Google's alternative to Microsoft Office, Google Apps, has always suffered from the fact that it offers a sort of "good enough" compatibility — fine for most basic document and spreadsheet tasks, but not enough to match certain Office features.

Now Google is preparing to use technology from a recent acquisition, QuickOffice, to close that gap.

In recent weeks, Google sources have told me that Google has been internally testing, or "dogfooding," QuickOffice, which began life as a standalone productivity app that offers better compatibility with Office than Google's own Apps. Now, however, Google is testing QuickOffice as a cloud-based service in its own Chrome browser.

(Google already provides QuickOffice as part of its Google Apps subscription, specifically as an app for customers with Android tablets or iPads.)

Why QuickOffice?

QuickOffice uses the same .DOCX file format that Office does, allowing users to quickly edit and share the same files as Office users. QuickOffice compatibility probably means that more businesses and users will see Google Apps as a viable alternative to Office, wounding Microsoft's Office cash cow. 

Google sources also say they're confident that Microsoft won't be able to block QuickOffice with licensing issues or other legal threats. Eventually, these individuals say, QuickOffice will become the foundation of Google Apps, although that's still a ways off.

The target, Google sources said, isn't the full PC-based version of Office itself - although that might be a bit of spin. Instead, Google claims to think of QuickOffice as a competitor to Microsoft's own Web-based versions of Word, PowerPoint, and Excel - which often deliberately fall short of full Office functionality. For now, that means running QuickOffice as a browser app, probably using Google's Native Client technology, until Google's engineers can integrate it directly with Apps.

It's another example of the growing tension between Microsoft and Google, evidenced by the Microsoft's "rule-breaking" YouTube Windows Phone app and its use of an open API to talk to Google+ users via its Outlook.com Web site.

Google chief executive Larry Page, for example, used his Google I/O keynote to call out Microsoft's behavior as "really sad," and said that Microsoft took advantage of the open API. "Being negative is not how we make progress," Page said. "And most important things are not zero-sum. There's a lot of opportunity out there."

Google Tipped QuickOffice Plans At Pixel Launch

Google acquired QuickOffice last year for an undisclosed sum, and the team went quiet. But we know that Google plans to add QuickOffice to the Pixel, because Google said so.

At the launch of the Pixel a few months ago, Google's Chrome chief, Sundar Pichai, said that it would take two to three months to add QuickOffice to the Pixel, but that it would be included with it. Since it wasn't available when Google handed out thousands of Pixels to developers Wednesday, it must be coming soon.

Looking back, Pichai actually spoke quite a bit about QuickOffice's role within Google at the Pixel launch- but the media (probably correctly) focused on the Pixel hardware itself. Pichai set the stage for the Pixel handout by emphasizing, again and again, that the Pixel represented the best Chromebook experience for developers and early adopters: "if you're living in the cloud, this is the best experience you can use," Pichai said then.

Microsoft Strikes... Too Soon

Microsoft clearly anticipated a QuickOffice launch at Google I/O. On May 10, it published a blog post that directly attacked the compatibility of Google Apps as well as QuickOffice. Jake Zborowski, a senior product manager at Microsoft, wrote:

Productivity software is built to help people communicate. It's more than just the words in a document or presentation; it's about the tone, style and format you use to convey an overall message. People often entrust important information in these documents -- from board presentations to financial analyses to book reports. You should be able to trust that what you intend to communicate is what is being seen.

Zborowski's post included several sample documents that users could download themselves for comparison's sake, as well as a funny YouTube video that included Rob Schenider and Pete Rose, poking fun at the "gamble" that is Google Apps. In a supporting comment, Zborowski pointed out that Google doesn't support the Open Document Format, suggesting that Microsoft is more open than Google.

Google representatives shrugged off the post, noting that the example documents relied on Office functions typical users rarely touch, such as watermarks and odd text spacing. 

However, Microsoft's post also noted that Office Web Apps can now be used within Android, leaving the Microsoft-Google competition within the Android tablet space as an app - Google's QuickOffice - versus a cloud solution, Microsoft's Office Web apps.

The whole point of the Pixel, according to Pichai, is to show off the power of the cloud. Microsoft, for its part, is still largely wedded to the desktop application, and the $23 billion or so that its Business Division pulls in on an annual basis. (Office 365 doesn't live in the cloud, although it has cloud hooks in SkyDrive and its subscription delivery system.) That's a target that Google has attacked for several years now, with dueling customer announcements from both sides marking the ebb and flow of the battle.

Micosoft may be right that Google Apps and QuickOffice don't offer the full capabilities of Office. But they come close - and "close" has been the selling point behind Apps all along. QuickOffice looks like it could close the gap.

Image Source: Google

Google has formally demanded that Microsoft yank its new YouTube app for Windows Phone, which allows users to skip ads and download YouTube videos — both of which violate YouTube's terms of service. The Verge has the full text of Google's cease-and-desist letter, which is dated today.

ReadWrite reported on the Microsoft app's apparent rule-breaking last week.

Updated 10:24am PT on May 16: A Microsoft PR representative emailed us a statement in response to Google's letter:

YouTube is consistently one of the top apps downloaded by smartphone users on all platforms, but Google has refused to work with us to develop an app on par with the apps for other platforms. Since we updated the YouTube app to ensure our mutual customers a similar YouTube experience, ratings and feedback have been overwhelmingly positive. We’d be more than happy to include advertising but need Google to provide us access to the necessary APIs. In light of Larry Page’s comments today calling for more interoperability and less negativity, we look forward to solving this matter together for our mutual customers.

Microsoft's much-anticipated updated to Windows 8 will be free, will be called Windows 8.1 and will be out "later this year."

All this news came on Tuesday when Tami Reller, the CMO and CFO of Microsoft's Windows Division, addressed JP Morgan's Technology, Media & Telecom Conference. Reller wouldn't commit to a launch date, but promised a public preview edition when Microsoft's Build 2013 developers conference opens on June 26.  Some reports interpreted Reller's remarks to hint at a full release around the Holidays.

Windows 8.1 will work on both Windows 8 and Windows RT, the version of the operating system that runs on ARM processors. 

See also:

• Microsoft Is Trying To Build - And Sell - A kinder, Gentler Windows 8
• Windows Blue's Goal: You Will Love Metro (Eventually)

Tami Reller image is from an earlier Microsoft event.

A quiet upgrade to Bing's language translator today has added Klingon, in both the Latin and Klingon alphabets. 

That's great news if you wanted to ask, "How does one get 'Scroogled'?" in the elegant tongue of Star Trek's most warlike species. The answer, of course, is "chay' Qu' 'SchrooghleD' wej wa'?" 

Or perhaps you were wondering the best way to phrase, "How much, in fluid ounces, does Steve Balmer sweat every time he's onstage?" A Klingon would say: "'ar, tlhluID ouncheS, Qu' Sweat steve balmer Hoch poH ghaH onStaghe?"

The feature also works for translating entire webpages and in the Bing translator app for Windows Phone. Check out a screenshot of the translator's use of the Klingon alphabet below, and feel free to retire that paperback Klingon Dictionary you've been keeping in your bag for special occasions. 

Image courtesy of YouTube video Klingon Style.

Bill Gates was the subject of last night's 60 Minutes and he and host Charlie Rose touched on a wide array of topics, primarily the billionaire's humanitarian efforts under the Bill & Melinda Gates Foundation. 

While the focus may have been on life after Microsoft, the interview also included emotional recollections from Gates as he recalled the last time he saw longtime rival Steve Jobs alive in May of 2011. He recalls Jobs being very forward-looking, focusing both on heavy subjects like where technology had failed education as well as personal ones, like finishing his 260-foot yacht Venus despite the somber realization from both he and Gates that it was unlikely he would ever set foot on the finished vessel. 

When asked, as he often is, what he think Jobs was better at, Gates immediately responds, "His sense of design, that everything had to fit an aesthetic...it shows that design can lead you in a good direction and phenomenal products came out it."

Watch the unaired footage from the interview below: 

All the computers on the International Space Station that used to run Windows XP now run Linux, reports Extreme Tech. The reason: Microsoft's OS just wasn't "stable and reliable" enough, according to the United Space Alliance, the spaceflight operations company that manages the hardware onboard the ISS in conjunction with NASA.

