Week in review: Microsoft's cloudy future

Microsoft is planning an ambitious makeover to its Internet services, the E3 game confab focuses more on entertainment, and what lays ahead in Apple's iFuture is anyone's guess.

Microsoft plans to open up its underlying Internet services to developers as part of an ambitious makeover some refer to as "Cloud OS."

In addition to making available its existing services, such as mail and instant messaging, Microsoft also will create core infrastructure services, such as storage and alerts, on which developers can build. The software maker has been talking for some time about its plans to have a full-fledged platform that lives on its servers, but the company has been extremely short on details.

During a speech at the Worldwide Partner Conference in Denver, Microsoft CEO Steve Ballmer didn't quite answer all the questions. But he did promise that more news will come sooner rather than later, and also offered a few hints as to where the company is headed. During the presentation, Microsoft also pledged to share more information with partners and developers.

"This is an ambitious project for us but it is very important," Ballmer said. "We have a lot of news and things that we'll be talking about and unveiling...this year."

Ballmer said that later this year Microsoft will deliver the first version of a set of developer tools to build on top of Microsoft's Windows Live effort, and noted that the tools will be based on .Net.

Late last month, Microsoft introduced two new Windows Live Services, one for sharing photos and the other for all types of files. While those services are being offered directly by Microsoft today, they represent the kinds of things that Microsoft is now promising will be also made available to developers.

The idea was not popular among some CNET News.com readers.

"People do not like someone else controlling their assets," wrote one reader to the News.com TalkBack forum. "They would much rather be responsible for their own actions."

Microsoft also isn't quite ready to talk about plans for an ad-supported or online version of its Office franchise, but the company clearly is thinking about it.

"We've put more of our marketing IQ beyond alternative business models and alternative distribution strategies in the last two years," corporate vice president Chris Capossela said in an interview at the Worldwide Partner Conference.

"It's definitely something where we feel there is this whole population of people we are not reaching."

Many of those people are in emerging markets, where Microsoft is trying things like prepaid cards good for two or three months of Office use. But Capossela agreed that there is an opportunity to reach consumers in well-developed markets like the U.S. and Europe as well.

One possibility is to introduce some sort of online productivity options as part of the Office Live suite of software. BusinessWeek reported last year that Microsoft was exploring such a move.

Meanwhile, in an effort to rally its partners around the reality of hosted software, Microsoft Chief Operating Officer Kevin Turner told them it was a matter of financial life and death.

"We have to change faster internally than the world is changing externally, or we will be obsolete," Turner said, as part of his speech, which kicked off the Microsoft conference.

While change is hard, Turner said, Microsoft's partners need to be ready to offer customers the choice of running software on their own servers or subscribing to hosted services. "It doesn't mean locally based software is going away, but customers want the choice."

Microsoft is trying to keep its partners in the fold through the transition. With its new Live CRM service, set to go on sale next year, Microsoft is offering partners a 10 percent cut of ongoing subscription revenue for those that help sell and support the product, for example. He also noted that an early access program for Live CRM, which kicks off this quarter, is available only through partners.

This year, E3 stands for entertainment
At this year's E3 Media and Business Summit, the three major game console makers--Microsoft, Nintendo and Sony--were all eager to highlight their successes and differentiate themselves from their rivals. Nintendo is at the top of the heap this year after the wild and serendipitous rise of its Wii console.

But beyond that, the "Big 3" at E3 were all about the "E" word. All three presentations stressed a common goal of establishing video games as a form of entertainment that's unquestionably on a par with television or film. As a result--despite the fact that the revamped E3 is smaller, quieter and more exclusive than its massive predecessor--there was nothing low key about the console companies' presentations. With giant video screens, surround sound and fancy lighting, the atmosphere had the feel of a movie premiere. Game previews, with their emphasis on action and storyline, were virtually indistinguishable from film trailers.

Focusing on the entertainment factor was one thing that the companies could use to get the attendees excited. But it was a bit of a catch-22 for the console manufacturers: the "new E3" was supposed to cut down on the glitz factor, but at the same time, it was clear that the likes of Sony, Microsoft and Nintendo needed to use some smoke and mirrors (literally) to mask the fact that there weren't going to be a whole lot of shocking moments.

