18th > January > 1999 Archive

MS is NOT price gouging on Windows – DoJ expert

In Professor Franklin Fisher's redirect examination by DoJ attorney David Boies, the subject turned to economics. Fisher launched into a lecture on the elasticity of demand, using an OEM price for Windows of $50 and assuming that Microsoft put the price up $10. He concluded that Microsoft was not profit maximising, and that something else was going on. Judge Jackson paid close attention and had Fisher's mathematical jottings entered as court exhibits. At one stage he quoted Koko in the Mikado: "It is nice to have my opinions verified by a competent authority", complimenting himself, it seemed, for having derived this conclusion from first principles. Fisher was puzzled as to why Microsoft was not exercising its monopoly power to a greater extent, and suggested that Microsoft has not at present chosen to charge the highest possible monopoly price. Fisher concluded that Microsoft's price for Windows was unrelated to the fact that it was a monopolist, since Microsoft was taking profit in other ways, such as the protection of its monopoly by imposing conditions on OEMs. This appears to be a weak aspect of the DoJ case, and some analysis of the consequences of Microsoft raising Windows prices substantially might have led to better insight into a possible stampede to stop pre-loading Windows by an increasing number of OEMs (especially with Linux looking better and better). The danger to Microsoft, and the probable reason for Microsoft's restraint, was that this would inevitably result in unlicensed copies of Windows being loaded by users. What has received little mention is the effect of OEM Office licences on Windows prices, especially as Office costs more and has a greater potential for upgrade revenue. The states' case had included monopoly leverage aspects of Office, but it was withdrawn in its revised Complaint, possibly as the result of the DoJ's desire for a simpler case. Fisher made the interesting observation that when AOL signed the deal with Microsoft for IE and AOL icon placement, AOL was in a position to pay OEMs (and ISPs) less since it was getting the exposure anyway. Boies drew Fisher out to press home points that had mostly been made earlier: how Microsoft was using the OS to exploit monopoly power. As Gates put it in an email: "We have had three options for how to use the 'Windows box'. First, we can use it for the browser battle, recognizing that our core assets are at risk. Second, we could monetize the box, and sell the real estate to the highest bidder. Or third, we could use the box to sell and promote internally content assets. I recognize that, by choosing to do the first, we have leveled the playing field and reduced our opportunities for competitive advantage with MSN." The outcome was that Gates used the monopoly mostly in the browser battle because he was concerned that the monopoly was at risk. Fisher called this "monopoly protection - gaining profits thereby presumably at a later date, but protecting its profits rather than choosing to take them out in the short-run in the price that it charged for that asset." Lack of industry knowledge by Fisher (and probably Boies) meant that from time to time the record was marred. In view of Microsoft's high-profile denial that IE would be "free forever" (at least so long as it exists in separate form), Fisher's suggestion that Microsoft might start charging for IE is rather unlikely, as Microsoft would be severely wounded by the vilification it would receive for such a reverse. Boies turned to consumers and elicited from Fisher that they had been harmed. One consequence is that the world (or at least the US part) would no longer be "a consumer-driven society" Indeed, Fisher mused, Microsoft's slogan "Where do you want to go today?" would be "where Microsoft was willing to take you or where you choose to go, given the way Microsoft has restricted your choice. And you are certainly going to have to use the means of transportation Microsoft provides. Those may be nice means of transportation. You may, in fact, want to go to these places, but that's not consistent with the kind of market-driven choices - consumer-driven market choices - rather, that a competitive policy relies on." Fisher drew attention to Microsoft's lack of a business plan for spending so much money on browser development for no direct return, and in effect paying organisations to occupy Microsoft's real estate. The only source for the information that Microsoft spent hundreds of millions of dollars doing this appeared to be the answer of Microsoft staff to questions during deposition. Fisher was asked about a Gates' internal email about Intuit sent on 24 July 1996, a year after a merger had been blocked by the DoJ on the grounds of it being anti-competitive. Gates related what happened in a phone call he had with Scott Cook, then CEO of Intuit. Fisher interpreted it as an offer by Microsoft to give Intuit a million dollars if they favoured IE. Boies drew attention to the passage in which Gates said: "I was quite frank with him that if he had a favour we could do for him that would cost us something like $1M to do that in return for switching browsers in the next few months I would be open to doing that." Fisher said this was evidence that Microsoft was prepared to pay organisations to use IE. The amount was not particularly great (and in the event was not paid), since only a year earlier, Microsoft had to pay Intuit a $46.25 million termination fee for breaking off the deal. Lacovara later suggested to Fisher that Intuit had in mind development costs that Netscape would incur to incorporate IE, but a reading of the whole email in context does not confirm this to be a reasonable explanation at all. Gates wrote immediately after the $1M offer: "Scott said he will try to think of something that will help their long term business." Cook had made it clear that it would be hard to incorporate IE in 1996, so Microsoft would need to have something exciting to propose. Gates emailed his troops: "I made it clear to him . . . that we were only willing to do [sic] some very modest favors in addition to [giving Intuit IE for no fee]." A 31 January 1995 internal Microsoft email from Alec Saunders suggested that O'Hare (then being described as "one-button access to the Internet, including internal email, newsgroups, and an integrated World Wide Web browser") could be licensed for a substantial sum, Fisher said. The opinion apparently came from two focus groups. In re-cross-examination, Lacovara tried to suggest that Saunders held a minority view, which was not adopted - but the point that charging $50 for IE was being considered by Microsoft as a possibility remains a serious problem for Microsoft since it decided to forego such a possibility in its desire to harm Netscape. The part of the Gates' memo that seems not to have been quoted is Gates telling Cook that the componentized browser was "a great thing" and then noting: "I really believe Money should [take advantage of this componentisation] although I don't know when we will get around to it." It's the tale of the shoemaker's shoeless children again. A memo from Brad Chase on 4 April 1996 entitled "Winning the Internet platform battle" urged worldwide recipients "go for maximum browser share. "This is a no-revenue product, but you should worry about your browser share as much as BillG." Fisher's analysis of the document was that although it referred to corporate licensing as one of the "biggest potential revenue opportunities for Netscape". Microsoft's interest was in winning the browser battle, not in revenue opportunities. Both sides in the trial seem unaware as to how important senior Microsoft execs regard "winning". Since not one of them needs to work ever again, a considerable part of their motivation for remaining must be concerned with power and ego enhancement, especially by winning against competitors. At last Boies clarified the two meanings of "integrate". He put it to Fisher that one sense was that two software products could be run together seamlessly, without the user being aware they were two different products. In the second meaning, the products were integrated ("welded") so that it was impossible or very difficult to split the integrated product. Was Microsoft's approach to integration anti-competitive, Boies asked. Fisher had a firm response: "The consumer benefit doesn't come from the way the code is designed . . . The consumer benefit comes from the seamless operation. Microsoft, in Windows 95, designed Internet Explorer, particularly Internet Explorer 4.0, and Windows 95 to work seamlessly together and be integrated in that form. And there is, you know, evidence that they could have perfectly well-designed Windows 98 and Internet Explorer to also work seamlessly without having the what I have referred to the other day as the welded feature, the difficulty of taking it apart feature. . . . it was anti-competitive, to design Windows 98 and Internet Explorer in the way that they did it because they could have done it in a way that is less restrictive. They could have designed it in a way in which it is much easier for people to get rid of Internet Explorer than it is now, while providing the same benefits. . . . Because software can be designed in different ways, to design it in such a way that it can't be taken apart or it's difficult to take it apart, and then to argue that for that reason alone, this is a pro-competitive thing to do, or that one can't regard this as anti-competitive provided it provides any advantage in the course of that, strikes me as a rather peculiar argument." Fisher let loose some capitalist chants when he was asked whether this was an industry where competition would benefit consumers: "Well, of course I believe competition would benefit consumers. That is the general proposition - that's the central proposition of microeconomics. That is the central proposition - if I may be so grand, that is the central proposition of western capitalism, and it's based on some very deep theorems. It is true that those theorems mostly ignore the question of innovation, but by and large there is a presumption that competition increases consumers' choice, that competition leads to lower prices, and usually the competition leads to better products." Boies led Fisher into the subject of the percentage of PC shipments with Netscape on the desktop. "On the order of about half of one percent," Fisher replied. Lacovara pounced on this in his subsequent examination. Using data from Compaq's website obtained on 12 January, and verified at a CompUSA store, it appeared that all Compaq's new models now have Netscape Communicator pre-loaded. Lacovara chided Fisher for using old data in his analysis. It emerged that Compaq had evidently changed its policy since the trial began, since Barksdale in his evidence in October had told a much-different story. This may have happened as a result of the trial, and could be a prelude for many more changes in the industry as users become more aware. Fisher agreed that there was evidence of significant price discrimination and price increases for Windows - evidence of Microsoft's market power. This had been discussed in a secret session. Fisher did not think it was significant when Netscape knew that Microsoft proposed to give away IE, or tie it to Windows. "This isn't the case about damages to Netscape, in which case one could argue, I suppose, that Netscape ought to have known what was going to happen. This is a case about damages to competition. Microsoft's actions, as regarded its browser, including the bundling and giving it away for free, were directed at preserving its platform monopoly. Whether Netscape believed that was actually going to happen or not, Microsoft threatened to do it, Microsoft did do it, and the result was to blunt, at least, that particular threat. "Suppose, for instance, that Netscape had, in fact, believed it very early and that it, therefore, decided to stay out of the browser business? That wouldn't have made it any less anticompetitive." Michael Lacovara was then given the chance of re-cross-examination and tried, unsuccessfully as it turned out, to discredit Fisher's work in other cases, claiming that a jury rejected Fisher's evidence in one case concerning display bias in airline reservation systems. Fisher told him that he had confused two cases, and that the case was settled while the jury was out on terms favourable to his client. Lacovara did not apologise for his error. Fisher, whose knowledge of Linux looked very thin a few days earlier, said in response to a question from Lacovara, that he had heard of Linus Torvalds, but ruined it with narrow economist-think by assuming that Torvalds was an entrepreneur with a financial motivation: "If he thinks he's going to take over enough to be more than a minor irritant to Microsoft as opposed to taking over enough to be profitable himself, I would be (a) somewhat surprised that he thinks that; and (b) I would think that he's obviously wrong." Lacovara continued: "Now, using whatever mode of analysis that led you to label the prospect of these operating systems taking significant sales from Windows as a joke, I would like to ask you what you would have said in 1994, in July of 1994, if I said the following to you There is a six-person startup in silicon valley. Five of its employees had just graduated from college. They don't have a commercial product yet. They are building something called a browser. And a year from now, that browser will be the biggest threat to Microsoft Windows." Fisher said it was true that particularly in software firms can start small and become extremely successful. He missed the chance to quip that it didn't say much for Microsoft's much-vaunted research and development organisation sending billions of dollars that it had missed the initial browser opportunity, which had cost hundreds of millions of dollars and an antitrust case, and was now concerned at what it might miss next. Lacovara put a question to Fisher about entrants into the operating systems market. He asked: "Is it a fair statement that every single entrant into the operating-systems market has not attempted to replicate a very wide number of applications initially, but rather to focus on a core suite of applications and to begin to evangelize the new operating system and platform from that core suite?" He probably had not been briefed by Microsoft that when Tim Paterson at Seattle Computer Products wrote QDOS (and subsequently sold it to Microsoft), it was written so that CP/M applications could easily be ported to it. So the premise of Lacovara's question was wrong, but from ignorance rather than guile, it would seem. Lacovara brought up the subject of price discrimination, and mentioned a textbook on the subject. Fisher noted that the two authors had been his students. Fisher was asked to name a single vendor that did not discriminate on price. Again Microsoft was using the "they all do it" argument when the case concerned just Microsoft. Netscape was put under the cross wires for originally giving the browser away to students, but this reached no useful conclusion, and nor did the subject of Netscape being forced to stop charging by Microsoft arise. This led to questioning on negotiating style, with Lacovara - again unsuccessfully - probing the idea that non-price concessions could play a role. After some sarcastic questioning about whether Fisher knew anything about bookkeeping and accountancy, Lacovara asked if there were any significant errors in the data he had seen. There were Fisher said, but they did not affect the outcome of his analysis. Fisher scolded Microsoft for not having drawn attention to these errors in the first place, since they knew about them. Extracts from Fisher's 1983 book on the outcome of the IBM antitrust case were introduced by Lacovara in an attempt to claim that what he had written in the past was precedent - that it was the price adjusted for product quality that mattered. This should have been fertile ground, especially in assessing Microsoft's product quality, but for both sides the seeds fell on the stony ground of ignorance. Fisher had not tried to undertake any quality-adjusted price comparisons (and the idea that this could be undertaken by economists is amusing since their understanding of quality issues alone would be inadequate). Fisher pointed to hedonic regression as the way to do it. Boies then had another round with Fisher, and he elicited some useful points. In the past 12 years there had not been a successful entrant into the OS market that had become a significant competitor to Microsoft. Fisher's ordeal ended with some questions from Judge Jackson on the subject of harm to OEMs, which in turn led to Fisher saying that consumers were harmed when Microsoft raised prices. ® Complete Register trial coverage
Graham Lea, 18 Jan 1999