Image courtesy of NASA. 

Who needs apps? Microsoft buying Nook Media would be a a brilliant move: Microsoft would add millions of e-books that consumers want, to supplement tens of thousands of apps that, well, they don't.

Is Microsoft About To Buy Nook For $1 Billion?

TechCrunch reported Thursday that Microsoft is considering paying $1 billion for Nook Media, the division of Barnes & Noble that includes both the Nook tablet as well as its e-book business. That works out to a discount of about $700 million to $800 million compared to what Barnes & Noble valued the Nook at just a few months ago. A deal at that level would be a clear indication that B&N wants out of the digital business.

So much so, in fact, that there have been rumors that Barnes & Noble plans to kill the Nook by the end of April 2014, instead selling its e-book content on apps from "third-party tablets" from an undisclosed manufacturer or manufacturers. That could mean Microsoft's own tablet, the Surface, steps in to replace it - and we're already getting reports of smaller, Nook-like Windows tablets in the works. Of course, Nook is already available on the iPad and non-Amazon Android tablets.

(See also Microsoft, Barnes & Noble Release Windows 8 Nook App: Is A "Nook Surface Next?)

TechCrunch's report suggests two key factors: developing, manufacturing and selling a tablet like the Nook isn't a profitable business. But e-books are. By itself, the Nook unit lost $262 million on $1.2 billion for the fiscal year ended April 30, TechCrunch's secret documents alleged. Meanwhile, B&N itself publicly disclosed that its Nook segment revenue dropped 26% last quarter, but e-book sales grew 6.8%. (Some 10 million Nook tablets and e-readers have been sold, and the service boasts more than 7 million subscribers.)

We also know that Microsoft has already forged ties with software developers, including game creators; has established relationships with the music business to create Xbox Music; and has developed a network of cloud servers which can serve that content up virtually anywhere. Adding book publishers to the list should be relatively simple.

Microsoft has already proved its interest in the Nook platform. In 2012, Microsoft dumped $300 million into Nook Media, which later generated a Nook app for Windows 8 and not much else. It certainly looks like Barnes & Noble isn't heavily invested into the relationship. It's time for Microsoft to take over.

Patching The Windows App Store With Books

People need a compelling reason to buy a new device, and Microsoft hasn't given them much of one. Microsoft's Surface is a terrific piece of hardware, but is overpriced compared to rival tablets. Meanwhile traditional PCs are on the decline, perhaps even being pushed down the slope by Windows 8. Microsoft's platforms simply lack the app support of iOS and Android.

Windows Store apps, as measured by MetroStore Scanner.

Moreover, if apps are now a key tablet selling point, Microsoft doesn't have that much to offer. Microsoft's app store is growing quickly - but that's due to the fact that it's starting from a very small base. As of Thursday, MetrostoreScanner, which tracks the apps that appear and are updated on Microsoft's Windows Store, showed a total of 70,182 apps in the Store - about double what it had at the end of December. Google and Apple, on the other hands, each claim about 800,000 apps in their respective app stores.

In the company's defense, Tami Reller, Microsoft's Windows chief, has argued that the Windows Store has aggregated more than the number of apps that iOS did during the same period. She also said that almost 90% of the entire app catalog is downloaded every month - a puzzling statement, meaning that either Microsoft is doing an excellent job promoting app discovery, based on its Mimvi technology - or that Windows uses really don't have that much to choose from. 

E-Books Complete The Windows Store 

Adding e-books won't make Microsoft's app problems go away. But they could provide a pretty big distraction. Not to mention that owning the Nook platform would dramatically broaden Microsoft's content strategy to include iPads and Android tablets. Microsoft has also hinted at plans to integrate Nook content in Office, putting its digital content in front of millions more users. That would be a welcome change from Microsoft's decision not to rush out Office for iOS and Android. 

(See also Why Microsoft Is Tying Barnes & Noble's Nook To Windows, Office And Bing.)

Finally, it may seem simplistic, but one of the more compelling reasons to add Nook content is simply what users see - or don't see - on the Windows 8 Start screen: Games, Music, Video - but not Books. It's a glaring omission, and one that Microsoft could solve with a single stroke of the pen - and a billion dollars.

Image Sources: Pearson Media (Nook App) Barnes & Noble (Nook)

Microsoft appears to be sticking a finger in Google's eye with the launch of its new YouTube app for Windows Phone. The app, ReadWrite has confirmed, strips out YouTube ads when it plays back videos and allows users to easily download video by way of a prominent "download" button.

Both behaviors violate the cardinal rules YouTube imposes on developers who use its service. To get around those restrictions, it appears that Microsoft reverse-engineered some portion of the software used to access YouTube's basic functions, which are generally known as application programming interfaces, or APIs. If so, that could mean Microsoft can do just about whatever it wants with its YouTube app.

Google had previously declined to build a YouTube or any other Google apps for Windows Phone 8, citing the lack of users on the platform.To get an official YouTube app on Windows Phone, Microsoft decided to circumvent Google and just build the app itself. 

YouTube's restrictions, found in section II of its terms of service, are fairly explicit:

Your API Client will not, and You will not encourage or create functionality for Your users or other third parties to:

[...]

7. modify, replace, interfere with or block advertisements placed by YouTube in the YouTube Data, YouTube audiovisual content, or the YouTube player;

[...]

11. store copies of YouTube audiovisual content;

In a variety of tests, ReadWrite found that the Microsoft YouTube app indeed appears to be stripping pre-roll ads from videos that would normally appear. Ads appear on both this video from BuzzFeed on the Web and Android as well as this video from popular YouTuber Jenna Marbles. Neither of the videos had pre-roll ads when viewed via the Microsoft app.

As for downloading, that's fairly easy to spot in Microsoft’s YouTube app — there's an entire button dedicated to it. See the screenshots below.

Microsoft admitted to Neowin.net, a technology website that focuses on Microsoft, Apple and Linux news, that it had re-architected some of YouTube’s APIs to get the app to work. A Microsoft PR rep confirmed the statement below and offered no further comment:

Windows Phone invested additional engineering resources against existing APIs to re-architect a Windows Phone app that delivers a great YouTube experience, including support for unique Windows Phone 8 features such as Live Tiles and Kids Corner. Microsoft did not receive any additional technical support to create the Windows Phone YouTube app.

Neither Microsoft nor YouTube had responded to requests for further comment as of this morning. We'll update the story when and if we hear back.

This wouldn't be the first time that Microsoft has reversed-engineered Google. In February 2011, Google caught Microsoft's Bing search engine copying Google search results. Google had set up a “honeypot” trap to catch Microsoft in the act.

It's official: patent litigation is a fool's game. As reported in The Wall Street Journal, the past few years of patent litigation in the mobile industry have yielded participants very little, as courts have swatted down suits on the basis of prior art, obviousness of the technology or other reasons. However, Microsoft, by quietly, consistently threatening without overtly suing, has managed to pull in billions of dollars in license fees from Android licensees.

In other words, speak softly and carry a big stick?

Suing Competitors: It Seemed Like Such A Good Idea

For years the mobile industry has been a morass of patent suits and countersuits. Everyone seems to be suing everyone. Yet, as the Journal reports, the industry has little to show for this except tens of millions of dollars in legal fees.

Not only have courts been prone to strike down the lawsuits, even when they've accepted a patent litigant's claims they've tended to take years to actually settle on anything and even then have rendered judgments that give the prosecution far less than they'd hoped. In technology, which moves at a blistering pace, court cases that take years are largely irrelevant, whatever a court may ultimately decide. By the time courts get around to rendering judgment, the industry has moved on.

Hence, for all Apple's attempts to kill Android in the womb, Google's open-source mobile operating system now dominates the industry, and its primary licensee, Samsung, bests Apple in market share.

This leads Stanford law professor Mark Lemley to quip, "buying up a few patents and trying to get rich off them by suing is a questionable pathway to profitability." It has also pushed Microsoft to take a different tactic: threaten, don't sue.

Profiting From The Threat Of Litigation

Microsoft has never been one to sue. In its long history, the company has only taken someone to court a small handful of times, and itself has had to pay out more than $9 billion in damages. Perhaps because of how hard Microsoft has been spanked by the courts, it has taken a different tactic with Google Android.

