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Microsoft witness defends Web strategy

A key executive takes the stand the continuing antitrust case, setting the stage for a potential showdown over its plans in the emerging Web services market.

WASHINGTON--A key Microsoft executive took the witness stand late Thursday in the continuing antitrust case, setting the stage for a potential showdown over the company's plans in the emerging Web services market.

David Cole, vice president of the MSN and Personal Services Group, is the seventh witness called by Microsoft in a proceeding that could determine a remedy for the company's antitrust violations. Nine states and the District of Columbia rested their portion of the proceedings on Monday.

As with other witnesses, Cole submitted written testimony to the court, after which the states started their cross-examination. Written testimony carries the same weight as that given orally. The two sides present written testimony for expediency, as the court has limited the proceeding to 100 hours.

In his written testimony, Cole addressed concerns raised by states' witnesses John Borthwick of AOL Time Warner and Sun Microsystems Chief Technology Officer Jonathan Schwartz. They charged that Microsoft uses its Windows monopoly to compel consumers to sign up for Microsoft's Passport authentication system.

Market researcher Gartner bolstered that claim on Wednesday by reporting that 84 percent of consumers signed up for Passport because a Microsoft product or Web service required a Passport account.

Passport, like competing services backed by AOL Time Warner and Sun, offers consumers a single login for signing on to multiple Web sites and services, eliminating the need for many different IDs and passwords. Identity services like Passport are seen as essential components for companies moving into consumer Web services.

Microsoft has identified Passport as an essential component of its .Net software-as-a-service strategy. Microsoft announced .Net My Services last March and is still struggling to find a business model for the plan.

see related story: Is Microsoft getting ahead of itself?

In his written testimony, Cole rebuffed allegations Borthwick and Schwartz made about Passport.

"It is misleading to assert, as Mr. Borthwick did, that Passport is a 'critical bridge' from the Windows desktop to a 'new world' of 'Microsoft services' or that Passport 'serves primarily as a virtual toll gate into Microsoft's .Net services.'" Cole emphasized that Passport is "free to end users and does not require them to use any Microsoft software." He noted that people can register for Passport by using any e-mail address, even a fictitious one, and that the service can be accessed from many popular Web browsers and competing operating systems such as Apple Computer's Mac OS X or Red Hat's Linux.

Cole explained that Passport Manager, a utility Web site operators use to run the authentication service, works on non-Microsoft operating systems such as Linux. He testified there are 147 live Passport sites today, "61 of which are non-Microsoft sites...Passport-enabled Web sites also are not required to run Microsoft operating system software on their sites."

Microsoft launched Passport, built on technology acquired from Firefly Technology, in 1999. Microsoft built the service because no authentication system existed at the time, Cole said. But the company felt such a service would be key for Hotmail, MSN Messenger and other Microsoft online services where establishing identity is essential.

"Those online services now utilize Passport as their user authentication mechanism," he testified. "Passport is not a 'tollgate' for those services, but rather an enabler of those services by providing the user authentication those services need."

Cole claimed there are more than "200 million Passport accounts performing more than 3.5 billion authentications each month."

But on Thursday, Gartner said the true number of consumers is closer to 25 million, with each using many multiple Passport accounts.

The MSN executive also rebuffed Borthwick's allegation that Passport is a "closed" system. Cole referred to Microsoft's September announcement about opening Passport to other authentication systems.

"In entering into agreements with Web site developers, Microsoft has not required Web sites to use Passport on an exclusive basis," Cole testified. "By contrast, I understand based on Mr. Borthwick's direct testimony that America Online has entered into an agreement with Amazon.com...to use its Screen Name Service authentication service exclusively."

Borthwick and Schwartz also addressed the Liberty Alliance, a Sun-sponsored authentication service and rival to Passport. "Although Microsoft has not joined the Liberty Alliance to date, Microsoft hopes to work with America Online, Sun Microsystems and other members of the Liberty Alliance to achieve interoperability among online authentication systems," Cole testified. "Microsoft sees interoperability as good for consumers."

Cole also addressed allegations that Windows XP nags consumers to sign up for Passport, which is required to use Windows Messenger and some other features. "Although several optional services in Windows XP use Passport, Windows XP does not require users to have or use a Passport, and a Passport is not required to access the Internet from Windows XP," he testified.

On the stand
In court, during cross-examination, states attorney John Schmidtlein attempted to get Cole to agree that Microsoft hoped to use Windows XP to drive Passport adoption. He asked the witness if Passport sign-ups had increased since Windows XP's launch in October.

"I don't have data on that," Cole responded.

But he later estimated Microsoft signs up between 1 million and 1.5 million new Passport accounts each month. But he emphasized that Hotmail, with 160 million users, is more important for Passport than Windows XP. Cole estimated Microsoft's signs up about 14 million new accounts each month.

Schmidtlein latched onto Hotmail, MSN Messenger and some Windows XP features as Passport-account generators.

"Yes, Passport is necessary to use a number of services that come with Windows XP," Cole explained.

The answer didn't satisfy Schmidtlein. "Passport is more than just an enabler (of these services), it's an absolute prerequisite," he charged.

"Yes, Passport is an enabler of those services," Cole replied. But he gave no ground on the prerequisite portion of the question.

Schmidtlein proceeded onto other Microsoft services requiring Passport, such as MSN Messenger and .Net Alerts.

Without hesitation, Cole conceded Microsoft's 40 million MSN Messenger users need a Passport account to use the service as do those subscribing to .Net Alerts.

Schmidtlein also tried to attack the portion of Cole's written testimony pertaining to how much information Microsoft collects during Passport sign-up. Cole had said only an e-mail address, which could be fictitious, and password. But Schmidtlein noted that Hotmail, which requires a Passport account, collects a lot more information, including name and address.

Cole explained that this is different, because Hotmail is a free service supported by advertising.

"Hotmail generates revenue...this demographic information allows us to do that," he said.

Cole's cross-examination is expected to continue on Monday. Microsoft still has another possible 20 or more witness that could testify during the proceeding. The company expects to release the upcoming week's witnesses as early as Friday.