this morning. "Even through an economic reset, it's something that people want to spend money on, and I think that gives us confidence in the sort of long-term trend, the long-term ability to have good, potentially double-digit growth in PC demand. That's clearly helped by the fact that we've got new form factors, Windows 7 helps clearly. You're just seeing a general positive trend on a long-term basis [for] a reset."

The next battlefield for Microsoft will be getting Vista off of business desktops and notebooks. Toward that end, the cards could finally be stacked in Windows 7's favor, for reasons Liddell alluded to today. Existing business PCs can be perceived as slow, for either of two reasons: If they're five years old or more, they're probably single-core. And if they're newer than that, they're probably stuck with Vista. Either way, they're slow, and that perception may play into business' decision to make a PC investment during calendar year 2010.

At least maybe. "The big variable in my mind is business PCs," stated CFO Liddell candidly. "That's been a significant negative, that's decreased double-digits over most of the last few quarters, and it's dragged down the numbers. That can't continue forever. Eventually those PCs wear out and have to be replaced, so the big variable in terms of rebound is going to be the strength and speed of the business PC refresh cycle. We hope and expect that to be next year...We're probably still relatively cautious, but when you start to see a rebound in that, plus what you're seeing in the consumer side, we feel pretty good about what we see demand's going to look like in the next calendar year."

Liddell did let something slip a bit when he said that revenue for the Business Division should recover in the near term when business spending in general recovers, "combined with the impact of Office 2010." That's a product whose release window even now is the entire next year, but Liddell's framework seems to put O10 someplace closer to late second-quarter, early third-quarter.

Microsoft misses a perfect opportunity for Windows 7 and multitouch

Scott M. Fulton, III — Thu, 22 Oct 2009 12:41:14 -0400

By Scott M. Fulton, III, Betanews

Here are some observations after having watched Microsoft CEO Steve Ballmer's Windows 7 rollout, as streamed live from a Soho loft earlier this morning: Although I'm on record as praising Windows 7 (at Vista's expense), Microsoft missed a window here to make its new product more tangible and more interesting to consumers.

We saw plenty of demonstrations today about multitouch, which will at some point be perceived as a key feature of Windows 7 once more people are able to get their hands on it. But the only two routes Microsoft presented this morning were through expensive touch-sensitive TVs (which don't make sense to folks who prefer remote control) and through a new class of PCs that has yet to find a proper form factor, let alone make its way from the factory.

And yet there will be at least some multitouch-ready applications, mostly derived from that ancient photo gallery demo we first saw prior to the release of Vista. But if Microsoft truly wanted to make multitouch the talk of the town...since it is also in the peripherals business, one wonders why the company didn't think to make even an early class of Windows 7-ready multitouch pads available for the everyday consumer.

It wouldn't have had to be much, although something on the order of Apple's multitouch-sensitive zero-button mouse would have been a serious game-changer. Essentially, it could have been a corded USB device that's placed beneath the mouse pad, maybe with suction to the table below. Nothing but a multitouch pad in a frame, plus a bundled way to get the apps (through Windows Live) to make it do something. Such a device could have been bundled with Windows 7 upgrades in retail stores. Or it could have been a Windows 7 upgrade, for at least one SKU, since there's no real reason anymore to put little software in big boxes unless there's something else in the box.

If customers had had available to them a way to plug in something for under a hundred bucks right now, and see Windows 7 multitouch at work, rather than wait down the road until probably Christmas 2010 when they might be able to afford one of these glossy multitouch devices, then Windows 7 would have been the game changer Microsoft needs it to be, right out of the box. Consumers would have had something they could hold in their hand that demonstrates the gulf between Windows 7 and Vista, rather than a plethora of online reviews from folks who are just now trying Win7 for the first time and proclaiming, "It looks the same to me; I don't see any difference!"