As reported by Reuters, Microsoft now makes far more on Android patent royalties than it does on its own Windows Phone OS. (For some this might make Microsoft a patent troll, but we'll leave that for a separate blog post.) In fact, by some estimates Microsoft will clear $3.4 billion in Android royalty fees in 2013, and is on pace to top $8.8 billion within the next few years.

Not a bad haul for simply sending lawyers to sell fear about its patent portfolio. 

Commenting on Microsoft's claim that it now collects royalties on 80% of all Android devices shipped, Google spokesman Matt Kallman declared: "This is the same tactic we've seen time and again from Microsoft. Instead of building great new products, Microsoft attacks the competition and tries to drive up the prices of Android devices for consumers."

Patent Infringement? You Bet

Of course it's possible that Microsoft's patents are rock-solid; that their quality is super-high and could never fail in court. It's also possible that Steve Ballmer is Santa Claus.

Here's the reality of patents: everyone violates everyone's patents, all the time. The US Patent and Trade Office has been issuing patents of such dubious quality for so long that this isn't merely speculation: it's an absolute given.

Perhaps for this reason Microsoft prefers to do its patent "litigation" in the quiet conference rooms of LG, ZTE, Asus and other Android licensees. Behind closed doors, Microsoft can persuade listeners that its patents are being violated (they likely are) and that a court would find for Microsoft (it likely wouldn't). The risk to these licensees is enough that they sign on the dotted line, and Microsoft mints money without actually having to sell anything.

Microsoft: We Come In Peace

Microsoft, not surprisingly, articulates its strategy much differently. It is the injured party, Microsoft Corporate Vice President and Deputy General Counsel Horacio Gutierrez intones:

"Much of the current litigation in the so called “smartphone patent wars” could be avoided if companies were willing to recognize the value of others’ creations in a way that is fair. At Microsoft, experience has taught us that respect for intellectual property rights is a two-way street, and we have always been prepared to respect the rights of others just as we seek respect for our rights. This is why we have paid others more than $4 billion over the last decade to secure intellectual property rights for the products we provide our customers."

I don't doubt Gutierrez's $4 billion figure. I do doubt that it's in any way commensurate with the amount of money Microsoft is extracting from the Android market for patents that likely wouldn't win in court.

Standing Up To Microsoft

This was Microsoft's same strategy on the server. Microsoft tried to shake down enterprise IT and enterprise software vendors. Despite proclaiming to the industry that Linux violated 235 Microsoft patents, the strategy largely went nowhere, except with Microsoft's partner, Novell. For years, Microsoft trotted out Novell to show how "responsible" companies worked with Microsoft.

Fortunately, few took the bait. The industry stood firm, Linux founder Linus Torvalds demanded that Microsoft actually name the allegedly infringed patents publicly and stop its whisper campaign, and Microsoft ultimately had to compete on the merits of Windows Server, not patent litigation. Guess what? Microsoft has done very well. It didn't need patent litigation to compete.

It would be nice to see Microsoft do the same in mobile or, at least, to have the mobile industry stand up to Microsoft.

Yes, there's a risk of going to court but, as recent court cases have shown, that risk is becoming smaller all the time. Courts don't like competition-via-lawsuit, particularly when the lawsuits are fueled by specious claims and dubious patents. Microsoft has shown it can compete when its whisper campaigns fail.

It's time to give Microsoft the chance to prove itself in mobile, too, rather than collect fees on others' hard work.

Last weekend, the busiest spot at Fry's Electronics in Concord, Calif., was the notebook PC aisle, where eager salespeople buzzed about from customer to customer, eager to show off Windows 8. It appears that this new, kinder, gentler approach to selling Windows 8 is part of a larger Microsoft strategy that involves both altering the software itself and improving the retail experience. 

Changes Coming For Windows 8

In a Wall Street Journal blog post earlier this week, Windows marketing chief Tami Reller described how Microsoft is working to overcome the perception that Windows 8 is frustrating and difficult to use - and said the company is working to both make Windows 8 easier to use and to better explain to shoppers the new operating system's benefits and how to take advantage of them:

Without offering many details yet, Ms. Reller outlined how Microsoft is working on changing software features, helping people overcome obstacles to learning the revamped software, altering the shopping experience for consumers, getting more of people’s favorite apps available for Windows 8 and making sure a wider array of Windows 8 computing devices will be on sale.

The Journal also said Reller confirmed that Windows Blue is "both the codename for a coming update to Windows 8 – with additional features and improved services – as well as a name for a broader strategy shift to provide faster changes to its key software." Significantly, Reller also promised a Windows Blue update "before late June" that would address user complaints about Windows 8.

How Is Windows 8 Selling?

Reller's six-month update also revealed that Microsoft claims to have sold 100 million Windows 8 licenses, and that 250 million apps have been downloaded from the Windows Store in the same period, surpassing what Apple's iOS store accomplished during the same period. The number of apps within the Store has grown six times since launch, Reller said, and almost 90% of the company's app catalog has been downloaded each month.

Bob O'Donnell, an IDC analyst whose firm has blamed Microsoft for holding the PC industry back, told Bloomberg that he didn't understand where Microsoft was getting its numbers, given that his sources at the PC were telling a different, less optimistic, story. 

Changing Perceptions Of Windows 8?

Whatever the numbers, the first small signs of the push to change perceptions bout Windows 8 were visible at Fry's:

• Placards that refer to the "familiar" Windows 8 desktop experience
• Shifting the older, cheaper non-touch laptops away from the main floor
• The constant attention from sales staff.

That last bit is a big deal: Fry's is known for its sprawling stores and massive selection, but customer service and friend salespeople traditionally haven't been its strengths. 

My wife and I were doing a bit of showrooming to find a touch-based Windows 8 notebook for the house. Fry's Concord location boasted five or six aisles of notebooks. Each PC boasted two placards: one touting the benefits of a Fry's card or financing, and one that promoted an Office discount. Microsoft's card also highlighted ow to learn more about the PC, how to get to the "familiar" desktop, and how to "go back to Start." Clearly, Microsoft does recognize that using Windows 8 isn't as natural as it originally claimed, and is trying to help.

Several times during our visit my wife and I were approached by a salesperson offering to answer any questions - and one specifically offered more information about Windows 8. When we wandered back into the rear aisles with the older, cheaper, non-touch Windows notebooks, however, no one followed. Unfortunately, there were about four or five rows of these older PCs versus just two specifically dedicated to Windows 8.

(For comparison, at Best Buy a week earlier, I found an aisle of rather lonely Windows 8 machines sitting by themselves, with Microsoft promotional materials but little sales support.) 

Is This A Mea Culpa From Microsoft?

What matters here is that Microsoft finally seems willing to listen to its customers, to work with them to craft an experience that's both productive and entertaining. And yes, when the occasion calls for it, help them over the purchasing hump. 

To be honest, though, after looking at them, my wife didn't really want a Windows 8 machine. She seemed to like the Start screen, and swiping back and forth, but she didn't really grasp how to launch a program within the Start screen by typing its name, nor how to how to enable the Charms by swiping in - or even what they were used for. 

Microsoft and the PC industry now seem to feel that the solution to the Windows 8 problem is a little hand-holding, and making sure everyone feels comfortable. That's the right approach, let's hope the coming changes to Windows and renewed emphasis on helping customers upgrade hasn't arrived too late.

If you believe companies formed to litigate patent suits aren't worth a lick of spit, then meet the new Dr. Evil: CopyTele Inc. (CTI), which sued Microsoft on Wednesday over encryption technologies used in Skype.

But to Rob Berman, the company's chief executive officer, CTI is actually standing up for the little guy. "When small companies file [patent infringement] suits, they're called patent trolls," Berman said in an interview. "When big companies assert their technology, it's called good business."

What some call "non-practicing entities," others call "patent trolls." Either way, companies like CTI don't actually make anything; they merely buy up patent portfolios, go after companies they believe are infringing, convince others to license the patents and use the proceeds to fund more purchases and litigation. Their entire business is quite literally predicated on suing people, or at least threatening to. For them, patents are just another commodity to buy and sell. And it's big business: the patent industry racks up $1.33 million per average settlement, and about $1.75 million per defense, according to companies like Google.