MS moves to strike some of new DoJ exhibits

Just before the United States and the 19 states (plus DC) rested their cases, more than 2,000 pages of exhibits, depositions, and videotapes were offered into evidence. Microsoft had the right to object on certain defined grounds to any exhibit, and wanted to exercise this right. It was pretty certain that Microsoft's objection was to the embarrassment it would suffer when they were made available publicly, so Microsoft claimed - in its legal jargon - they didn't "properly belong in the record". Judge Jackson had seen all this before, many times, and went straight to the heart of the matter. Only in cases of doubt about authenticity would he consider documents individually. The DoJ suggested that in the case of the 60 to 65 documents about which there was disagreement as to admissibility, they be entered in the record but be subject to a Motion by Microsoft to strike them. The judge agreed. As we forecast in The Register, Microsoft did move for judgment and was turned down. Microsoft's grounds were that the DoJ and the states had not established the claims in either of the Complaints. John Warden anticipated failure (or the decision being deferred until the close of all evidence) so Microsoft filed a ten-page summary Motion with no supporting brief, and didn't wish to argue the matter. Warden said that if Microsoft had correctly forecast the desire of the court, then Microsoft was ready to proceed. The judge then dealt with a number of Motions by Microsoft, some of which Microsoft had decided not to post on its Web site. All were denied. Microsoft had asked to strike evidence of a purported pattern or routine corporate practice; to strike portions of the testimony of Avadis Tevanian that related to alleged technical incompatibilities, except that the court would determine "what probative effect, if any, is to be given to that testimony"; to exclude the hearsay deposition testimony of Phil Schiller, except that the court would determine "what effect, if any, is to be given to that testimony"; to strike inadmissible statements in the direct testimony of William Harris; and to strike non-expert testimony in the direct examination of Franklin Fisher, except that the court would determine "what effect, if any, is to be given to that testimony". The DoJ's motion to strike the Representation of Microsoft (that it did no harm to Felten's prototype program to remove IE capability from Windows 98) was denied, simply because "The representation has been controverted, and consequently it is of no probative force or effect at this stage whatsoever other than as a representation as to what purported testimony will be. The DoJ's request of leave to conduct further discovery relating to Jim Allchin and his actions with Felten's program was then discussed. The judge was very reluctant to allow any reopening of discovery. The DoJ argued that it faced a fundamentally different situation, and there was a need to find out just what Microsoft had done to the program before Allchin was cross-examined. Reluctantly, Judge Jackson agreed to allow two hours of deposition and a document request not exceeding one page. Although none of these decisions is unexpected, they do show that Microsoft has certainly not gained any favour with the judge at this stage. He became much more tolerant to the excessive slowness of cross-examination, especially by Michael Lacovara. David Boies has a more interesting style and his redirect examinations have been more interesting and dealt with substantive matters. It has probably come home to the judge that this will be his most important case, so he is taking great pains to avoid missteps that might cause him to be reversed on appeal. Microsoft then opened its defence with Richard Urowsky of Sullivan and Cromwell administering the oath to Richard Schmalensee. Urowsky was a veteran of the first Microsoft antitrust case, and had antagonised former antitrust chief Anne Bingaman and Judge Stanley Sporkin greatly. The case for the United States, and for the states rested in the early afternoon of the 39th day of the trial. Whether the DoJ will take as long with Microsoft's witnesses is uncertain, but judging by the weight of Schmalensee's direct testimony, and if other Microsoft witnesses also produce lengthy tomes, the trial could end, appropriately, around 1 April. ® Complete Register trial coverage
Graham Lea, 18 Jan 1999

