The House and Senate versions of the surveillance bill--called the Foreign Intelligence Surveillance Amendments Act--need to be reconciled. But politics is in the air (I know, you're shocked, shocked.)
The controversy centers on whether to extend legal immunity to telecommunications firms that carried out Uncle Sam's bidding and wiretapped U.S. phone and computer lines without first getting court permission. The Senate says yes, while the House says no.
George Bush
(Credit: White House)In his stump appearances (as well as during his Thursday press conference), the president argues that the old FISA law is out of date and fails to allow government security arms to quickly track foreign terrorists on foreign soil "quickly and effectively."
As such, he contends the nation is in danger from terror attacks now that the temporary surveillance law has expired. If you didn't catch the president's morning press conference, here's a link to the text play-by-play.
Here are the relevant excerpts:
"The law expired; the threat to America has not expired. Congress understood last year that FISA did not give our intelligence professionals the tools they needed to keep us safe. The Senate understands that the FISA--old FISA didn't give us the tools needed to protect America. The bipartisan bill it passed provides those tools our intelligence professionals need. Yet the House's failure to pass this law raises the risk of reopening a gap in our intelligence gathering, and that is dangerous."
Asked later if Americans are essentially being told that when it comes to their privacy, the answer was "to suck it up," Bush responded:
"I wouldn't put it that way, if I were you, in public. Well, you've been long been long enough to--anyway, yes, I-- look, there's--people who analyze the program fully understand that America's civil liberties are well protected. There is a constant check to make sure that our civil liberties of our citizens aren't--you know, are treated with respect. And that's what I want, and that's what most--all Americans want..."
"I guess you could be relaxed about all this if you didn't think there was a true threat to the country. I know there's a threat to the country. And the American people expect our Congress to give the professionals the tools they need to listen to foreigners who may be calling into the United States with information that could cause us great harm."
The president didn't bother getting into the nitty-gritty. I can understand that. FISA created a secret court, which since 1978 has been able to grant wiretapping orders upon request. What's more, during emergencies, FISA--the "old FISA, I should add--lets the attorney general to conduct wiretaps without court approval.
Bush made it seem that FISA requests routinely get held up by recalcitrant, fuddy-duddy judges. But if the Justice Department fails to get its way, it can always appeal to the Foreign Intelligence Surveillance Court. (They needed to go that far just once in the history of the law.) Bottom line: The Feds nearly always get what they want. So why is Bush making a big megilla out of this? Hmm, rumor has it there's a big election in the offing.
The headline read, "Dell's business priorities drive revenue up 10 percent in fourth quarter." The real story was that profits slumped 6.5 percent because of a bevy of charges.
What it means is that Michael Dell still has a lot of work ahead. Dell has already fired 3,200 employees in the last eight months to get costs down. But the restructuring work isn't over and it will impact future earnings. (In the press release, Dell's PR team put it more delicately, allowing that "the company will continue to incur costs as it realigns its business to improve growth and profitability." (Here's the Reuters wire story.)
Dell CFO: Don Carty
(Credit: Dell)Donald Carty, the company's vice chairman and chief financial officer, started off the post-earnings conference call today by cautioning that "we clearly have a lot more work to do on cost." If you prefer the glass half-full approach, this was the first time in the last three years that Dell posted double-digit quarterly growth. The company posted strong laptop PC sales and enjoyed overseas growth. True enough but don't pop champagne corks just yet: Dell's top line growth still came in around $200 million shy of Wall Street expectations.
The problem is that Dell's far removed from the days when its manufacturing and distribution system was the envy of the industry. Over at Hewlett-Packard, now the world's largest PC maker, Mark Hurd has proved a master at maintaining a relatively lean cost structure while pushing his sales force to ring up bigger numbers.
The company's no longer a pure play direct seller. There was a time when price and distribution were good enough. But with buying tastes evolving, Dell's been branching out into retailers including Best Buy, Wal-Mart and Staples. That may work out to Dell's advantage but management is going to face a new set of business issues associated with an increasingly hybrid distribution system.
On the conference call, Michael Dell said the company was "managing closely and watching closely "the stocking levels during the transition. But he passed when a questioner asked about the level of channel inventory right now. "We're still learning how to balance it perfectly but pretty pleased with our progress at this stage."
That's a big comedown from the go-go era when Dell was running circles around the competition - and crowing loudly about it. Why have costs gone up so sharply? Dell sought to assuage concerns on the call with a heavy helping of business platitudes. I don't know if he convinced many listeners. Tony Sacconaghi with Sanford Bernstein wasn't buying it. He pointed out that SGA expenses have climbed 46% in the last couple of years. Carty, who disconcertingly sounds like the cartoon character, Foghorn Leghorn, acknowledged that Dell wasn't "as prudent with cost controls" as it ought to have been. That rates as understatement of the day.
The hullaballoo that attends every Google product debut triggers the predictable bloviation fest one normally associates with market-moving news. But much of the commentary about the debut of the revamped JotSpot technology misses the more interesting story.