That kind of strategy drives entrepreneurs and established companies up the wall - as they see it, instead of working to add value, patent trolls are often seen as parasites feeding off the efforts and innovation of others.

That's no doubt why U.S. Sen. Charles Schumer (D-NY) will introduce a legislative countermeasure next week to subject patent suits to U.S. Patent & Trademark Office (USPTO) oversight. The USPTO would be required to "vet" patent suits, apparently trying to determine the validity of affected patents before the suit got to court.

CopyTele's Checkered History

Is there more to the story? That depends on who's doing the telling. CTI, in particular, has a long and checkered history.

If you Google CopyTele, you'll receive the following summary: "Designs and develops telecommunications products incorporating ultra-high resolution charged particle flat panel displays." That's what CopyTele used to do. In September of 2012, Berman and two other veterans from the so-called "patent monetization" business were brought in to revitalize the company.

Turns out that CopyTele was sitting on 53 patents that the company didn't know what to do with. CopyTele's board decided to make a management change, kicking out the 85-year-old chief executive Denis Krusos in the process. But before you feel too sorry for the senior citizen, take a closer look at CopyTele's sordid past. According to a fascinating 1986 Fortune tale, Krusos claimed at least some of his business ideas were founded on "visions" he had while walking the Greek isles, and his' Steve Jobs'-style launches of revolutionary mobile displays were in fact non-working prototypes. Meanwhile, CopyTele's stock was pumped and dumped by outside investors, the magazine wrote.

Nevertheless, CopyTele still had the "patented electrophoretic display technologies" that it had designed. Those patents are at the center of suits the company has filed against display manufacturer AU Optronics (whose own executives have been found guilty of price fixing) and E Ink Holdings. But that was only the beginning. Since then, CopyTele has gone on to acquire windows patents (the kind you look through, not click) as well as five other patent collections. To date, CTI has litigated only its own display patents, as well as the encryption patents it bought that are at the heart of the Microsoft suit. The others will be enforced in the future, Berman said.

Berman’s Patent-Troll Credentials

Berman, meanwhile, has taken his own fascinating journey to this crossroads. He was an early employee of Acacia Technologies Group, which bought up the patent rights to the V-chip, the electronic nanny that was supposed to automatically weed out television programs that were inappropriate for children. Berman, who was at Acacia from 2000 to 2007, launched the company’s "patent assertion business," demanding that potential V-chip licensees pay up.

In 2002, Acacia took on the porn industry, even winning over Larry Flynt, who licensed Acacia's streaming media patents in 2003. "That was me," Berman recalled cheerfully, describing how he "went undercover," visiting adult-industry trade shows to "better understand the business… It was a rough job, but somebody had to do it."

Are Patents Just Another Form Of Currency?

As Berman sees it, there’s nothing wrong with maximizing the value of patents. Without those patent suits, Berman claimed, CopyTele would be in bankruptcy.

To him, patents are just another way of doing business. "We've gone from a product-based society to a service-based society to a knowledge-based economy," he said. "One of the most effective ways of protecting knowledge is patents… I don't think that there's any other time in history, except for maybe after the Revolutionary War, where patents have played as important a role as they do today."

Basically, Berman's position boils down to this: Companies like CopyTele and Acacia buy up patents from the little guys, giving small patent inventors the chance to make money that they'd otherwise never see.

He conveniently ignores how "patent trolls" effectively levy tariffs on other, legitimate products, adding costs that eventually get passed along to consumers - and not really contributing in any way to innovation or productivity or any other social good.

Legal, But That Don’t Make It Right

But Berman is correct in pointing out that that's the way the world currently works. While he may be exploiting legal loopholes, what patent trolls do is not illegal. Of course, that doesn’t necessarily make it right, either.

The conundrum seems to require more legislation – hence Schumer’s bill to vet patent suits before they proceed to court. But new laws can have their own pitfalls – for example, if some patents are intrinsically "bogus,” maybe the better approach would be to tighten restrictions on granting patents in the first place.

Maybe the answer isn’t to target the patent trolls, no matter how loathsome, who are only exploiting patent law as it stands. Maybe the real need is a clearer definition of what role patents should play? Or a re-evaluation of whether or not software patents should even be granted? Berman thinks that legislation should be enacted to allow companies to discuss patent settlements privately, without the need to first go to court.

In the end, it all comes down to how you see the world. Is a business’ obligation only to follow the letter of the law, or must it also behave morally as well as legally? As a company, Berman says, CTI has an obligation to maximize revenues for shareholders without breaking the law. In his eyes, at least, that’s all there is to it.

Troll image via Flickr.

VMware has a firm if fading grip on the server virtualization market, but according to IDC analyst Al Gillen, virtualizaton serves as a convenient on-ramp to private cloud, which in turn leads to the public cloud. Is VMware paving IT's path to Amazon, Microsoft Azure, Rackspace and other public cloud providers?

Not exactly.

Virtualization: Still Relevant, Mostly VMware

According to Gillen, who spoke at the Open Business Conference (OSBC) in San Francisco earlier this week, VMware continues to dominate the virtualization market, with just under 60% market share. VMware's installed base, coupled with CIO resistance to change, mean that VMware's hold on virtualization should persist for years. 

That's the good news.

The bad news is that VMware faces fierce competition from Microsoft's Hyper-V, currently claiming over 25% of the market, as well as a strong and growing threat from KVM, now bolstered by a rising OpenStack. KVM deployments grew 50% last year, according to IDC. Xen, the other open-source virtualization alternative, remains robust but isn't growing as fast, though its move to the Linux Foundation may help to revive its growth.

By themselves, however, none of these virtualization competitors poses much near-term risk to VMware. Of far greater importance is a distinct trend toward multi-hypervisor environments, as well as an enterprise shift from virtualization to cloud.

Each of these trends threatens VMware.

Multi-Hypervisor Trend No Friend To VMware's Cloud

According to Gillen, some 15% of enterprises deploy multiple hypervisors today, but Gillen expects that number to double in the next one to two years, with cost being a primary driver for experimentation with new virtualization technologies. The more enterprises experiment with non-VMware virtualization technology, the more likely they will also diverge from VMware's cloud offerings.

Why? Because virtualization is a clear precursor to cloud adoption.

According to IDC's Platform Migration MCS, January 2012, roughly 80% of servers that enterprises are migrating to the cloud are already virtualized, rather than being virtualized as part of the migration. Often, enterprises will rely on their virtualization vendor to walk them into the cloud, with private clouds the first stopping point on the way to public clouds.

As such, VMware has actively been building out both private and public cloud options, creating a clear "upgrade" path for its enterprise buyers. As Matthew Lodge, VMware'e vice president of Cloud Services, emphasizes, VMware enables enterprises to stitch together “what they have in their data centers and their public cloud instance.” All running on VMware technology.

It's a compelling strategy, one also being adopted by Microsoft (Windows Server + Hyper-V + Azure) and Red Hat (Red Hat Enterprise Linux + Red Hat Enterprise Virtualization + OpenShift or OpenStack), among others. 

Virtualization Not The Only Path To The Cloud

But not all workloads follow this single vendor path. Indeed, Gillen cited IDC's 2012 Cloud System Software Survey, which found that transitions to the cloud allow vendors to "sell cloud system software on its own merits and embed a hypervisor as part of the package." Some 53% of those surveyed indicated that they were using a new hypervisor in their cloud deployment, compared to the 47% using their existing technology. 

In Gillen's words, this "opens the door for non-installed alternatives such as KVM into VMware-dominated shops." 

This is particularly true for new applications that are born in the cloud, especially public clouds, rather than old workloads being migrated there. We're already seeing a class of applications skip the private cloud altogether, starting up on public clouds like Amazon. And while many enterprises still haven't dipped into the cloud, it's interesting to see what little variance there is between private and public cloud adoption:

Add to this Rightscale's finding that 77% of enterprises are using multiple clouds, and it seems doubtful that any vendor will be able to gently lead enterprises from its virtualization technology to its cloud. Fragmentation is the norm.

