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Week in review: Microsoft's memos

Bill Gates and Ray Ozzie urge Redmond's leadership ranks to confront the realities and missed opportunities of online competition.

A pair of memos from Microsoft's chairman and new services chief to the software maker's leadership ranks confront the realities and missed opportunities of online competition.

Aiming to stir up the same kind of momentum as his Internet Tidal Wave memo of a decade earlier, Bill Gates penned a memo outlining the challenges Microsoft faces from a host of online competitors.

"This coming 'services wave' will be very disruptive," Gates said in an Oct. 30 e-mail to top Microsoft employees, which was seen by CNET "We have competitors who will seize on these approaches and challenge us."

In the memo, Gates cites an earlier missive from Ray Ozzie outlining the importance of tapping online advertising and services as new revenue sources.

"It's clear that if we fail to do so, our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."

Ozzie's memo included a laundry list of missed opportunities for the software maker, citing competitive threats from rivals such as Google, Skype, Research In Motion and Adobe. Ozzie notes areas that Microsoft could have led, such as Web-based applications, but where other companies are instead more heavily focused.

Some CNET readers were dubious about Gates' predictions.

"So now there is a 'second tsunami' coming," wrote Earl Benser in's TalkBack forum. "I wonder just how hard Microsoft will slam into the bottom this time before they get it figured out, if they get it figured out correctly."

The revelations came just days after Microsoft CEO Steve Ballmer unveiled updates to the company's flagship database programs and developer tools. In a speech, Ballmer staked out what he saw as the key business differences separating his company from other software makers--including the growing cohort that makes up the open-source community.

Microsoft's chief executive officer later sat down with CNET to explain that while Oracle and SAP might enjoy a more cordial relationship with the Fortune 500, Microsoft's ambition was to become the "grand consolidator of everything else."

Somebody's watching you
Back in the 1980s, one-hit wonder Rockwell sang about paranoia in "Somebody's Watching Me." Now, ironically, music itself is helping to keep track of listeners.

Software from Sony BMG, installed when someone plays one of the record label's recent copy-protected CDs in a computer, hides itself on hard drives using a powerful programming tool called a "rootkit." But the tool leaves the door open behind it, allowing other software--including viruses--to be deeply hidden behind the rootkit cloak.

Now, the first malicious software written to piggyback on the CD copy protection tools has been spotted online--a Trojan horse that aims to give an attacker complete remote control over an infected computer. As it turns out, this interloper didn't work well. But over the course of the day, several others emerged that apparently fixed early flaws.

Sony's use of the rootkit software has sparked a firestorm of criticism online and off over the company's techniques, highlighting concerns that remain over record labels' increasingly ambitious attempts to control the ways consumers can use purchased music.

Meanwhile, a Los Angeles court temporarily shut down an operation charged by the Federal Trade Commission with bundling spyware with downloads that allegedly hit 600 blog sites. The district court issued a temporary restraining order against Enternet Media and three of its officers. Federal regulators allege that Enternet distributed spyware through a wide net of affiliates, largely comprising Webmasters who would receive payments from Enternet.

The Webmasters would place installation boxes supplied by Enternet on their sites. These boxes purported to offer free downloads of music, cell phone ring tones or photographs, the agency alleged. When a visitor clicked on an installation box, Enternet's spyware would be loaded onto the PC alongside the download without the owner's knowledge, the FTC charged in its complaint.

In an unusual twist in the spyware debate, a maker of surveillance software is using a product download agreement to attempt to bar detection by anti-spyware tools, raising questions about the legal scope of such agreements. RetroCoder wants Sunbelt, maker of CounterSpy, to stop flagging its SpyMon software as spyware. RetroCoder charges that Sunbelt has violated the terms of the copyright agreement contained in its software, which specifically excludes anti-spyware research.

The matter poses yet another challenge for anti-spyware companies, which often face complaints from makers of software that is detected as a threat by their tools. This particular challenge, however, shouldn't be hard to overcome, legal experts said.