Apple's pre-emptive strike on Tuesday, covered at length by Betanews contributor Joe Wilcox, appeared to me at first to have been a way of evening up the score for just this move by Microsoft, had it actually made that move. Apple's clever way of dressing up its MacBooks so that folks don't notice that more of them are lacking Firewire, is not exactly a game changer by itself. But the zero-button, multitouch-sensitive "Magic Mouse" combined with these elements does evolve Mac's form factor, and gets the product further out there to a broader class of consumers, even while it retains its stake on the premium segment.

Microsoft's response at this point appears to be not to dignify Apple by looking as though it's responding to Apple's challenge. However, I seriously doubt that if Ballmer were to have taken the stage today with one of these devices in his hand, however crude it may have been with respect to what multitouch could eventually become, the first words out of consumers' mouths, or even the second, would have been, "I bet this is all because Apple came out with that cool mouse the other day!"

It would have made the new Apple mouse a non-issue, and it would have made any discussion about Apple declaring war on Windows...in the year 2009, seem a little inflated in hindsight. Ballmer had been on a run with his newfound ability to convert potentially damaging issues into non-issues, especially with government regulators worldwide, but also in terms of product competition (Office 2010 multi-format support being the best example).

A simple and inexpensive Microsoft multitouch device, even if it were only semi-cool with a few apps to support it, would have rendered anything Apple did earlier this week a non-issue. Ballmer missed his chance.

Giving it all to Google: It may be too late to complain

Scott M. Fulton, III — Tue, 20 Oct 2009 12:32:43 -0400

By Scott M. Fulton, III, Betanews

The problem is not so much Google itself. The problem is with the self-absorbed-yet-insecure nature of a plurality of industries, media being just one among them, whose collective inability to plan how they would conduct business in the era of digital multimedia communication, led them to essentially give up, give in, and let Google build it all for them.

Conducting business is all about staying visible, not just in front of the public's eyes but in its conscience as well. It's why Coca-Cola continues to advertise itself even though folks are likely to go on drinking it anyway (there's a great gag about this fact in Ricky Gervais' latest film, The Invention of Lying). At a time during the evolution of the Internet when businesses were busy trying to construct analogs for physical business entities -- such as online shopping malls with 3D virtual escalators, online business directories that were alphabetized, and "portals" that sought to become the world's centers for particular industries, such as dog grooming -- along came an Occam's Razor that appeared to make everything much simpler: It was the idea that visibility, that critical ingredient of all business relationships, can be engineered.

This, actually, is the same principle that has driven the audience transitions between major media since the Civil War, only this time it was somewhat less deliberate. The move to radio as a news source came with the urgency of World War II; but the establishment of radio's infrastructure came two decades earlier, when major corporations realized the potential value of the commodity of capturing an audience's attention for a period of time. The transition to television as a news source was complete after the assassination of John F. Kennedy, but the establishment of television's infrastructure came three decades earlier, with the lofty, humanistic, and utopian pronouncements of men like David Sarnoff, whose goal was no less than the remodeling of the human species:

"It is with a feeling of humbleness that I come to this moment of announcing the birth of a new art so important in its implication that it is bound to affect all society," Sarnoff told the New York World's Fair in 1939. "It is an art which shines like a torch of hope in the troubled world. It is a creative force which we must learn to utilize for the benefit of all mankind. This miracle of engineering skill which one day will bring the world to the home also brings a new American industry to serve man's material welfare."

The move to the Internet as a news source is ongoing -- by any measure, a process still under construction. And yet the infrastructure, the underlying mechanism of digital transactions upon which this migration should depend, is not entirely in place to this day.

It is into this void of indecision that Google enters the picture, sounding much less like David Sarnoff than Mister Rogers, boasting no ideology or philosophy whatsoever besides the promise of a really super day. It fulfills the role of father figure that the Internet -- as a collection of semi-cooperative academic institutions, a handful of directionless private companies, and the US Dept. of Defense -- could not conjure for itself. And for the general viewing audience -- especially those veterans out there who were expecting the NBC chimes or the Peacock or something to tell them who's responsible for all this -- Google provides them with a public face.