The Cloud? It's Complicated

VMware isn't going away anytime soon, in part because the enterprise moves slowly, and in part because VMware has a compelling cloud story for enterprises when they do decide to graduate from simple virtualization to private and public clouds.

But that "graduation" path is messy, with plenty of room for enterprises to find their way to different hypervisors and competing clouds. For these reasons, the virtualization and cloud markets may well be among the most competitive technology markets we've seen in a long time.

Image courtesy of Shutterstock.

While Microsoft is obviously having trouble convincing consumers to adopt Windows 8, its message is that enterprises have been far more accepting. It turns out that might not be true, either.

Last week, Forrester Research released a report claiming that Microsoft's Windows 7 is used in about 50% of all enterprise installationss, based both on its own surveys as well as a sampling of the Web traffic across it own servers. That's not surprising, given that Windows 7 was released to enterprises years ago, in mid-2009.

But what's more shocking - and more worrisome to Microsoft - is a survey of IT professionals polled by Dell's KACE systems management unit last week. It seems that even now, companies who are finally upgrading from Windows XP are turning away from Windows 8 in droves, selecting instead the older Windows 7 operating system. Of the 273 IT professionals who said that they're upgrading from Windows XP, just 2% said they're choosing Windows 8. The vast majority - 69% - said that they're choosing Windows 7 instead.

2013: A Key Transition Year From Windows XP

For Microsoft and many of its customers, 2013 represents a key transitional year. Many of its enterprise customers will be forced to move away from Windows XP,  which Microsoft plans to cease supporting on April 8, 2014. Microsoft is eager to sell those customers an upgrade to Windows 8, Office 2013, and other services, while PC makers hope they'll buy all new PCs, too.

In September of 2012, though, research firm Gartner warned enterprises that they should upgrade to Windows 7, not Windows 8. Gartner vice president Richard Kleynhans said then that he was aware of many enterprises doing just that. "Get Windows 7 done, and then you can start to experiment and dabble with Windows 8, but don't let Windows 8 derail your Windows 7 upgrade project," Kleynhans said.

That's a lesson Dell customers apparently have apparently taken to heart. The reason, explained Lisa Richardson, a senior product manager for Dell KACE, is simple: complexity equals cost.

Transition Fatigue

"For a lot of them, it's fatigue. It's OS fatigue," Richardson said. "It's, 'OK, we're making this huge shift to Windows 7, we know it's been tested, it's been around, we have to move onto it.' What we're hearing from IT administrators is that there's a challenge from moving to Windows 7 and its ribbon interface. But Windows 8 is an ever bigger shift in terms of user experience. And what I'm finding out is that because it's such a big shift in user experience, such a huge jump from Windows XP to Windows 8, support calls are going to go up. That drives up support costs, and that turns off many IT administrators."

The other big transition concern is applications compatibility, especially with line-of-business programs developed in house, Richardson reported. Compatibility issues, however, can crop in both Windows 7 and Windows 8.

In case you're wondering, operating system upgrades are what Dell KACE does. The Dell KACE Deployment Appliance manages OS upgrades across enterprises (including apps, files, and operating systems), so IT admins participating in the survey have skin in the game. The survey participants represented a mix of existing KACE customers as well as prospective clients, Dell said.

Richardson added that 15% of the survey participants said they plan to deploy both Windows 8 and Windows 7, and 10% said they wouldn't install either one. A second survey question indicated that 17% of participants had completed their upgrade, 18% were three-quarters done, and that an additional 13% said they were at least halfway done. But almost half (49%) said either that they were either less than halfway done or hadn't even begun.

Forrester's data, meanwhile, also gives an edge to Windows 7 over WIndows 8. The firm found that its Web traffic was about 50% Windows 7, with 47.5% of IT managers saying they've installed it. Windows XP still accounted for about 22.3% of traffic, or 38.2% of systems; Macs are about 14.6% of traffic, and 14.3% of self-reported employee PC ownership. Windows 8 was too new to make the IT survey, but represented just 1% of Forrester's traffic from May 2012 through January 2013.

Windows 8 Or Windows 7: It's Still Good News For Hardware Makers

No matter OS enterprises are upgrading to, Dell found, the time seems ripe for a hardware refresh. A lot of IT customers reported that PCs were being asked to last far longer than the previously standard three-year refresh cycle because of the effects of the recession - often five to six years. "Those systems couldn't support either Windows 7 or Windows 8," Richardson said, in part because they don't have big enough hard drives.

And hardware still matters, even as the trend toward mobile devices implies that the cloud is shouldering more of the workload. "A stylized view suggests that computing is moving to the cloud and that platforms don’t matter anymore," Forrester's report concluded. "This stylized view couldn’t be more wrong — today and for the next five years or longer. The mobile revolution continues afoot, as users shift computing minutes from traditional PCs and Macs to tablets, smartphones, and new classes of devices like hybrids and convertibles."

And that's where the good news for Microsoft may be found. Richardson reported strong IT demand for Windows tablets - as supplemental devices, not as laptop replacements - to the point where Kace plans to add support for Windows 8 deployments on tablets.

The War For Windows? Or For PCs?

Forrester's message is that platforms still matter. But listen closely to what Microsoft's saying these days, and the interpretation changes.

"Businesses continue to value the Windows platform," Chris Suh, general manager of Microsoft's investor relations, said during the company's recent conference call. "Volume licensing of Windows is on track to deliver almost $4 billion in revenue this year, and nearly three quarters of enterprise agreements that we’ve signed this year include Windows. Additionally, this quarter we saw continued progress in the transition of Windows XP to Windows 7, and now two thirds of enterprise desktops are running Windows 7."

It's all Windows, Windows, Windows. But notice the careful phrasing. Microsoft's message is that businesses value Windows, not necessarily Windows 8.

For a company reacting to the alarm bells analysts are sounding on the future of the PC, Microsoft's statements signify an important strategic retrenching: for years, Microsoft fought to establish its latest operating system to spearhead continued growth. As this data from Forrester and Dell shows, though, Microsoft may be forced to acknowledge that Windows 8 is a lost cause within the enterprise. The new, lesser goal may be simply trying to hold on to the Windows PC - any flavor of Windows PC.

Lead image of Tami Reller discussing Windows 8 and images of Windows XP, 7, 8 via Microsoft.

After months of promises, Microsoft finally integrated Skype with Outlook.com, its cloud email and calendaring service. But for its next act, Microsoft may well put Skype on its Xbox console — a move with far more intriguing, and even disturbing, ramifications.

As of today, a select group of Outlook.com users in the UK can begin placing video or voice calls, or sending instant messages, to their existing Skype contacts. Within Outlook, users will have a choice: traditional email will work as before, although the new "Messaging" options will trigger the Skype capabilities. Users can either type in a friend's name within People, or — in a nice touch — simply click on their picture to launch a message.

Microsoft paid $8.5 billion for Skype two years ago in order to "adapt to a changing market, primarily characterised by permanent and ubiquitous connectivity," as the IT analyst outfit Duquesne Group put it at the time. So far, Microsoft has steadily moved Skype forward as its ubiquitous communications interface across PCs, Windows tablets, and smartphones. That leaves the Xbox.

Video Kinect To Xbox Skype?

It's virtually a given that Skype will come to the living room. In February, Giovanni Mezgec, a Skype enterprise product marketing manager, told me that Skype users at home might use a "set-top box" — like, say, the Xbox! — to access the service.

"You are the same time a consumer, the same time a mother, the same time an employee, the same time a person that travels on the bus, you get the idea," he said in an interview at the time. "What we wanted to do was to offer a set of tools from the living room to the boardroom, a communication platform that is rationalized, but different."

Officially, though, Microsoft is keeping mum. "We are always thinking about what is next for our platform, but we have nothing further to share at this time," a spokeswoman said in an email. Rumors of the Skype-Xbox integration popped up earlier this year, following a Microsoft job posting.

And Microsoft's Xbox already has a videoconferencing solution: Video Kinect, which allows Xbox players to set up video chats with their Xbox Live friends of they own the Kinect depth camera peripheral. 

Separate But Equal

In many ways, Skype is playing catchup to features already offered by Video Kinect and the Xbox Live service itself. There's the video chats, of course, but Xbox Live also supports presence (who's playing or watching what, provided that users allows their friends to see this); group chats or play experiences, known as "parties"; text and video messages; and private chat. 