What is it Microsoft wants the court to keep secret?

Assiduous reading of the Microsoft trial transcripts gives some interesting clues about what went on in the various secret sessions of the court - and more broadly, just what it is that is of concern to Microsoft. Fisher said to Boies: "Microsoft also has created a system that we spoke about briefly yesterday [in closed session] in which in order to earn certain discounts, OEMs have to comply with certain hardware requirements. Contrary to what was suggested yesterday, it is not my..." At this point, Michael Lacovara interrupted Boies' redirect examination and the judge warned Fisher not to disclose anything. Fisher said: "I am going to discuss what I think is perfectly public, the fact that there are marketing development agreements and that they say some things about hardware. The judge asked if that was a problem and Lacovara replied: "Those facts are not public, your Honour. They are confidential," so any further discussion was put off until a possible additional secret session. A conclusion that may be drawn from this is that Microsoft is being sensitive about the conditions it imposes on OEMs who wish to get better prices from Microsoft (for Windows and applications, of course). Microsoft would not want it to be revealed what buttons needed to be pressed to get the best "discounts". But there is another aspect that dares not speak its name: the interest of the OEM is to sell more hardware more frequently. So as well as there being a more public adversarial role, there is a collusive relationship as well to increase hardware requirements, which could partly explain Fisher's reference to hardware. This could also explain why IBM's witness, John Soyring, made such a low-key, personal contribution: after all, IBM is still a major PC manufacturer and does pretty well out of NT, even if that did mean sacrificing OS/2. It is not in IBM's interest to upset Microsoft unnecessarily, especially as it is believed that IBM did get better prices for Windows recently. Boies said he proposed to lead Fisher (normally leading the witness by suggesting answers is not allowed) a little bit to avoid infringing in camera material. He asked if there was significant price discrimination by Microsoft in marketing Windows to OEMs ("Yes") and were there "significant price increases" for Windows ("Yes"). Microsoft also induced OEMs "to do certain things . . ." and Boies asked if Fisher could state it "without tying it to specific pieces of information that was discussed in camera". In response, Fisher asked if he could discuss "the change in the price of Windows 95" and the relation of the Windows 95 price to Windows 98 - provided he did not mention what a particular OEM paid. Lacovara said he would like this to be in camera, and Judge Jackson conceded this. Lacovara made a rather ill-tempered intervention to query why Boies needed an in camera session and how long he intended it to last. Boies suggested he could ask his questions in open court, since the public would not see the data in the charts prepared by Fisher. He went on: "I would say that the idea that some of these things are confidential, when what we are simply doing is rebutting exactly what is in some of Microsoft's press releases and in terms no more specific than what is in Microsoft's press releases, you know, is not something that I'm in total agreement on. I think I could do this for my present purposes entirely on the public record without infringing on any legitimate claim of confidentiality." The judge decided to be cautious, and closed the court for forty minutes. Lacovara noted that Fisher had said in closed session that some amount of the variation [in OEM prices] that you observe reflected business decisions that the OEMs made. Fisher said he wouldn't go into why it was manifest because of the confidentiality issue. He also noted that Microsoft's raising of the price of Windows 95 when Windows 98 came out was discussed in closed session, but added that he and Fisher had disagreed as to whether Microsoft did raise the price of Windows 95 at the time. Boies asked Fisher if the degree of price increases and the degree of discrimination be explained in terms other than in terms of Microsoft's monopoly power and its exercise. Fisher paraphrased this as "without monopoly power or without the market power involved, can what he had in his secret charts be explained?" The answer was that it could not. Fisher said that Lacovara had not pointed out any errors in his data, which had been passed to Microsoft in December. A very interesting revelation was Fisher's analysis, elaborated in a closed session, that "Microsoft, as I said, raised prices Windows 95 to OEMs. "That is a harm. And that was part of -- I believe I said yesterday [in closed session] that is related to Microsoft's efforts to avoid having OEM's ship naked machines, which would have led, possibly, to people, if they weren't otherwise restricted by Microsoft licenses, porting their Windows 95 licenses to new machines." The conclusions are that four matters were discussed in the secret sessions: the increase of Windows prices recently; price discrimination between OEMs (very sensitive for Microsoft); Microsoft's marketing requirements for OEMs wishing to get the best prices from Microsoft; and Microsoft's fear of naked, Windowless PCs. ® Complete Register trial coverage
Graham Lea, 18 Jan 1999