Ask folks on the street -- as a Google employee did once -- and you'll be told by someone, at some point, that the Internet is Google. And before you dismiss their responses as amateurish, realize that you'll get the same response from marketing consultants: "Google is the Internet in your customers' minds. If you are not ranked in the top ten, your company simply does not exist!"

Google's is a formula which, at its roots, is based on mathematical fairness. The value of a keyword, for example, is based on what businesses are bidding to appear next to that keyword, but evened out so that every business is eventually entitled to its share. Whether an article appears in the Google News feed depends on how often the context of that article or its headline appears to be covered by everyone else, and everyone's visibility in that context is evened out so that every publication is eventually entitled to its share.

It is the institution of a market economy based around nebulous concepts rather than institutions, and its inherent incompatibility with the economy of the real world is something we are only now discovering.

Now we have found ourselves in the midst of an ideological discussion that few had expected, especially given Google's unpretentious and almost shy façade: Is Google entitled to speak on behalf of all the literary creators whose voices have been silenced by neglect and inattention? And if it is, then who controls the relative visibility of literary works by F. Scott Fitzgerald and by Jane Doe when they're all available on a level playing field? If YouTube truly should become the clearinghouse for all media, then what assurance can a company obtain -- or purchase -- that a show it produces will gain more visibility than some guy's video of his cat dancing on a piano keyboard?

As we discovered last month, Google is already planning a micropayment system for handling the transactions behind the distribution of all forms of paid media -- it's not waiting for anyone's permission or blessing or even funding. And as Google told the Newspaper Publishing Association, if profiting from the distribution of media means taking over the job of publishing it...it's more than happy to oblige: "Software and support services are typically provided at no charge. Google will be happy to host content and supply the bandwidth necessary to serve content. There may be a charge for additional professional services, depending on the extent of the support necessary and the volume of views anticipated. Current models on revenue sharing for the selling of content typically involve a percentage of each sale to Google in order to cover maintenance, bandwidth, processing charges, and profit margin."

Or, to paraphrase the Coke ad from Gervais' film -- created prior to the invention of the lie -- we'll always be here anyway, and we're sure you use Google all the time along with everyone else, so we'll take care of things for you, and you just go on doing what you're doing and we'll do the same.

Perhaps the most poignant symbol to date of the weight of Google-driven visibility as a true commodity came yesterday: Shares of the UK-based advertising firm Media Corp. surged to more than triple their value from last month, after having announced that whatever strange "penalty" Google seemed to impose upon it that weighed down its search rankings, appeared to have been lifted. The firm effectively resells high placement in Google's indexes, most notably to online gambling sites whose visibility depends on how Google responds to guys typing "poker" into the query box.

It's as if the firm had announced to the world, "We're back in the Top Ten...We exist again!" And the value of that announcement actually translates into stock value. Let me say that more directly: Investors are actively trading securities based on a company's placement in Google's search results.

At this point, there's not much time or room left for complaint. Just about anyone who sounds a warning whistle is drowned out by the cacophony of his own irony, as was the case after AT&T warned the FCC that Google was plotting to devise a telecommunications monopoly for itself.

I'm not certain we as a society have completely realized the full extent of what we are willing to consign to Google, with respect to the determination of what is of value to us and what is not. It cannot possibly amount to the wholesale of the global economy, bundled with the system of human values and ideals, to Google's cloud -- certainly one private business wouldn't handle the weight of it all. But just the thought of how many businesses and even countries are willing to entertain the idea illuminates the gulf that separates the era of David Sarnoff and today.

