WinInfo Short Takes: Week of November 26

As Expected, Microsoft Settles Class-Action Lawsuits
Assuming a judge agrees, Microsoft has settled most of its more than 100 private class-action lawsuits, agreeing to give more than 12,000 of the nation's poorest schools $1 billion of software, computers, and training. The deal, which spans 5 years, will also cover technical support, refurbishing of computers, and copies of Microsoft's most popular software, including Windows and Office. As a result, Microsoft doesn't have to admit any wrongdoing--yet another case of Microsoft dodging a bullet. Microsoft says it will take a pretax hit of $550 million in the current quarter to cover the settlement. But fear not; this beaten-down company still has more than $35 billion in the bank. Merry Christmas, Redmond.

The Irony of This Settlement, Of Course ...
... is that that the court found Microsoft guilty of overcharging for Windows and other applications. So instead of forcing the company to lower the price and pay back the people who bought the software at inflated prices, Microsoft can now use these prices when it calculates the value of the contribution the company is making to US schools. Think about it: If Windows and Office were priced at, say, half their current price, today's contribution would effectively be doubled. Instead, Microsoft is able to provide less software, valued at today's full retail price, and then announce a nice, clean $1 billion figure for the settlement. And Microsoft doesn't have to lower retail prices. Everyone wins. Or something.

But Wait, There's More
Apparently, I'm not the only person who believes that today's Microsoft settlement doesn't address the real problem. Daniel Furniss, lead counsel for the class-action plaintiffs in the state of California, says that the settlement doesn't provide enough money to sustain the schools over time and therefore provides no real benefit; the settlement also isn't a real punishment, given the amount of cash Microsoft has on hand. "It's a pathetic, sweetheart deal for Microsoft," Furniss says. He hopes that Baltimore-based US District Court Judge Frederick Motz will turn down the settlement. Hearings are scheduled for Tuesday; I think we can expect the settlement to fly through the courts with nary a hitch, unfortunately.

And What About Apple?
Doesn't this deal derail Apple's goals for expanding in the education market, which was one of its few remaining strong target markets? Apple currently owns only 3.5 percent of the overall market for PCs, and a government-sponsored mandate to let Microsoft supply free computers to the nation's poorest schools can't help the Macintosh. On the other hand, it's unlikely that any of the nation's poorest schools could have afforded Macs to begin with. Here's an idea that might make sense: Force Microsoft to spend that $1 billion on Apple hardware.

Red Hat Launches Alternative Settlement Offer
And speaking of Microsoft's latest settlement, Linux maker Red Hat Software says it has a better solution, and for once I might agree with the company: Let Microsoft redirect the "money" that would have gone toward software to new PC hardware. Then let Red Hat supply free copies of its Linux distribution for installation on all those new PCs. The net result is obvious--more PCs for the schools. "By removing Microsoft's higher-priced software from the settlement equation, Microsoft could provide the school districts with many more computers, greatly extending the benefits it seeks to provide school districts with \[its\] proposed settlement," says Matt Szulik, CEO of Red Hat Software, who says he will address this issue in the hearing Tuesday. Go for it, Matt.

Meanwhile, In Another Lawsuit
And speaking of Microsoft's legal problems, a federal judge in Seattle recently denied class certification for Microsoft employees who are suing the company for racial and gender discrimination. US District Court Judge Marsha Pechman concluded that "Microsoft's managerial system is not inherently flawed, and ... the statistical data belies the existence of any class-wide pattern of discrimination." Microsoft faces several racial and gender discrimination cases, one valued at $5 billion. Most of the cases revolve around employees being passed over for promotions.

Oh, and Here's Another One
But wait, there's more: Microsoft's European antitrust case will take center stage in December, when the company will address complaints that it tried to harm competitors by designing Windows 2000 to work better with its own servers and not those of its rivals. Microsoft will face European Commission (EC) hearings on December 20 and December 21, after which the EC will examine the information and present its final decision. If recent events in the US courts are any indication, the EC decision will include dropping the case and throwing a party for Microsoft.