Mobile Celerons soon to arrive

Intel will introduce its mobile Celeron platform on the 25th of this month as part of its move to capture the low-end notebook market. The chips will come at initial clock speeds of 266Mhz and 300MHz, sources close to Intel said today. The 266MHz part will cost $106 in quantities of 1000, while the 300MHz chip will cost $185. Intel had initially planned to introduce a 233MHz part too, but there is now doubt whether this will be released. Earlier this month, Intel introduced a P55C 300MHz Pentium MMX which is also aimed at the low end of the market. At the same time, Intel will introduce its Mobile PII family, formerly code named Dixon and using a Mendocino core. These come with lower voltages and in 333MHz and 366MHz flavours. These will be incorporated in top-end notebooks launched by major vendors including Compaq, Dell and HP. ®
Mike Magee, 18 Jan 1999

Warning: Outlook Express can damage your postcards

Lost count of the number of court actions Microsoft is involved in? Well, in yet another one, a Californian judge has found that the company failed to comply with an earlier ruling he made on email filtering software. Santa Clara County Superior Court Judge Robert Baines had ordered Microsoft to warn users of Outlook Express that use of its email filtering technology could result in genuine mail being junked. The case had been brought by Blue Mountain Arts, whose electronic greeting cards are indeed blocked by Microsoft filters. Blue Mountain claims it first started having problems with Outlook users in November, just after (oh dear, not again…) Microsoft launched its own electronic greeting card service. The latest order compels Microsoft to post a warning on its main Web site, (Fairly Small Warning) and this has indeed happened. Says the site now: "Users are advised that Outlook Express comes equipped with a 'junk' mail filter which, when turned on, may relegate legitimate emails, such as electronic greeting cards from family or friends, to the junk mail folder, and dispose of them according to the user's preference." But if you actually click on the link headed "Warning to users of Outlook Express 5 beta" you get linked through the IE home page, which is chock-full of ecstatic words about the IE 5 beta, and nary a cheep about Outlook Express warnings. Looks a bit like Redmond is taking the mickey again, judge... ®
John Lettice, 18 Jan 1999

MS and Intel head for clash over graphics?

Intel and Microsoft could be heading for another clash - over graphics standard this time. Documentation and testimony from the antitrust trial has revealed turf-wars between the two companies over the precise location of the boundary between hardware and software, and the latest move by Microsoft, an alliance with Silicon Graphics (SGI), seems to contain the seeds of further clashes. Intel is currently pushing two workstation standards, WTX and WTX Pro, based on AGP Pro graphics. The company is also devising a new I/O standard, NGIO, to be aimed initially at workstations (Bus wars loom), although that appears to put it in competition with companies other than Microsoft - IBM, HP and Compaq, in fact. But joint development work Microsoft and SGI carried out prior to the launch of SGI's Visual Workstations (Related Story), together with a development project codenamed Fahrenheit, could put Microsoft on a collision course with Intel. SGI quotes graphics speeds up to six times those which can be achieved with AGP, and expects even greater things when Windows 2000 ships with the capability of DirectX to take advantage of built-in hardware acceleration. But the key point seems to be that SGI, while gaining Microsoft's co-operation in the implementation of NT on the Visual Workstations, has also been giving Microsoft a leg-up in high-performance graphics development, and providing it with the tools to build this stuff into Windows 2K. The Fahrenheit project will produce a suite of APIs for DirectX on Windows and SGI Unix, and will integrate Microsoft Direct3D and DirectDraw with SGI technologies, OpenGL, OpenGL Scene Graph and OpenGl Optimiser. The intention, they say, is to support OpenbGL for professional applications on Windows, and Direct3D for consumer applications. At the moment SGI is pitching its new workstations at the high end of the PC workstation market, and the company doesn't want to get involved in margin-slashing food-fights with the likes of HP. But it does look a little bit like SGI is currently selling the only machines which support the next generation of Windows graphics. Which of course begs several questions about future graphics subsystems, who's defining them, and who you might end up paying licence fees to - doesn't it? ®
John Lettice, 18 Jan 1999

United Nations targets child porn

The fight against child pornography on the Internet is being taken to Paris today where UNESCO (United Nations Educational, Scientific and Cultural Organisation) is holding a two-day conference to address the problem. Representatives of United Nations agencies -- as well as judges and legal experts -- say they are committed to eradicating child pornography on the Internet while maintaining that they respect the idea of freedom of speech on the Net. UNESCO officials hope that by the time the conference ends tomorrow, it will have produced a joint action plan of measures to help overcome this problem. But the conflict of cracking down on child pornography on the one hand, while respecting personal freedom on the other, is likely to make the job of the 150 experts attending the conference even more difficult. No one underestimates the magnitude of the job ahead but UNESCO officials said that paedophile groups were becoming ever more sophisticated and that this world-wide menace needs a global response. Combating the sexual abuse of children, creating a legal framework to stamp out any activity and developing a global initiative to track down and prosecute paedophiles are just some of the issues that are being discussed. Last week a German doctor was sentenced for two years in gaol after a court found him guilty of distributing child pornography over the Net. The doctor, who has not been named, distributed more that 9,500 photos between April and June 1997. According to an IDG report, the pictures -- some of which included scenes of violence -- contained pornographic scenes involving children and animals. ®
Tim Richardson, 18 Jan 1999