Intel's plan to bring back the PC market

Scott M. Fulton, III — Wed, 14 Oct 2009 12:03:45 -0400

By Scott M. Fulton, III, Betanews

When the worst part of the Economic Storm of 2008 was about to hit, Intel made preparations by moving its emphasis toward Atom, its lowest-end processor for netbooks and embedded devices -- at the time, a single-core unit. Sure, it would drive average selling prices (ASPs) down several points, but it would provide the sales volume necessary to keep Intel in the game, so all hands were bracing themselves against Atom for support.

The biggest sign to date that the storm has officially passed came from Intel's quarterly call exactly one year later. Mention of Atom, the lifeline of the company through the worst of it, was minimized. And we're back to talking about Nehalem, the company's current power-saving architecture, and the move from 45 nm to 32 nm lithography. At least in the skies above Santa Clara, the all-clear has sounded.

During Intel's quarterly conference call to financial analysts yesterday (our thanks to Seeking Alpha for the transcript), we heard the high, resonant sound of that all-clear siren, in the form of a strong and comfortable 57.6% gross margin -- almost one point higher than forecast by the company last year, seven points better than in Q2 2009, and just one point lower than the company was facing before the bad economy hit full-force.

We also heard some evidence of how Intel plans to move forward from here, based on estimates that the general PC market has grown back from its pitfalls in Q1 2009, to just about flat if not slightly better. Essentially, it works like this: Usually, chipsets are a no-gainer business for Intel -- in fact, analysts used to complain during the years when Intel thought it could rely on chipsets as a growth market in itself. Now, with the chipset market having shaken out somewhat, there's more of an expectation that CPU makers AMD and Intel will contribute more to that end of the market, in order to better define the platform.

So Intel has seeded the market in the previous quarter with chipsets, knowing that as OEMs build more motherboards and notebook PCs that utilize those chipsets, demand will be seeded for the CPUs on which these chipsets rely. It's the reverse of the 2005 strategy (that didn't always work), which boiled down to, "If you like the CPU, you'll love the chipset that's made for it."

Here's how Intel CFO Stacy Smith described it to a Merrill Lynch analyst: "Remember the way the supply chain works -- and we think the supply chain is looking pretty normal right now -- if they put some chipset inventory in place in the third quarter, and then they couple it with a CPU in the fourth quarter, [that will] probably [result in] a little richer mix to CPUs in the fourth."

CEO Paul Otellini did mention Intel's shift toward more "systems-on-a-chip," but that refers more to the embedded side of the business. That's where Atom still rules, but Atom was not the star of the day today by any means. The shift in the "product mix" is now clearly toward notebooks and away from desktops, just like it was before, though the netbook form factor was given thanks for helping Intel hang on.

Here's how Otellini passed the torch back to the old generation, from his opening remarks: "Our mobile business had a particularly strong quarter -- in fact, we saw the sequential unit growth rate of notebook processors and chipsets actually exceed the growth rate of Atom processors and chipsets. While Atom and netbooks are important growth drivers for us, our traditional notebook business remains one of the primary drivers of revenue growth, and we expect that to continue in the future."

You don't need chipsets to drive Atom -- that's what system-on-a-chip architecture is all about. Atom already is a platform. As the traditional end of the market resumes its shift to notebooks -- perhaps on fast-forward, compared to the speed that CPU makers anticipated back in 2007 -- Intel is looking to build a complete platform, where the platform drives demand for Nehalem and future 32 nm architectures rather than the other way around, "allowing us to expand margins in a difficult economic environment," remarked Otellini.

It was a leaner Q3 for 2009 than for 2008, but Intel successfully scaled down its operating expenditures to match: its margins year-over-year are a little higher than flat, when Atom's success could have easily driven them into the toilet. The company earned $1.9 billion after expenses last quarter, on $9.4 billion of revenue. For the next quarter, the company gave more direct guidance than we'd seen in recent quarters, expecting as much as 62% gross margins on revenue of about $10.1 billion -- great returns on what probably will not be record sales.