Only Microsoft ...
... could make a Media Player application that poses a security risk. The company is recommending that users of Windows Media Player (WMP) 6.4, 7.x, and Media Player for Windows XP (MPXP) download a security patch that plugs a vulnerability in the way these players interact with Advanced Streaming Format (ASF) files. MPXP users can automatically download the patch through the latest Critical Update download on Windows Update; other users need to manually download a patch from the Microsoft Web site .
Xbox Gfx Maker in Insider Trading Charge
The Securities and Exchange Commission (SEC) has charged 11 people who work for NVIDIA, which supplies the 3-D graphics chip in the Microsoft Xbox gaming console, with insider trading. Apparently, the employees earned almost $2 million trading NVIDIA stock after learning about the then-secret deal with Microsoft. The SEC also charged four relatives of the employees. Although I can imagine the difficulty of resisting the urge to trade stock, the employees could have at least been a little less overt about the whole thing: Within days of finding out about the deal, the employees and family members had bought and sold more than 33,000 shares in the company.

Microsoft Interactive TV Pilot Program Goes Haywire
Microsoft has delayed its first Interactive TV pilot program, scheduled to go online this week in Portugal, because of technical problems. Adding to the program's problems is the lack of subscribers--Microsoft expected about 100,000 subscribers by the end of the year; the actual number is only 2500 subscribers. The service (if it ever gets off the ground) will let users read email, bank, shop, play games, and place bets through a set-top box running Microsoft software. The box will also provide Ultimate TV-style features, such as pausing live TV.

Xbox, Gamecube Off To a Flying Start
Sales of new video-game machines from Microsoft and Nintendo got off to strong starts, with both companies nearly selling out of units within a week. The Microsoft Xbox went on sale last Thursday; Nintendo's new Game Cube hit US stores on Sunday. Retailers such as Electronic Boutique, Kmart, Toys R Us, and Wal-Mart report that Xbox and Game Cube consoles are completely sold out or soon will be. Microsoft reportedly sold all 300,000 available units immediately; Nintendo expects consumers to snap up its 700,000 units by this weekend. These numbers compare with the 500,000 PlayStation 2 units Sony sold when that machine arrived last year. Both Nintendo and Microsoft noted that their sales far outpaced the box-office receipts for the Harry Potter movie that broke sales records last weekend.

Microsoft in IE Security Stupidity: Yeah, We Knew About It
You just can't make this stuff up: Microsoft (the "We Get Security" company) admitted this week that the company knew about a new Internet Explorer (IE) cookie vulnerability and failed to provide a fix a week before it publicly accused a security company of placing IE users at risk by publishing details of the problem. Microsoft said it needed more time to address the problem, however, and notes that the vulnerability didn't harm any users; the company has since addressed the vulnerability with a security patch. "Microsoft argued that by releasing details of the bug, it would give people time to take advantage of the vulnerability," said Jyrki Salmi of Online Solutions, the company that first published information about the issue. "But we did the responsible thing. People who are using software that their business relies on to hold personal information should be aware in reasonable time that the program is not secure." Salmi notes that the company gave Microsoft a week to respond before it issued its warning.

Future of Palm, Handspring in Doubt
Despite a commanding lead in the PDA market, market-leader Palm and rival Handspring are in pretty bad shape financially. The companies received a temporary stock boost earlier this week, however, on rumors that the two firms might merge to stave off competition from the surging Pocket PC, which has been making steady gains on Palm OS-based devices this year. But both companies' stock is still trading in the $5 range, making either company a decent takeover target. Meanwhile, Palm is planning more layoffs--the third round this year. Stay tuned.

No Newsletter Thursday, Friday
We won't publish WinInfo Daily UPDATE Thursday or Friday because of the Thanksgiving holiday in the United States. But we'll be back on Monday, and if anything important happens in the meantime, I'll post updates to the WinInformant Web site. Have a happy and safe holiday.


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