MP4 launched as successor to MP3 music format

Web site Global Music Outlet yesterday entered the race to define the standard format for music distributed by the Internet with the launch of a encoding system it calls MP4. But despite sounding like the successor to MP3, the MPEG 1-based format loved by listeners but loathed by the music industry, or even the latest generation the open audio and visual compression system, MPEG 4, MP4 is a proprietary format. In fact, MP4 uses encoding technology provided by AT&T, which suggests it's based on AT&T's a2b, one of the handful of digital music formats battling to become the standard. According to GMO, MP4 offers better sound quality than MP3 despite a higher level of compression (files are squeezed down by a ratio of 16:1 compared to 11:1 for MP3 -- a three-minute song takes up approximately 2.3MB of disk space, some 30% smaller than the equivalent MP3) file. MP4 files also include an embedded player to eliminate the need for a separate software audio player. GMO also claimed MP4 provides benefits for the owners of the encoded music tracks, allowing copyright holders to specify the degree to which tracks can be copied once downloaded and to issue 20-second audio clips. Tracks can also contain multiple hyperlinks to band and label Web sites. "With MP4 we hope to bridge the widening gap between the needs of online music fans and the rights of the artists and record companies that produce the music," said GMO CEO Anthony Stonefield. Trouble is, apart from some improvements on the compression front, MP4 does little that Liquid Audio's Liquid Tracks format doesn't already. Liquid Tracks has been around for some time and built up a good list of supporters, and Liquid Audio itself is part of the Secure Digital Music Initiative, the music industry-led committee charged with proposing an open digital music standard that will offer the flexibility of MP3 together with the level of copyright protection the big labels demand. GMO began working on MP4 before the big argument over MP3 was brewed by the Recording Industry Association of America's decision to sue Diamond Multimedia over its Rio MP3 player. The RIAA's failure to win concessions from Diamond and the resulting negative publicity it created for the music industry. That in turn led to the formation of the SDMI, something GMO couldn't have foreseen when it set out to develop an MP3 alternative. ®
Tony Smith, 18 Jan 1999

New directors join distributor, by Osmosis

PC components distributor Osmosis has set up a new board of directors to join existing MD John Fenton.
Team Register, 18 Jan 1999

Apple to bid for PlayStation emulator outfit?

A predator is stalking Virtual Game Station developer Connectix, according to West Coast sources -- but is it Apple, Sony or somebody else? The veteran software developer rolled out its latest show-stealing product at MacWorld earlier this month (see earlier story), and although the Virtual Game Station is just the kind of thing to send a console manufacturer over the top, so far Sony hasn't sued, and Connectix is confident that the product is legally clean. It allows PlayStation games to be run on G3 Macs, PowerBooks and iMacs. Connectix also produces Virtual PC, a Pentium MMX emulator for the Mac. Sony's certainly interested in Virtual Game Station, but probably more from the point of view of checking it out legally than owning it. Connectix recommends G3s as the optimum machines to run it on, and Connectix president Roy MacDonald points out that Sony sells the equivalent of the G3 installed base in PlayStations every two months. At $49.99 retail, Connectix isn't going to make huge bundles out of G3 owners, and although there's apparently a Windows version of the Virtual Game Station in the works, there's no ETA as yet (and, since so many PlayStation games are also available in native PC format, not too much point to it either). Apple, however, might be interested in Connectix for the emulation technology -- the combination of being able to run Windows and PlayStation software might just strike Steve Jobs as a potential killer. Ah, but does Connectix want to be bought? ® Register factoid: Connectix's expertise in emulation technology derives from its SpeedDoubler product, which contained a faster version of the 68K emulator built into all PowerPC-based Macs to enable them to run original Mac applications. And where did Connectix get its 68K emulation expertise? Ex-Apple staffers who worked on Apple's own emulator...
John Lettice, 18 Jan 1999

HP's real-time Java breakaways lose key support vote

The National Committee for Information Technology Standards (NCITS) has formally rejected the Hewlett-Packard led Real-Time Java Working Group's proposed specification. The NCITS originally voted to support the Real-Time Java Working Group (RTJWG) at a preliminary session back in December 1998. The RTJWG selected the NCTIS to oversee its work on developing a version of Java for real-time embedded systems after its attempt to come to an agreement with Sun Microsystems, which is developing its own real-time Java with IBM, stalled. The Group's argument with Sun centred on just how open the Java creator was being with the technology, but deep down the conflict appears as much about defining a market worth billions of dollars, far more than the personal computer business. Had the NCITS supported the RTJWG's proposed standard, it would ultimately have resulted in two possibly incompatible standards. While RTJWG members were keen to stress the NCITS vote did not mean they would now be forced to join the Sun camp. However, unless the Group can find another standards body willing to take its work on board, some kind of alignment with the Sun way of doing things seems certain. Still, the NCITS vote wasn't an outright victory for Sun -- the RTJWG's supporters simply failed to win the ten votes necessary for the motion to be carried, thanks to the large number of voters who abstained. ®
Tony Smith, 18 Jan 1999