Levinson quits Google's board, stays with Apple, amid FTC scrutiny

Scott M. Fulton, III — Mon, 12 Oct 2009 15:59:21 -0400

By Scott M. Fulton, III, Betanews

With the on-again/off-again relationship between the US Federal Trade Commission and antitrust enforcement clearly coming on again with the rise of the Obama Administration -- and the appointment of former FTC Commissioner Christine Varney at DOJ Antitrust -- it may no longer be acceptable among technology company directors to leverage their status with one company to influence another. Genentech Chairman Arthur Levinson's involvement as a lead director with both Google and Apple had never raised eyebrows until this year, when newly appointed regulators sought to eliminate the perception of possible collusion between technology companies.

That perception might have been obvious with regard to Eric Schmidt, the Google CEO who left Apple's board of directors last August. But for the career genetic scientist and molecular biologist whose company produced neither MP3 players nor search engines, his involvement was at one time seen as a way of sharing his life experience with multiple companies that could become partners.

In the modern realm of technology, appearances are often worse than the real thing. This morning, Levinson stepped down from his directorship post at Google, in an amicable parting that just last week Schmidt, in an interview with Reuters, pleaded was unnecessary, given Levinson's particular realm of expertise.

An FTC investigation into the relationship between the two companies was ongoing up until today. Though it has not officially called off the investigation, FTC chairman Jon Leibowitz issued this statement today: "Google, Apple, and Mr. Levinson should be commended for recognizing that overlapping board members between competing companies raise serious antitrust issues and for their willingness to resolve our concerns without the need for litigation."

Apple and Google had actually not overlapped much until last year, when the latter company entered the Web browser wars with a very competitive entry, Chrome. Later, Google announced its intention to build that software into an operating system, at first primarily for netbooks; presently, Apple does not produce a netbook, and has professed skepticism at the validity of the form factor.

While some analysts were saying Levinson's exit from Google just about wraps it up for the ties that appear to bind, they evidently had forgotten about one more prominent advisor who continues to have ties to both: Former US Vice President Al Gore has served on Apple's board of directors since March 2003, and helped guide that company through its accounting scandal, which many have already forgotten. Since before joining Apple, Mr. Gore has also been a senior advisor to Google.

Mr. Gore has leveraged his position at Google to help drive some pro-active policy efforts, including The Climate Project. Launched just two weeks ago, the site contains tools based on the Google Earth platform to help individuals study the effects of global climate change, and Google has certainly supplied the former presidential candidate with more help than just the platform.

It is the extreme right wing which has used the tool of guilt-by-association to draw an extremely elastic perimeter around Mr. Gore, Google, the "climate change underground," the "net neutrality movement" (whose founding principle, ironically, was created in an effort to prevent Google from buying premium bandwidth), and political action group MoveOn.org co-founded by Mr. Gore. Recent ultra-conservative blogs point to the fact that Mr. Gore mentioned the SavetheInternet Coalition in a 2007 book, as an indicator that he is actually that project's "ringleader."

Some believe that Gore is leveraging this alleged "ringleader" role in an effort to spearhead the notion, advanced only by scientists who refuse to wear their political affiliations on their sleeves and who point to only sporadic evidence of tsunamis, that global climate change is somehow real.

Writes conservative commentator Scott Cleland, "Where are the disclosures in the book that most all of Mr. Gore's multi-ten million dollar net worth is in Google shares -- constituting a huge undisclosed conflict of interest on the issue of net neutrality?"

Arthur Levinson was typically never mentioned by conservative bloggers.

The roots of all evil: Apple, Google, Intel, and Microsoft

Scott M. Fulton, III — Fri, 09 Oct 2009 13:53:02 -0400

By Scott M. Fulton, III, Betanews

Americans love a winner, and will not tolerate a loser.

