Week in review: 8.0 is enough

The long-running battle between Microsoft and America Online heated up this week as each company touted the latest upgrade to its online service.

7 min read
The long-running battle between Microsoft and America Online heated up this week as each company touted the latest upgrade to its online service.

But the rivalry isn't what it used to be; each company had its own weakness to worry about, not to mention threats from other competitors.

Microsoft is planning a $300 million ad campaign to promote the launch of MSN 8 on Oct. 24. The company intended to use the software launch to mark the beginning of a separation between its MSN Internet access from its MSN Web sites by offering some paid features exclusively through the Internet access service.

But based on a copy of the MSN 8 software seen by CNET News.com and industry analysts, the software giant is still struggling to make that distinction, as the majority of online features in the new software are already available for free on the MSN.com Web portal.

MSN faces other problems as well. Following up on an earlier promise, Microsoft broke out revenue for its money-losing online service in its earnings report this week, disclosing that revenue at the online service had declined to $427 million in its first fiscal quarter from $430 million in the year-ago quarter.

With an eye on the bottom line, Microsoft has begun negotiating a new agreement to promote the service with Best Buy, hoping for better terms than it has under the companies' current pact.

While Microsoft was preparing for the launch of MSN 8, AOL introduced the latest version of its rival service. While AOL 8.0 adds few new features, it does eliminate one annoying one: AOL said it will no longer sell third-party pop-up advertising on its service.

AOL said the move will cost it some $30 million, but the company apparently figured it was a small price to pay to appease subscribers.

In a move to counter its own decline in ad revenue, women's portal iVillage unveiled a low-cost dial-up Internet access service. To win subscribers, iVillage plans to help people switch from AOL and MSN by offering e-mail forwarding, among other services.

While iVillage was pushing dial-up service to MSN and AOL subscribers, Yahoo and SBC Communications were trying to lure them to broadband. The partners, who run a co-branded DSL service, promised to offer tools similar to iVillage's that would ease the switch from MSN or AOL.

Yahoo's DSL effort is only one of several initiatives targeted at countering the decline in ad sales and returning the company to consistent profitability. In a separate move, for instance, the company booted small sellers from its used-goods site to clear the way for major retailers to set up shop--for a fee, of course.

Despite some missteps, Yahoo's march back to profitability has been fairly successful. But analysts say the biggest piece of that success has been a deal Yahoo signed with Overture Services. The deal generated an estimated $30 million in cash in the third quarter alone for Yahoo.

Earnings morass
Yahoo's prospects may be looking up, but for many tech and Internet companies that reported their earnings this week, the results were not so encouraging.

Apple Computer, for instance, posted a loss in its fiscal fourth quarter after reporting a profit in the same period last year. The company expects only slight improvement in this quarter.

Things were worse at some of the chipmaking companies. Intel reported third-quarter earnings that fell shy of analysts' expectations, with revenue flat compared with last year. The company doesn't anticipate much improvement in the fourth quarter.

Rival Advanced Micro Devices also missed analysts' expectations as a move to reduce inventory crimped revenue. But AMD said it expects significantly higher revenue and reduced costs next quarter.

Other companies were not so hopeful. Gateway, for instance, met analysts' estimates, but the direct PC seller cut its sales and earnings outlook for the remainder of the year. Likewise, handheld device maker Handspring cut its sales forecast for the current quarter after posting a loss that beat analysts' estimates.

Storage giant EMC saw its sales continue to slip in the third quarter and projected that fourth-quarter sales would not improve.

A different kind of storage product--hard drives--put a damper on IBM's results. But the company is selling off that money-losing unit, putting an emphasis on software and services. It expects earnings to be up 10 percent in the current quarter on a sequential basis.

IBM rival Sun Microsystems reported a narrower quarterly loss and projected a return to profitability in the first half of next year. But the news was bad for some Sun employees: The company plans to lay off 4,400 people, about 11 percent of its work force.

The news was better at Microsoft. Despite a slump in MSN revenue, the company blew away analysts' estimates for its fiscal first quarter, buoyed in part by its controversial corporate licensing plan.