Gates TV – the final instalment

Among the thousands of pages of exhibits and depositions released at the end of the DoJ's case last week were further extracts from the videotaped depositions of Bill Gates. We have summarised the contents, with quotations from Gates' replies. This time it is indicated on the transcript whether the extract was included at the request of the DoJ or Microsoft, so we have indicated this where it is of particular interest. The questions were asked either by David Boies for the DoJ, or by Stephen Houck for the states. There are just two possibilities to explain the responses: either Gates has a serious memory problem, or he is being rude, obstructive and petulant. Judge Jackson has already indicated to Microsoft's lawyers that Microsoft has a problem with Gates. Boies asked if Gates was aware that one of the issues was the extent to which the operating system and browsers are or are not separate products. Gates: "As far as I know, the issues in the case are not -- are something that you [ie. the DoJ] decide, and I don't claim to have any expertise at all." [Microsoft extract] How very strange that the same man who has claimed he is helping his lawyers on the case doesn't know the issues. When asked if he had been trying to get Microsoft personnel to use language that would suggest that browsers and operating systems were not separate products, Gates replied: "I have no idea what you mean by that." Asked if he recognised that OEMs have a need to acquire Windows, Gates replied: "What do you mean by OEM?" There was lengthy questioning about the meaning of "browser" as compared with "browsing technologies", and it proved hard to tie Gates down to admitting what everybody else in the industry understood by the term. Gates always denies remembering the receipt of an email or memorandum that is embarrassing, so dodging the issue in it. An example is when he was asked if he remembered receiving a memo from Joachim Kempin in February 1998 that said: "Saying 'put the browser in the OS' is already a statement that is prejudicial to us. The name 'browser' suggests a separate thing." It was strange that Microsoft should have wanted included: "Was Microsoft earning any service revenue on its browsers the first quarter of 1996?" Gates replied that Microsoft had not, and "That developed into a large business subsequently in our case." Since the normal meaning of a business is an activity designed to make money, it was a very odd response from the "forever free" school of browser pricing. Perhaps he meant that Windows 98 became a business. When asked if it was in Microsoft's interest to convince financial analysts that Netscape was not going to be financially viable, Gates denied he had a goal to do that. Gates was then confronted with a May 1996 memo he had written that said: "At some point financial minded analysts will begin to consider how much revenue stream Netscape will be able to generate." It is not the case that Gates never uttered the name of Microsoft's browser competitor. He was asked what company had a browser that had been free, he replied: "Well certainly Mosaic was free. And there are a number of other browsers. The Netscape browser in its early days was also free." It must have been like therapy to get the name out in the open. Gates denied knowing if Netscape's browser revenue was zero today. He subsequently admitted: "It may have dropped to zero." Asked whether Microsoft had any intent to deprive Netscape of revenue so far as Microsoft's decision to put IE in Windows 98 was concerned, Gates said: Well, our decision to have the browser be a feature of Windows was in no way motivated by something to do with Netscape. We had chosen that that was a logical evolution of the Windows feature set [he means IE] before Netscape was a factor at all." He elaborated: "We decided it was a logical improvement of Windows to put the browser into Windows before we had much awareness of there even being a Netscape. So the decision that that would be a feature -- and as I've said, when we make something a feature of Windows, that means it's available along with all the other features and the licence fee, that decision was made very early on." Boies asked if around January 1996, did "Microsoft try to study Netscape to determine how you could reduce Netscape's ability to compete?" Dave Heiner, Gates' legal minder for the day, objected to the question, but Gates didn't 'take the fifth' and replied: "I don't know what you mean by that." Boies had set the trap however. He produced a Microsoft memo in which Gates had sent to five Microsoft executives, saying: "What kind of data do we have on how much software companies pay Netscape?" He went on to say that he didn't think he received any information as a result of his enquiry, and reinforced this by saying: "I'm quite sure I didn't". It is a very strange memory that can be "quite sure" of not receiving something, but totally unable to recall receiving similar things. Of course, he may have been anxiously awaiting the information, and disappointed that it did not come. A curious email from Paul Maritz to Gates in April 1995 is entitled "Netscape as NetWare". A footnote says: "The analogy here is that the major sin that Microsoft made with NetWare was to let Novell offer a better (actually smaller and faster with simple protocol) client for networking. "They got to critical mass and can now evolve both client and server together." Gates denied knowing what critical mass meant. Perhaps Novell should run the quote in advertisements. ® Complete Register trial coverage
Graham Lea, 18 Jan 1999

Leading airline favours Web for ticket sales

Delta Air Lines' decision to make it cheaper to buy tickets on-line than through traditional channels is yet another milestone in the development of e-commerce. In a bid to cut its spiralling ticketing costs -- which account for $1 billion a year -- the company said it will charge customers an extra $2 on all domestic bookings that are not done via the airline's Web site. According to reports, this is the first time any major airline has created such a price differentiation between tickets sold through traditional channels and via the Web. A spokeswoman for Delta in the UK confirmed that the trial was going ahead in the US but was unable to say when it would be introduced in the UK. "We'll just have to wait and see if it's a success," she said, adding that she thought the trial was both exciting and showed Delta's commitment to IT. According to figures regularly trotted out by IBM, the cost of issuing an airline ticket falls from around $8 dollars to less than a dollar if it is done electronically. ®
Tim Richardson, 18 Jan 1999