- General George S. Patton (as portrayed by George C. Scott)

Throughout the information technology industry, there has been a certain pathology that somehow precludes any segment of it from evolving in any pattern other than consolidation, centralization, and the investment of authority and leadership in a dominant power. With every new market segment that's ever come into fruition -- "PC clones," laptops, smartphones, applications, operating systems -- the initial players can be scattered across the field like seeds strewn randomly in a flower bed. Once they coalesce, the pattern tends to look the same: a few dominant players, but usually just one, with the rest searching for new ways for their marketing or legal teams to plea for fairness and relief.

The argument against any government regulation of technology markets is that, left to their own devices, businesses will seek their own level of competition, manufacturers will develop their own unique strengths, and customers will decide for themselves which one provides the best product or service. Yet historically that has always been half-true: Left to its own devices, a technology market will always wind up with a dominant player, whether it's by accidental circumstance, fair competition, or fiendish design.

Markets make dominant players in order to have a center of activity -- almost every strategy among vendors leverages the dominant player's position either toward mutual goals or opposite goals. You'd think it would be nice if governments seeking to regulate the activity of dominant players could find them wholly guilty of the circumstances that led to their unfair success, and present to public scrutiny the evil motives and terrible plans that led to their rise to power. And yet it's never happened that way:

Intel. As documents emerging from antitrust proceedings against it in Europe, Asia, and from AMD in the US indicate, Intel probably did make deals with its customers for exclusivity or near-exclusivity. Yet those documents also very clearly indicate that it was Intel's customers themselves who specified those terms, like a would-be victim who gives the bank robber the gun to hold to his head, asking him to make him open the vault so he too can get a share of the loot. Customers such as Dell and HP were willing to buy CPUs in quantity, and appear to have been auctioning their virtues to the highest bidder. Intel's customers constructed its platform of dominance during the 1990s and early 2000s; they paved the way for it to become an exclusive supplier, to tip the scales against AMD. They fostered Intel's desire to win and they used it to their advantage. Any government seeking to assess Intel's liability for creating an unfair market must take into account the conduct of its customers for their mutual role in its creation.
Apple. There is absolutely no question about the fact that Apple won the digital music market, and is leveraging that stake to gain a big share of the smartphone market, through its brilliant marketing strategy and fabulous designs. But Apple knowingly, intentionally, and probably without malice rushed into a void left by its competitors. Apple did not create the MP3 player, but it was capable of building a digital music empire that continues to undermine the existing business model for media, mostly because it accurately assessed the short-sightedness of competitors in not reconstructing that business model for themselves. With Macintosh, every tenth-of-a-point of market share gained for Apple has been a hard-fought, bloody slog. But with iPod, Apple walked into a market that no one else was willing to build, and was immediately welcomed as the dominant player. Instantly Steve Jobs became the icon of the revolution, whereas with about 20 minutes more foresight, it could just as easily have been Michael Dell.
Google. In the history of cakewalks, however, Apple's will not be the most astounding. The Internet has really never had a viable, long-term business model. Almost every company whose revenue is dependent upon the Internet, rather than just invested in it as a side venture, perceives what it's doing now as a stopgap or an interim business, in lieu of what it can or should be doing once the "Second Bubble" bursts or the recession ends or someone else comes up with a better idea...or when Google invents it. Google has been everyone's savior. It's the lovable giant, the big daddy, the central source from which all fairness springs forth. It has cleaned up everybody's mess. When no one was successful at building "portals," Google created a big one for everyone. When no one could sell ads for themselves because it meant having to differentiate and strategize and all those...thinking things that require brainpower, Google stepped in and sold ads for everyone. When publishers couldn't find a way to build libraries, Google said, we'll make a digital Alexandria just for you (whether you're dead or alive). If only publishers and manufacturers and vendors and advertisers and governments could just let go and let Google, it would be just so happy to take care of everything for us while we have our nappy-time.
Microsoft. The road to power for Microsoft has always been paved by the blunders, errors, and completely foolish ideas of its adversaries. Everyone knows now that Microsoft came into being through the short-sightedness of IBM. And along the way to software market dominance, it made severe errors in judgment and committed illegal acts. But the facts that Windows is the dominant operating system, that x86 is the dominant CPU architecture (because it runs Windows), that Office is the dominant applications suite, and that Exchange and SQL Server are becoming the sources for digital communications and digital storage, respectively, are due to the most obvious reasons of all: This is what Microsoft's customers want, and no one else ever stays in a position of competitiveness long enough to offer a reasonable, affordable, working alternative. WordPerfect and 1-2-3 and, as time goes on, Oracle didn't lose their dominance entirely because Microsoft drove them into the ground; it's because they had their own shovels and, for whatever reason, dug their own graves. Microsoft leads, in markets where it does lead, because it lets its competitors fail on their own account. And in markets where it doesn't lead, it almost doesn't matter all that much.