So far, Microsoft has kept its Xbox Live community separate and distinct from its other online services. That means that each Xbox user can have several collections of friends: Outlook contacts, Messenger contacts, Skype contacts, and an Xbox Live group. If you include Facebook, Twitter, and LinkedIn, which Microsoft also integrates with, that's seven separate groups. Granted, many of these contacts overlap — but many don't. (Note that Microsoft asks you for a Microsoft Outlook.com or Hotmail account when you sign up as a new user on the Xbox, for support purposes.)

Microsoft may not be able to do much with how Facebook, Twitter, and LinkedIn manage their own contact databases, but if and when it integrates Skype with the Xbox, will it merge a user's Xbox contacts with his or her Skype contact list — or even Outlook contacts?

Turns Out Ubiquity Has A Downside

The question is really a cultural one. Does it make sense for a company like Microsoft to obliterate the distinction between work and play this way?

If you own a Surface tablet, and set up Skype for the first time, Microsoft will ask you to merge your Hotmail contacts with your Skype contacts. That's not really that big of a deal. But do you really want your boss calling you when you're playing Lego Batman with your son? I don't.

What might be interesting, however — from either Skype or Video Kinect — would be the option to replace video avatars with actually small video screens of my friends. I might not like losing screen real estate in Gears of War, but it might add more of a communal sense while playing Hearts or Xbox poker.

Anything else, though, runs the risk of alienating users who just want to be left alone in the evenings. Slowly, we're all being forced to integrate our jobs into other aspects of our lives. Microsoft may want to eventually push Skype into the Xbox, but it needs to do so delicately.

Windows Phone got some good news and some bad news today from the consumer research firm Kantar. The bad: Microsoft's smartphone OS accounted for a meager 5.6% of all U.S. smartphone sales in the first quarter. The comparable number for Android was 49%; for iOS, 44%.

The good: Windows Phone's showing was a significant improvement, up a full 1.9 percentage points over a year earlier. By contrast, Blackberry — which is rolling out its new operating system, BlackBerry 10 — saw its U.S. share crater in the quarter to less than 1% from 3.7% a year ago. 

In a statement, Kantar analyst Mary-Ann Paralto noted that Windows Phone is "now at its highest sales share figure" ever in the U.S. 

Possibly in anticipation of the good news, Microsoft has just released a new Windows Phone commercial. It doesn't show off the platform nor offer any reason why Windows Phone is a better choice than its rivals. Rather, it takes a page from Samsung and mocks both iPhone and Android users.

When you're far behind in the market, casting yourself as a viable alternative to the market leaders — while simultaneously mocking said leaders — can be a winning strategy. Or, you know, it can smack of desperation.

In this case, however, the ad is so over-the-top, and Microsoft appears to be having so much fun making fun of iPhone and Android users, that it works. Android users are silly hipsters. iPhone users are old. Siri doesn't work. Samsung devices are ridiculously large.

Will the ad help Microsoft sell more Windows Phone phones? Doubtful.

The problem is that the ad is focused on the wrong audience: current iPhone and Android users. Even at the end, Microsoft says, "don't fight, switch." Only, those existing users aren't Microsoft's logical target. Microsoft needs to target folks who haven't yet chosen a side — that is, owners of non-smartphones (what the industry, for its own unfathomable reasons, calls "feature phones"). The Kantar survey noted as much (emphasis added): 

Windows strength appears to be the ability to attract first time smartphone buyers, upgrading from a featurephone. Of those who changed their phone over the last year to a Windows smartphone, 52% had previously owned a featurephone.  

Building market share based on getting iPhone and Android users to switch is likely not a winning strategy, at least not yet. An analysis of U.S. smartphone owners, for example, found that 91% of current iPhone owners planned to stay with the platform — and the majority of those who were likely to switch planned to switch to Android. A smaller, though still sizable 76% of Android users planned to stay with the platform. Most of those likely to switch intend to get an iPhone, not Windows Phone.

But there's no reason to expect the rational from Microsoft — not when it's so far behind. With the new mocking ad, and the large gap between Windows Phone and leaders iPhone and Android, expect Microsoft's marketing to become even more aggressive and in-your-face.

Earlier this year, founder Bill Gates publicly stated he was not pleased with Microsoft's mobile device sales and he characterized the company's smartphone strategy as a "mistake." That no doubt lit a fire under Steve Ballmer and company. Who knows, maybe the scenes inside Microsoft's Redmond headquarters are as acrimonious as those in its newest commercial. 

Along with the U.S., Kantar tracks smartphone sales data in 9 countries, including China, Australia, Japan, France and Great Britain. Now that Symbian has been effectively deprecated, Windows Phone appears set to take third place — a very distant third place — in all of them, with the possible exception of Japan.  

Lead image from Windows Phone video

Let's say the rumors are true, and that Microsoft does in fact bring back the Start button and a boot-to-desktop option to address longstanding user complaints. Can that fix what's ailing Windows 8? 

Perhaps, eventually — but Microsoft is still treating the symptom rather than the disease. The problem is the PC itself, not the operating system that runs it. And that's what Microsoft (and, secondarily, its Wintel partner Intel) really needs to transform.

At this point, it seems clear that the tiled, touch friendly Start screen and the lack of a boot option to the familiar "desktop" interface scared off some people who might otherwise have upgraded to Windows 8. Instead, those PC users stuck with their familiar Windows 7 or Windows XP interface, or powered down their PCs altogether and turned to their phones or tablets.

Wintel Panic

All of which has the onetime Wintel duopoly in a bit of a panic. Microsoft needs an OS that will delight consumers. It's so far failed in that, so it's apparently retrofitting Windows 8 for folks who need more handholding to move to the new OS. Similarly, Microsoft needs a robust apps environment, so it's looking to entice developers to its Windows Store. That's not going so well, either.

Intel, meanwhile, continues to push down the cost of its microprocessors to a point where Windows tablets running on its Core microprocessors can compete with the Android and iOS markets. By the holiday season, Intel executives said, we should see Core-based laptops at between $499 to $599, with new, more powerful Atom options in the $200 price range.

Put those together, and here's what needs to happen.

1. Downplay The Start Screen

If Microsoft brings back the boot-to-desktop option, the company faces an interesting marketing dilemma: Should it still promote the tiled Start screen that turns off at least some of its customers? No. That doesn't mean that Microsoft should change the Windows 8 interface — the Start screen was designed as a tablet interface, and should remain so. But Microsoft should make the Start screen the face of the Surface tablet, and make the Windows desktop the face of its Windows 8 advertising for PCs.

2. Gently Push New Users To The Desktop 

Clearly, a portion of Microsoft's customer base has been traumatized by its initial reaction to Windows 8. There's a real risk that these users may never return to the Windows fold.

But gently managing a boot-to-desktop option may mitigate some of that. Boot-to-desktop should be presented as one of the first options in the Windows installation, perhaps accompanied by something like this: "Would you like Windows 8 to boot to the Windows Desktop? The Windows desktop provides a familiar environment for users of Windows XP and Windows 7."

From there, let them explore and do as they wish. If the Start Screen is as compelling as Microsoft seems to think, at least some users will eventually move over of their own volition.

3. Solve The Blah Windows Apps Problem

One of the bigger problems with the Start screen that Microsoft so far hasn't been able to address is that most of the applications featured there are basically uninspiring (Fresh Paint excluded). With Windows XP and Windows 7, those applications were tucked away behind the Start button, where users were free to ignore them. With the Windows 8 Start screen, they're out there for the world to see and grow disillusioned with. And it's not immediately clear how booting to the desktop's empty expanse will be much of an improvement.

But by making the Windows 8 Desktop the focus, Microsoft's advertising, at least, can encompass the broad expanse of Windows apps out there. Mix and match! Steal a page from Apple. Highlight the flashiest apps, whether they be from the Windows 8 world or even from Windows 7. Legacy OS support is a feature, too. And free advertising for Adobe, EA, or some other developer can only engender goodwill.

4. Make Windows Shine On Tablets — Cheaply

Microsoft also desperately needs a successful mobile strategy. And the only real way to to do that is to offer more for less.