What exactly is "Inside" again?
Apple Computer, which is in the process of switching to computers based on omnipresent Intel processors, has filed a patent application describing a method for securely running Mac OS X on specific hardware. In its application for a patent to cover a "system and method for creating tamper-resistant code," Apple describes ways of ensuring that code can be limited to specific hardware, even in a world in which operating systems can be run simultaneously, in so-called virtual machines.

In its application, Apple describes a means of securing code using either a specific hardware address or read-only memory (ROM) serial number. Apple also talks about securing the code while interchanging information among multiple operating systems. Mac OS X, Windows and Linux are called out specifically in the filing.

Apple also applied for a trademark for Rosetta, the translation technology that will act as a bridge as Apple moves to Intel chips beginning next year. Apple is encouraging developers to create Intel-compatible versions of their products, but it has also announced plans to offer Rosetta, a built-in emulation software that will allow much of the software written for PowerPC-based Macs to run on the upcoming Intel machines.

Apple has not pinned an exact date on the arrival of the first Intel machines, saying only that they should be on the market by June. Some analysts have said that the first machines could come as early as January's Macworld Expo in San Francisco.

Bad capacitors

Even with all the advance planning that companies do, sometimes costly problems arise after a product has shipped. For example, PC motherboards contain capacitors, an inexpensive little component that can be a costly headache for manufacturers when a whole bunch of them go bad.

At issue are faulty capacitors on motherboards that store power and regulate voltage. Defective capacitors have been found to bulge, pop, leak and crust over, often causing video failure and periodic system shutdowns.

Last week, Dell announced it was going to take a $300 million financial charge on its earnings to cover costs associated with the replacement of motherboards with faulty capacitors in some of its Optiplex workstations.

But Dell isn't the only manufacturer suffering. In fact, PCs from Hewlett-Packard, Apple and other PC makers using particular Intel motherboards have faced similar issues, according to the companies, contractors and several online bulletin boards.

The tunes they are a changin'
Technology is radically changing the landscape of the music world. Sometimes the changes happen right before our ears.

File-swapping company Grokster agreed to stop distributing its peer-to-peer software following a $50 million legal settlement with Hollywood studios and record labels. Along with co-defendant StreamCast Networks, Grokster had been accused by the music and movie industries of contributing to widespread copyright infringement by people who used its software to download songs and films.

Under the terms of the agreement, Grokster will immediately stop supporting its file-swapping network, and Grokster's owners will be responsible for paying a total of $50 million in damages to movie studios, record labels and music publishers.

Although the settlement is a significant step toward bringing the four-year legal case to a close, the lawsuit is not over yet. Morpheus parent StreamCast remains operating, and it has previously indicated that it would continue fighting the case in lower courts.

As Grokster fades from the landscape, a recording industry veteran sees a new future for the music industry. Jac Holzman's Cordless Recordings is the first all-digital music label operated by a major record company, the Warner Music Group, launching on the Web and on digital music services such as iTunes and RealNetworks' Rhapsody.

Music from the label's first six bands is being sold only online for now, in three-song "clusters" instead of full albums. Instead of big tours, the bands will be promoted on blogs and sites like MySpace. More eyebrow-raising from the traditional big labels' perspective, artists get to keep ownership of the master recordings they release under Cordless.

HD radios

As for that old stalwart of music, radio, the future is already on the air. But hardly anyone is listening.

The release of digital radio is widely viewed inside the broadcast radio industry as a critical response to other digital technologies, which are capturing a growing share of radio listeners' attention.

The technology essentially does for AM and FM radio what digital, high-definition television does for TV. The quality of the broadcast goes up substantially, eliminating static and providing near-CD quality richness of sound.

The problem lies in actually hearing the changes. More than 570 stations around the county are now broadcasting in the new digital radio format, but only a relative handful of actual digital radio receivers have been sold, or are even available to consumers who want to buy them.

Also of note
A new worm that propagates by exploiting security vulnerabilities in Web server software is attacking Linux systems...The U.S. Supreme Court declined to hear an appeal by a programmer who sued his former employer for changing his programs' source code...Net phone companies won't be forced to cut off callers who can't dial into the enhanced 911 network by Nov. 28.