The vast majority of games had already been announced and many had been previously demonstrated, and hardware announcements were minor. Sony made some improvements to its PlayStation Portable, trimming down its size, improving its video quality and battery life, and touting the Darth Vader-emblazoned Star Wars edition; Microsoft unveiled a new Halo 3-themed Xbox 360 and a special new controller for casual games like Scene-It; and Nintendo introduced some new Wii accessories like a zapper gun, an exercise balance board and a steering wheel.

It's not yet clear whether the eye-catching game trailers and lavish demonstrations like Microsoft's smoke-machine-laden debut of the Rock Band will have been enough to keep jaded press members and analysts at bay, but Microsoft executive Peter Moore's "rendition" of the Hives' "Main Offender" on the new music game certainly elicited some laughs.

Some early fireworks came from Sony, which cut the price of the PlayStation 3, which competes against the Xbox 360, by $100, or 17 percent, in the United States in an effort to boost flagging sales.

Sony's cut came days after Microsoft announced that it would take a $1 billion charge as it extends the warranty on the Xbox 360, after an investigation showed the game console can be prone to hardware failures. Microsoft said its probe found "a number of factors" that can cause a general hardware failure indicated by three red flashing lights on the console. The company said that, in addition to extending the warranty, it has made unspecified design changes to the product.

Apple's iFuture
Time to dust off the crystal ball to determine what is in Apple's gadget grab bag?

The U.S. Patent and Trademark Office revealed a raft of new patent applications submitted by Apple's lawyers, covering new technologies for iPods, Web pages and mice. Several patent applications that were filed months ago but just revealed this week on the PTO's Web site.

The most intriguing example appears to involve a method for allowing an iPod or iPhone to talk to a neighboring device through a wireless network. The application assumes that mobile devices already are capable of downloading data from the Internet over cellular or Wi-Fi networks, "however, as portable electronic devices become more versatile and more interactive, it is advantageous to exchange (send and/or receive) media or other types of data with other electronic devices in a wireless manner," Apple notes in the application.

The other filings include input technology that would allow designers to manipulate 3D images with a 2D input device, like a mouse. Apple also filed for a patent on ways for inexperienced Web designers to create fancy Web pages using tools generally confined to the pros.

Meanwhile, it looks like JPMorgan Chase may have made up its mind on the notion of an iPhone Nano being a realistic possibility. On Monday, Kevin Chang with JPMorgan Chase in Taiwan prognosticated that a slimmer iPhone was on the way, based on conversations he had with unnamed sources and an Apple patent filing for a slim device that uses an input method similar to the familiar iPod scroll wheel. This would allow Apple to ship a cheaper version of the original iPhone, he said.

However, his colleagues Bill Shope, Elizabeth Borbolla and Vlad Rom threw Chang under the iBus in their own report Tuesday.

"We caution that the potential for a low-end, subsidized phone from Apple seems unlikely in the near term," the New York analysts wrote. Chang wrote that Apple could sell an iPhone Nano for around $300, and widespread reports of that price target sent Apple's stock up $2.06 on Tuesday on a day when the broader market fell.

Is there regulatory trouble in iPhone's future? AT&T's exclusive right to sell the Apple iPhone drew complaints from Democratic politicians, though it was unclear whether they were planning to do anything about it.

"The problem with the iPhone is that the iPhone with AT&T is kind of like a 'Hotel California' service," Massachusetts Rep. Ed Markey said--in a nod to the Eagles hit, of course--during a hearing. "You can check out any time you like, but you can never leave."

Even though the hearing before the House of Representatives subcommittee on the Internet was supposed to be about "wireless innovation and consumer protection," the iPhone popped up among Democrats as a subject of criticism--and, among Republicans, as an example of the free market and consumer choice in action.

There are no proposed laws, or even talk of proposed laws, that would forcibly divorce Apple from AT&T. The wireless carrier reportedly has an exclusive deal to sell the iPhone in the United States for the next five years.

Also of note
Spammers, beware: More criminal-spam prosecutions--complete with stiff prison sentences and mandatory forfeiture of relevant valuables--are on the way in the coming months, a U.S. Department of Justice attorney said...Google said it has agreed to acquire e-mail security company Postini for $625 million, expanding its package of online applications to compete with Microsoft's Office software...The head of Interpol believes terrorists and other criminals are traveling freely around the globe in ways that police agencies find difficult to track, but he says he knows how to cripple their movements.

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