The reason there are dominant players in IT markets is because we made them -- we the customers, we the OEMs, we the software developers, we the Internet users, we the readers. And the reason we made them is because we wanted to make them, and circumstances favored these candidates at the time and not others. If not for maybe a missed appointment here or a botched marketing campaign there, Motorola, Dell, Yahoo, and Digital Research could have been the subjects of this column.

We talk about "net neutrality," as if our goals for any one technology market have always been to level the playing field, favor no one, and let the best design concept succeed through the merits of pure and fair competition. But who are we kidding? In what other competitive field do we not seek a dominant player -- a majority party, a "most-watched network," a "nation's team," a "best seller," a "blockbuster," a "guaranteed hit?" We expect Darwin to select the survivor, but then we always rig the ballot box. In the absence of a dominant player, we will appoint one.

I was in the room for the unveiling of the world's first clamshell portable computer, the Data General One. It was a thing of beauty, or so it seemed, being able to boot up DOS from any place with an electric outlet. Too bad, an analyst told me at the time, because once IBM sees this it'll do it too, and Data General will be a remnant of history and IBM will own the market. Why? "Come on, seriously?" the analyst returned at me, like I just fell off a turnip truck. "Tell me you see the pizza-box computer market being owned by Data General!"

Nearly three decades later, the need persists for a dominant player, if only to generate Web site traffic. In market segments where a dominant player doesn't develop itself organically, publishers and bloggers often strive to invent it artificially. In data storage, for example -- a segment which editors have historically found dull, and have even used to banish writers they don't like, like stationing them in Siberia -- from time to time, the talk among editors will inevitably turn to, "What dirt can we get on EMC?" If only EMC could be framed as some kind of Microsoft or Apple or Intel, with an evil moustache and a pocket protector and electrical tape holding up its glasses, we could centralize our focus, get commenters to start bashing someone...and we'd really get traffic.

To some extent, a great deal of so-called "technology news" -- or at least the chunk of it that people actually read -- isn't even really about technology (tell me you read our series on high-k-plus-metal-gate fabrication). It's about the dominant player, or when dominant players collide as was the case with Google Voice on Apple's iPhone, or when dominant players flounder in unfamiliar territories. Just the word "Zune" excites exponentially more readers than will ever own a Zune or touch a Zune. In the IT news business, there has been one word for fair markets: boring. So even when companies make fair deals with purely benign, mutually advantageous goals -- for instance, between Microsoft and Novell, or Microsoft and Yahoo, or Google and Verizon -- even in the absence of any evidence of unfairness or collusion or anti-trust activity, people will inevitably invent it.

The biggest irony there is in this entire scheme is that every government investigation involving a dominant player using its dominance to obtain more dominance, has been conducted in the name of protecting something called "competition." In the real world -- in the world that has existed for millennia, since the distant ancestors of Steve Jobs and Eric Schmidt swung from trees -- since when has competition not been about winning? And how can anyone win without, at some point, whether by accident or its own design or someone else's design or perhaps, just perhaps, by necessity...becoming dominant?

Imagine there's no dominant player. I wonder if you can.

The viewpoints expressed here are those of Scott M. Fulton, III, who is solely responsible for his content.