Microsoft and other computing companies also got a welcome surprise from research firm IDC. The company's latest research indicates that PC sales actually grew in the third quarter after five straight quarters of year-to-year declines. IDC's report was especially gratifying for Dell Computer, which surpassed Hewlett-Packard to take the lead position in the global PC market.

Holiday product blitz
Hoping for a happy holidays, several tech companies rolled out new consumer products this week.

Pioneer Electronics announced a new combination DVD-CD recordable/rewritable drive for PCs that cuts in half the time it takes to record a full-length DVD or CD. Also on the multimedia front, Creative Technology launched a new portable music player, targeting potential customers of Apple's iPod.

And Gateway said it would put more emphasis on home entertainment in its Country Stores, stocking its shelves with digital cameras, music players and 42-inch plasma TVs.

Other computer makers were also getting into the holiday spirit.

Hewlett-Packard released a line of new Compaq Presario notebooks, offering improvements such as faster processors and combination CD-rewritable/DVD-ROM drives for lower prices. Toshiba launched a new Pocket PC device that features a faster processor and more memory than an earlier model.

While HP and Toshiba hope consumers will buy new devices, NEC-Mitsubishi Electronics Display of America is trying to entice people to buy a new display, slashing prices on a range of flat-panel monitors.

Security pitfalls
The news wasn't so encouraging on the security front, as Microsoft issued three security warnings affecting its popular SQL Server database, Windows XP operating system, and Word and Excel applications. Microsoft deemed the SQL Server flaw a critical one that would "allow a low-privileged user the ability to run, delete, insert or update Web tasks," according to the company's security warning.

The company didn't seem to be as concerned with a security breach on a server that hosts its Windows beta community. Although a hacker had access to software that is still in development, Microsoft downplayed the significance of the incident, saying the online trespasser didn't get access to the company's crown jewels: its source code.

Stronger security protection might have protected the Microsoft server, but don't look for former FBI director Louis Freeh to champion that approach. Freeh, who campaigned for years against encryption technology, was at it again recently, testifying before the Senate Intelligence committee that the Sept. 11, 2001 terrorist attacks should force a reconsideration of what to do about encryption.

The public this week got a look at the most extensive report to date on how the U.S. Justice Department has used an anti-terrorism law, passed in the wake of last year's attacks, to conduct Internet and electronic surveillance. In letters to Congress, an assistant attorney general said the USA Patriot Act has "provided critical assistance to the efforts of the department and the administration against terrorists and spies in the United States."

World of Web services
Microsoft and IBM may feel like they have a spy on board as Sun Microsystems appeared likely to finally get its wish to join the board of a Web services standards organization. IBM and Microsoft formed the group earlier this year.

While Sun may be joining, IBM is trying to set itself apart in Web services. The company plans to release a new version of its application server software intended to make building Web services easier.

Microsoft's Web services effort, meanwhile, was the subject of a multipart special report by CNET News.com. The company also is expected to make an announcement with Siebel next week that would possibly link its .Net Web services effort with Siebel's customer relationship management software.

Also of note
IDG World Expo said that it plans to move the East Coast installment of Macworld Expo back to Boston, but Apple Computer says it won't be taking part...Spam continued to gunk up the Internet's arteries, accounting for more than 17 percent of all e-mail traveling across the Internet in September, according to a report...Tickets.com's Web site was slammed with San Francisco Giants fans eager to get a seat for the baseball team's first appearance in a World Series in 13 years...Seven top brokerage firms announced a coalition to promote the adoption of standards in the fragmented instant messenger industry...Sony released a four-wheel "Speed Board" scooter for its Aibo robots...Microsoft published for the first time how long the company plans to offer customers software product support. Dell launched a new television ad campaign that doesn't focus on popular pitchman Steven, also known as the "Dell dude"...An attempt by Microsoft to do its own version of Apple's "switchers" campaign backfired when the company admitted that the photograph of the "convert" was actually a stock photograph...A growing number of hard-drive manufacturers and start-ups touted a new use for the data vault, promoting it for use as a portable storage device for gadgets such as set-top boxes, game consoles and digital stereo receivers.