In other words, if Microsoft wants to leverage Windows in the mobile space, it needs to really leverage Windows. The Windows RT version of Surface failed in part because it was a crippled version of Windows 8; it's time to retire it. The Surface with Windows Pro, by contrast, could be a hit if its price falls far enough. And if Microsoft pushes hard to convince buyers that they can accomplish a whole lot more with a full-fledged Windows tablet than they can with competing products.

Microsoft needs to show that a Windows tablet — derivative of the Surface, or one based on the new quad-core "Bay Trail" chips — can offer desktop PC-class performance at tablet prices. We know tablets are mobile. Microsoft Stores need to feature a Windows tablet or convertible running the flashiest piece of software it can, on a conventional desktop monitor, with the price tag prominently displayed. The message: all this for $299??!! Why would I ever want an Android tablet?

5. Find A Mobile Apps Tiger Team

Tucking your Android or iOS phone in your pocket is an unconscious decision. And as more game developers choosing to write for iOS and Android, fewer are around to focus on Windows. There's another key advantage for iOS and Android, too: chances are that you can play the same game on your iPad and iPhone, or your Android phone and tablet. You can't often say the same for Windows Phone and Surface.

If users can't share apps, files, and other documents between the PC, notebook, tablet and phone, they're going to start looking elsewhere. Microsoft's realized this with its core apps, including Office and the Xbox. Netflix traverses the range of Microsoft's platforms, but that's about it.

There is no easy fix here. If Microsoft can't develop the apps it needs itself, it's going to have to go out and buy them. This is the Nintendo problem, writ large. Without AAA third-party software, Microsoft will have to go it alone. 

Delaying The Inevitable

IDC's right; the PC is dying. It's inevitable, and Microsoft is merely rearranging desk chairs on the Titanic. But in this case, there's a chance the ship could make harbor before it sinks.

Notebooks will eventually give way to tablets, whether or not they have a keyboard attached to them. Microsoft won the desktop, and it won the notebook. Now it needs to win tablets. If it shows weakness now, it will be buried. 

Can Microsoft throw enough money at these problems to fix them? It may have to. It can patch Windows 8, and Intel can help keep prices falling. But the apps and mobile problems require more extensive surgery, and the time to act is now.

Image Source: Flickr/yoshimov

Legacy enterprise IT vendors may be scrambling to spread the blame in the wake of earnings misses, but one mega-vendor is not, and it's the one open-source advocates have argued for years was doomed to imminent oblivion: Microsoft. For all its stumbles in mobile and online, Microsoft continues to soar in core enterprise infrastructure sales.

The reason? Microsoft pressures the Oracles and HPs of the world in much the same ways that open source and cloud do.

Low Cost, High Value

By most measures, Microsoft's Server and Tools business is booming:

• Product revenue up 11% (Multi-year licensing revenue up 20%)
• Enterprise Services revenue up 11%
• System Center revenue grew 22%
• SQL Server revenue grew 16%, outpacing the market

And while growth has slowed a bit in fiscal year 2013 compared to fiscal year 2012, it's still impressive growth, especially in light of the struggles other enterprise IT vendors have had recently.

Why is Microsoft different? Most obviously, because Microsoft tends to make complex infrastructure affordable and easy to use, while appealing to developers. This has long been Microsoft's recipe for success: lowering the bar to use complex software while also lowering costs.

In other words, Microsoft keeps chugging along in the enterprise because makes life easier for enterprise IT, similar to what cloud and open source do. Or as Apprenda vice president Rakesh Malhotra puts it, "it's less about licensing and more about the complexity/cost/value."

And while Microsoft persists with its proprietary license model, a model out-of-favor in a market trending toward open source and cloud, it still tends to be much cheaper than alternatives like Oracle in the database market. As BMO Capital Markets analyst  Karl Keirstead recently opined in a client note, "Countless customers have told us that the cost advantage of SQL Server is so compelling that their deployment of Microsoft SQL Server databases is ramping."

In short, Microsoft improves enterprise value and lower costs, relative to the other legacy IT vendors.

But What About Mobile?

Ironically, Microsoft has thus far failed in mobile precisely because it has taken the opposite strategy: while Apple and Google (Android) have essentially lowered the cost of mobile operating system licenses to $0.00, Microsoft has continued to try to impose license fees. When that hasn't worked, it has sued Android licensees to try to raise costs to match Microsoft's.

It hasn't worked.

Microsoft has a lot of work to do to catch up in mobile. But in core enterprise infrastructure? Microsoft may be the vendor to beat. 

Not Shrinking From The Cloud Fight

Not that Microsoft rests easily. After all, with trends shifting IT spending to mobile and cloud, Microsoft's traditional Server and Tools division stands to take a beating. According to a new Baird Equity Research Technology study, Amazon, in particular, is siphoning off dollars from the legacy IT pie:

We estimate that for every dollar spent on [Amazon Web Services], there is at least $3 to $4 not spent on traditional IT, and this ratio will likely expand further. In other words, AWS reaching $10 billion in revenues by 2016 translates into at least $30 to $40 billion lost from the traditional IT market. 

In this, however, Microsoft is playing a solid offense, and stands a good chance of succeeding. Among both enterprise developers and CIOs, Microsoft remains their go-to vendor, according to both Piper Jaffray and Evans Data surveys. More pertinently to Amazon, these same enterprises plan to expand their Microsoft Azure adoption significantly, according to Forrester:

Breathing Room...For Now

Amazon stands clear as the 800-pound cloud gorilla, but Microsoft is no slouch. By embracing the cloud early and by continuing to pressure its proprietary peers with low-cost, high-value infrastructure software like SQL Server, Microsoft has kept itself top of mind with CIOs. These same CIOs are therefore willing to give Microsoft breathing room as it transitions its business to the cloud.

This could get interesting.

On Monday, Microsoft premiered a television ad that portrays its Internet Explorer as the defender of user privacy among modern browsers.

The ad highlights IE's use of Do Not Track and its Tracking Protection Lists as effective tools in preserving online privacy, implying that Google's Chrome, Mozilla's Firefox, Apple's Safari and Opera fail to keep up with Microsoft's principled stand on privacy.

Six months ago, Microsoft might have had a point. Now, however, many privacy advocates say that IE is the browser now falling behind in the privacy wars - because it doesn't block third-party tracking cookies by default.

(Many websites store a small snippet of code called a cookie on your hard drive when you visit the site. Typically, these cookies contain login information or other preferences. Since many websites serve up content or ads from third-parties, those third-party sources may also place tracking cookies in your browser - even though you never visited their site.)

Microsoft does allow users to manually exclude third-party cookies, as does Chrome. But Safari and soon Firefox will do this by default, stealing the wind from Microsoft's sails. 

And given Microsoft's history in terms of privacy and competition, it's easy to see the new ad - and Microsoft's whole privacy strategy - as a cynical ploy to acquire new IE users while denigrating its competitors. Even if that's true, privacy advocates said, Microsoft is at least doing something to address privacy issues. 

IE Trumpets Do Not Track, Tracking Protection

As a piece of advertising, Microsoft's spot does a fine job highlighting what users don't mind sharing, and what users would rather keep private. Microsoft focuses on two features in the 30-second ad: Do Not Track, which is turned on by default; and its Tracking Protection Lists. "Your privacy is our priority," is the tag line.

Do Not Track (DNT) merely asks a site not to track the user visiting it. At this point, Do Not Track is completely voluntary, and privacy advocates note that the vast majority of online advertising agencies decline to honor it. Microsoft's implementation of Do Not Track is little more than a symbolic gesture unless and until the online ad agencies agree to play ball. 

"Microsoft's DNT setting is fine, although it will likely be ignored until the W3C finishes the DNT standard, if ever," said David Jacobs, the Consumer Protection Counsel for the Electronic Privacy Information Center (EPIC), in an email.

Consumer watchdogs can still rattle their sabers, as Federal Trade Commission chairwoman Edith Ramirez did last week (PDF) in a speech to the American Advertising Federation. Ramirez warned that now was the time for industry stakeholders to nail down a Do Not Track agreement once and for all:

One can forgive stakeholders for thinking that it will always be so – for believing that 'not all the water in the rough rude sea can wash' the shine off this cyber-economy. But an online advertising system that breeds consumer discomfort is not a foundation for sustained growth. More likely, it is an invitation to Congress and other policymakers in the U.S. and abroad to intervene with legislation or regulation and for technical measures by browsers or others to limit tracking.

