Opinion: Microsoft’s new business plan

Over the past couple of decades Microsoft have, through fair means or foul taken over the vast majority of the desktop computer business. This business however is no longer subject to the stellar growth rates of the past and Microsoft now need to find a new way to keep their profits up.

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Microsoft have known market saturation was coming so been been trying to diversify into other areas for some time now. A strategy which when they move away from their core business, has to date been marked by an almost complete lack of success.

An example of this is the Xbox, it may be a nice console but has never managed anything better than joint second place with Nintendo’s GameCube [Consoles] and every unit sold loses money, from a business point of view the Xbox is nothing short of a disaster.

Microsoft have had success in other areas however, it may have taken a long time but Microsoft are now the leading PDA OS by revenue. Unfortunately for them this is a now shrinking market with SmartPhones now taking over, stand alone PDAs are rapidly becoming pointless. The SmartPhone OS business is dominated by Symbian who already have 80% of the market.

Microsoft need a new way to make money and I think they’ve found one, one in which market share is irrelevant.

In “The Future of Computing” [Future] I suggested a way by which Microsoft could use the Xbox2 to muscle their way into owning the hardware market. The theory is admittedly a bit far fetched (I don’t do close fetched!) but for a new business Microsoft don’t need to do anything so dramatic or risky, all they need to do is what they’ve always done – copy someone else.

Consider the Mono project (an opensource .net clone). It’s always been obvious to me Microsoft will wait until it’s in wide use then start collecting money from the companies which use it. What’s more, it’s not only a source of income but one in which they’ve let the open source community do their work for them.

Now think of that same strategy using patents, but vastly expanded. It’s IBM’s idea of monetisation of patents they are copying, to the point of even hiring Marshall Phelps who implemented the idea at IBM.

Microsoft are applying for vast numbers of software patents, a process you can be sure is very expensive. You can also be sure there’s going to be payback and if there’s one thing Microsoft excels in it’s making money. I fully expect Microsoft will use these patents to their full extent.

Microsoft expect to apply for 3000 patents in 2004 alone, evidently there’s more to come:

“We’re at an early state on that but it is something that we are pretty excited (about),” – Bill Gates on the Microsoft patenting program.

With the US patent office apparently happy to allow often overly broad patents on seemingly everything it’ll be possible to get patents on everything. Microsoft will then be able to target anyone they want.

You may think you could fight a demand for money in court by challenging the patents, indeed 50% of patents challenged are overturned. Unfortunately IBM rather cleverly got around this by suing for infringement of many patents simultaneously. Even if many of the patents are seemingly invalid the cost of fighting them in court becomes prohibitive and companies just end up paying. I fully expect Microsoft will use this tactic to their fullest advantage, but they’ll probably want the free use of your patents (at no charge of course) as well.

Microsoft no longer need a monopoly, they have a new business: Taxation.

But this wont make them the billions they are used to if they do it IBM style. Microsoft need to be a lot more aggressive, to make billions they need to do nothing short of taxing the entire IT industry and you can bet they’ll get away with it.

It doesn’t matter if you are running Linux, it doesn’t matter which license you release your code under either, if it’s used commercially and it infringes a patent, fees will still be demanded, you still pay.

This wont just be operating systems or office applications either – it will apply to anything which uses software and these days everything uses software. If anything sells which uses software, Microsoft are going to want a piece of the action.

MS don’t need to be a success in the mobile phone area, you don’t need a Set-Top-Box with MS software, they’ll get paid irrespective.

Where SCO have failed, Microsoft will win. By the time the politicians get around to doing anything about it it’ll be years to late.

So, what’s wrong with Patents?

Patents are meant to give an inventor a short term (20 year) monopoly on their idea so they can get a reward for it, patents are supposed to be very specific and non-obvious to a practitioner of the relevant field, they are also meant to be new, describing something which has never been in use before.

I’m not opposed to patents as such but it’s clear the system has broken down with the sheer volume and type of patents now being awarded (at least in the US but their problems are not unique). Additionally the 20 year limit is much too long for a fast developing industry such as technology.

Patents no longer deliver that what they were intended to, the failing system means patents can and are being abused. Microsoft know this, they also know defending yourself in court is a time consuming and hugely expensive business, their tax will be based on these two facts.

Those who have been arguing against software patents are right, if Europe implements software patents they will of handed their entire industry on a plate [MS EU Patents] to a foreign corporation – just like Japan, Australia and other parts of the world have already done, like good sheep.

Can anything be done about this?

Getting the European parliament to reintroduce the amendments for the software patents bill’s second reading would be a start, it’s somewhat non-democratic for them to have been removed in the way they were. If decisions by the people’s representatives can be so easily overridden what is the point of having a European parliament?

In the US and elsewhere fighting the useless or invalid patents needs to be done to remove their bite, there is plenty of prior art and it needs to be put on line in a central repository organised by subject and the relevant patents it can be used against. Much of our “modern” technology was invented or at least thought of decades ago, if these ideas and descriptions of implementations can be brought together in a searchable manner lawyers have a means by which to defend companies.

Fight Microsoft at their own game

More can be done than just defending, the defence could be a lot more aggressive, as the saying goes: “attack is the best form of defence”.

Companies with patents need to apply for more so there is something to fight back with, also they can be assigned to second companies so cross license agreements don’t apply to them (Intel and HP have done this to prevent the Itanium CPU being cloned).

If a main company gets sued and looks like losing, the secondary company can sue back and because they don’t actually produce anything they can only make a profit. Individuals may also have patents, individually they may not be of any great use but combined into groups they can be strong.

If Microsoft tries to Tax the industry the industry needs to Tax Microsoft right back, tie them up in legal cases and royalty payments.

Patent reforms

What really needs to happen is the patent system needs to be reformed so it provides the service it was intended to. Getting patents should be harder, invalidating bad ones should be easier.

Until the system is reformed the abuse will continue, unscrupulous companies will be able to demand royalties where they are not deserved.

It appears this process may already be starting even in the US but as with anything political initial actions will be ill thought out and real reform takes years, while politicians like to talk about reform they don’t like to do it, especially if it costs money.


I should point out I do not disagree with the concept of owning ideas or making money from them via royalty payments, that is after all how a chunk of the industry already works and how musicians get there living. However it is abusing this process which I strongly disagree with and it looks like Microsoft intend to do this, it’s not as if they care, they are after all a convicted monopolist on two continents.

Microsoft have yet again outsmarted their opponents, again they will just sit back and watch the billions pour in.



[Future] (see middle of page).

[MS EU Patents]

© Nicholas Blachford, August 2004

About the Author:
Nicholas Blachford lives in Paris. He is currently not working but for something to do is designing a GUI for advanced consumer entertainment systems.

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