UK Net advertising revenue up 300 per cent

UK Internet sites netted some £7.9 million in the first six months of 1998, three times more than £2.4 million earned in the same period in 1997, according to research from the UK wing of the Internet Advertising Bureau (IAB). In 1997, the IAB recorded Net-based advertising spending of £8.1 for the who year -- and it expects that figure to be "significantly" exceeded when the full statistics for 1998 are compiled. The latest figures were compiled on behalf of the IAB by Price Waterhouse Coopers. Still, the UK is clearly lagging behind the rest of the world. According to the IAB, the UK's first half figure ($13 million) comes in at under four per cent of the global (ie. the US) Internet ad spend for just the first three months of the year ($351.3 million). ®
Team Register, 18 Jan 1999

China tackles Internet

Chinese authorities are so worried about the spread of the Internet they are planning to create a crime investigation until in every city in a bid to exert some control over the Net and how it is used. In a leaked document it has been revealed that the number of Net accounts in the country has doubled in the past year to just over two million. But since many accounts have multiple users, some experts predict the actual number of people online could be nearer six million. Human rights activists believe the move will have far-reaching implications on the freedom of speech in China adding that e-mail will be intercepted and users targeted by the authorities. ®
Tim Richardson, 18 Jan 1999

Demon censured for ‘biggest UK ISP’ claims

It's official: there is no difference between an Internet Service Provider (ISP) and an Online Service Provider (OSP), at least according to UK advertising watchdog, the Advertising Standards Authority. The ruling (such as it is) followed complaints from AOL UK, a joint venture between AOL US and German media conglomerate Bertelsmann, that advertising claims made by Demon Internet, the company the first popularised Internet access in the UK, were false and misleading. Demon's ads claimed it was still the UK's number one ISP -- but, said, AOL UK, with over 460,000 subscribers' we have more members than Demon does. Demon's defence followed the old line that while companies like AOL and CompuServe also offered Internet access, the fact they provided so much more content themselves in addition, clearly differentiated them from businesses like Demon content to simply hook users up to the Net. The ASA, however, ruled that that argument, which has is origins back in the days when AOL and CompuServe didn't offer Internet access, no longer applied and that most people would not understand the difference between OSP and ISP. Demon was asked to "stop implying that most people were connected to the Internet through Demon". Ironically, even allowing for the OSP/ISP argument, Demon has arguably now been overtaken by Dixon's ISP, FreeServe. ®
Tony Smith, 18 Jan 1999


To all our readers: More than a few of few will have noticed the erratic (not to put too fine a point on it) performance of The Register over the last few days. Such has been the rapid growth of The Register and the Empire of the Vulture, that it became necessary to upgrade our server, and much of the software infrastructure behind it. This of course sounds like a very good idea -- until you actually have to do it, as some of you have witnessed. So, we'd just like to apologise for any incovenience this has caused, and thank you sincerely for your patience. Normal service will not only be resumed shortly, but we hope the enhancements we are making will ensure The Register will become even faster at bringing you the hottest news stories and the most incisive industry comment the Web can offer. The Register Team
Team Register, 18 Jan 1999

Compaq slashes Alpha server prices

Compaq is slashing prices on its existing range of Alpha servers in the run-up to its launch of workstations and servers. Sources said the price cuts amounted to as much as a third. No-one from Compaq was available for comment. ®
A staffer, 18 Jan 1999

MS Terminal Server policy collapses

Any minute now Microsoft will abandon its Windows Terminal server strategy, halving prices and reintroducing concurrent licensing, according to reliable sources. The announcement is due this afternoon US Pacific time, and will slash the cost from $319 to $109 for a Terminal Server client plus a further $40 for an NT file and print Client Access Licence (CAL). Microsoft had previously insisted that each and every client connected to a Windows Terminal Server network had to pay an NT Workstation licence, whatever the operating system, plus a CAL, making Microsoft's take for each client equivalent to having a full-blown NT workstation installed. Corporate customers wanting to implement thin client system squealed long and loud, but Microsoft was adamant (although we should note that The Register was predicting the entire show would crash around Redmond's ears some months back). The rout is however now complete. Aside from the basic halving of the cost of Terminal Server clients, Microsoft is to offer an additional discount of up to 50 per cent to enterprise customers. Varying prices in this way for the big customers is more or less what goes on normally at Microsoft, so the new price level can probably be defined as whatever it takes not to lose the business. On top of this Microsoft will be offering enterprise customers half price CALs for people who need to connect from home as well (previously it was the full whack for both licences), and will be reintroducing what seems to be a concurrent licensing system. The Internet Connection Licence is a cool $10,000 for 200 of something called "anonymous users." That is, it's a mechanism to budget for Internet operations which are acting as Application Service Providers, allowing time-shared access to Win32 applications running on a Web server. Ts & Cs of the Internet Connection Licence weren't absolutely clear at time of writing, but as it works out at $50 a pop it's probably an indication of the direction Terminal Server client licences are heading in. South, that is... ®
John Lettice, 18 Jan 1999

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