Tracking Protection lists are far more effective - they prevent websites from capturing information that the user doesn't wish to be shared. Right now, they're probably the most effective weapon that Microsoft has in protecting user privacy - but they rarely get used, according to Dan Auerbauch, a staff technologist with Electronic Frontier Foundation (EFF).

Which Browser Leads In Privacy Protection?

"Firefox and Safari I would say are in first place right now in terms of protecting user privacy," because of third-party cookie blocking by default, Auerbach said.

Safari blocks third-party cookies by default; Mozilla has begun blocking third-party cookies by default in its alpha or Aurora build, with the expectation that the standard build will block them by summer. Chrome users must turn on the feature themselves by following a few simple instructions. Microsoft IE users can do this as well - but again, not by default.

"I would hope that Microsoft would follow soon, and I think that they're well-positioned to be the leader [in privacy]," Auerbach added. "We're encouraged by this campaign from Microsoft, and we think that they have the ability to do really good things here."

What's Microsoft Really Up To Here?

Is Microsoft genuinely interested in user privacy, or is it simply raising the specter of intrusive advertising to win new converts to IE? If Microsoft hadn't run its Scroogled campaign, which has highlighted all the ways that Google allegedly misuses user data to its own commercial ends, the answer might be yes. As it is, it's difficult to see Microsoft's efforts as truly altruistic, given its past history.

"Ultimately, I'm not sure how successful the campaign will be, but I think it's generally good when companies compete on privacy," said EPIC's Jacobs. "I don't know what Microsoft's underlying motivation is, but regardless of whether it's altruistic concern for user privacy or self-interested profit maximization, consumers can still benefit."

Unfortunately, Microsoft hasn't said when or whether it will block third-party cookies by default, and company representatives weren't able to comment. Microsoft does seem to be making strides in protecting user privacy, but its competitors are poised to pass it by, if they haven't already.

Image: Flickr/Scubadive67

Microsoft had some news today: It confirmed plans for smaller "touch devices" in coming months — i.e., the rumored Smaller Surface — and preemptively blamed a presumably darkening outlook for Windows on the "declining traditional PC market." It also reported growing revenues and profits for the quarter that ended in April.

Just as important, though, might be what Microsoft didn't say. It was mum about the performance of its flagship Windows 8 operating system, and wouldn't say how well its Surface tablet has been selling. Hmm.

By The Numbers

Microsoft reported net income of $6.06 billion (72 cents per share) on revenue of $20.49 billion for the quarter, an 18 percent increase in profits and an 18 percent increase in revenue versus a year ago. After adjusting for $1.66 billion in Windows Upgrade, Office and Xbox upgrades, and a $731 million fine assessed by the EU, Microsoft reported diluted earnings per share of 65 cents.

Analysts polled by Yahoo had expected Microsoft to report earnings of 68 cents per share, up 13% from a year ago, and grow revenue by 18 percent to $20.56 billion. Microsoft also said that Peter Klein, the company's chief financial officer, would leave at the end of the fiscal year, or June. Microsoft will name a replacement in the next few weeks.

When all is said and done, Microsoft's bottom line is healthy — every product division reported increased profits except for the company's online business, where losses shrank. But as the company itself admitted, the outlook for Microsoft's Windows division and Windows 8 remains, at best, uncertain.

How Many Windows 8 Licenses? Redmond Sayeth Not

Microsoft reported $5.7 billion in revenue and $3.5 billion in profits for the Windows division, but once you set aside deferred revenue due to Windows upgrade offers, revenue was basically flat compared to a year ago. And then there was Microsoft's continued silence on how many Windows 8 licenses it sold.

Both IDC and Gartner blamed the slow uptake of Windows 8 for a stunning drop in first-quarter PC sales: 14% by IDC's metrics, and 11% according to Gartner. Most of the top PC manufacturers saw sharply lower sales for the first quarter, according to both firms, with Lenovo the big exception.

In January, Microsoft said it had sold more than 60 million Windows 8 licenses. That was up significantly over the number of pre-launch licenses it sold — 40 million in the first month, Microsoft said last year. And yet now the company has gone silent on the subject. This is not what you'd normally consider a good sign, particularly coupled with Redmond's oracular statement about the declining PC market.

On the other hand, Klein offered no shortage of happy talk about Windows on the analyst call. Check it out (MS Word doc).

Surface Gets Small, But Sales Remain Numberless

Outgoing CFO Peter Klein confirmed rumors of a smaller Surface tablet in a backhanded sort of way. During Microsoft's conference call with analysts, Klein declined to say how many Surface tablets the company had sold (again, not exactly heartening news). But, he said, the lineup will be refreshed with smaller "touch devices" in the coming months.

IHS iSuppli estimated that Microsoft sold, at most, one million Surface tablets during the fourth quarter. That's compared to a record 22.9 million Apple iPads, plus millions more Nexus 7s, Kindle Fires, and other 7-inch tablets.

Separately, Klein said that Microsoft was looking ahead toward Windows Blue, the next iteration of Windows 8 and, possibly, Windows Phone. He told analysts that Blue is designed to "further advance" Windows 8 and "in response to customer feedback." Rumors suggest that feedback may lead to the return of the Start button and an ability to boot directly to the Windows desktop, as opposed to the way Windows 8 forces all users into the tile-layout "Metro" interface.

Return To The Enterprise

Microsoft's Office division returned to growth in the quarter, with revenues up 8% to $6.3 billion. In January, Office delivered a nasty shock — a 10% revenue decline — apparently because the company's online service based version of the productivity suite, Office 365, hadn't performed as expected.

“Our enterprise business continues to thrive,” said Kevin Turner, chief operating officer at Microsoft, in a statement. “Enterprise customers are increasingly turning to Microsoft for their IT solutions and as a result, we continue to take share from our competitors in key areas including hybrid cloud, data platform, and virtualization.”

Microsoft's rock, its Server and Tools business, reported $1.98 billion in profits and $5.0 billion in revenues. Microsoft's Entertainment business, which includes the Xbox, returned to profitability, reporting $342 million in profits and $2.5 billion in revenue. Online services only lost $262 million (versus $480 million a year ago) and reported $832 million in revenues. 

The next few quarters will be important for Microsoft, as the company's large installed base of corporate customers still using Windows XP must either switch by April 8, 2014, or else risk losing support for both XP as well as Office 2003. Earlier this month, Microsoft offered small businesses a 15 percent discount for upgrading to Windows 8 Pro and Office 2013.

It's official: the cloud is boring. While some of you already felt like cloud was BOA (boring on arrival), the reality is that it's been causing all sorts of headaches within the enterprise. Until now.

As Forrester analyst James Staten suggests, new product announcements from both OpenStack and Microsoft Azure got a muted yawn this past week, which is a Very Good Thing, as he explains:

"[H]o-hum releases like these are signs of maturity that signal to enterprises that it’s now okay to invest. Let’s face it. Most enterprises are conservative. We don’t like to be first with any new, risky technology. That’s why we wait for the 2.1 release before trying something new... We’d like other companies to work all the kinks out of the system, live through all the stability issues and fix all the bugs so we can get a solid release to work with."  

As much as people have tried to hype the cloud over the years, hype is precisely the opposite of what was needed to make cloud mainstream. As such, it's arguably a great sign that cloud is about to surrender the hype crown to Big Data, at least as measured by Google searches (as pointed out by Timo Elliott):

It's about time. As a Unisphere survey (PDF) of Oracle users indicates, cloud is becoming strategic within the enterprise, and much more pervasive. As the survey reveals, 37% of enterprise managers are running or piloting private clouds, which is a jump from 29% two years ago. More significantly, an additional 26%  use public cloud services for enterprise applications, a big boost from 14%. 

This jibes with a new Barclays survey of 100 CIOs, which found them piling into the cloud. Indeed, cloud, second only to Big Data, topped the list of IT spending drivers:

In sum, for years we've known that cloud computing would be big. But that's not what CIOs needed to hear. They needed to know that it could also be boring. We have arrived!