Sure, the announcement is intriguing. But it's not because we're talking about Jotspot (or Google Sites, as the service was rechristened). I don't want to suck up too much to my cubicle mate Dan Farber (well, maybe just a little), but he's right about this being a show.
Eric Schmidt: Sites today, tomorrow the world?
Outside of a fanatic few, how many computer users really will give a fig about this particular announcement? After all, Google Sites is part of the company's enterprise group and the burden of proof is on management to demonstrate that it knows how to deal with enterprise customers. From his previous tours of duty at Sun Microsystems and Novell, Eric Schmidt doesn't need reminding.
But this is the equivalent of a golfing Mulligan. Even if it fizzles, the company's stock isn't in danger of collapse. More importantly, Sites is yet one more addition to Google's growing arsenal of free applications. And they're getting the hang of this.
From my perspective, the company is doing better than skeptics thought. I've been saving up this quote from a story InformationWeek did on the eve of Google's product rollout. The talking head was Tom Rizzo, a director for Office SharePoint Server at Microsoft.
"The Google solution is what I'd call patchwork, or Frankenstein, software...You have to put it all together yourself."
Precious, but not prescient. For the multitudes--not business--explain again why I should care. Forget the marketing blather. Most regular folks only use a small percentage of the functions Microsoft stuffs into its apps anyway.
A personal aside: When Google began offering apps a couple of years ago and I started to muck around with the offerings on my home PC, I wasn't expecting much. Two years later, the only apps I use at home exist on Google's cloud. Microsoft will have to develop an incredibly "wow" offering--or slash prices--before I again let them charge my credit card for the privilege of owning Microsoft Office.
I can understand why Steve Ballmer may be wondering if he'll ever catch a break from Neelie Kroes.
Europe's top regulator
And no matter how much Ballmer coos about turning the page and being a good corporate citizen, the Old World's regulatory mandarins still distrust Microsoft. Take a listen to the recording of Kroes' news conference. At one point it sounds as if she's talking about her experience with a used car salesman.
"I can remember four times when, if you were naïve, you could have thought everything was fixed. This didn't seem to be the reality. They have to deliver and implement."
You have to wonder whether the EU also plans to erect a roadblock in the way of a Microsoft-Yahoo merger--that is, of course, assuming Microsoft ever clinches a deal. What's clear is that Microsoft's burden of proof is going to be substantially higher on the other side of the Atlantic than it will be in Washington. The perception that the EU and the U.S. have divergent philosophies when it comes to antitrust policy is close to the reality. I should hasten to add that not everyone shares that view. In fact, Kroes' predecessor, Mario Monti, argues just the opposite:
"A single, but highly publicized case of divergence, has contributed to spread this perception. But if you look at the record, you will find that nothing could be further from the truth. Put simply, the EU and U.S. agree on what competition policy should be all about. We share a common fundamental vision of the role and limitations of public intervention. We both agree that the ultimate purpose of our respective intervention in the market-place should be to ensure that consumer welfare is not harmed."
"Some of that may be media exaggeration but there also is substance to the depiction. In general, European antitrust law focuses more heavily on monopolists' effects on competing businesses rather than on consumers."
We'll see.
When Microsoft last week announced changes designed to guarantee better technological interoperability with rivals' products, the EU responded tersely and, well, rather coldly. Ballmer extended an olive branch, hoping that the Europeans might interpret the move as a sign Microsoft was ready to be more open and yes, play by the rules. Kroes' office was unmoved.
By now, Brad Smith, who directs Microsoft's legal strategy, probably could write a book on the differences between European and U.S. trustbusters. On the other side of the pond, the prime concern is to maintain viable competition and Europe's antitrust focus cares more about any monopolistic effects on rival businesses, rather than on consumers.
And they're not afraid to hold up a big red stop sign. In 2001, U.S. regulators signed off on General Electric's proposed merger with Honeywell International. The EU's Competition Bureau, then run by Monti, nixed the deal. He said the combination would have reduced competition in the aerospace industry and resulted in higher prices for customers, particularly airlines.
That does not mean Microsoft's pursuit of Yahoo is bound to come a cropper once Kroes' team gets a chance to review any such deal. In an interview with my colleague Ina Fried on Tuesday, Ballmer was noncommittal: "I think regulators will look at that in all appropriate jurisdictions and I'm sure they'll give us a fair shake in all appropriate jurisdictions."
Considering Microsoft's fractious history with the EU, can Microsoft's CEO safely bet on this being a sure thing? I wouldn't take that bet.
"And next time, don't forget to eat your vegetables--or else!"
News.com Poll
The Academy Awards show is over and done with, but European Competition Commissioner Neelie Kroes is making a strong bid to win an Oscar as "Best Supporting Scold."
The EU's regulatory czar has socked Microsoft with an 899 million euro ($1.35 billion) fine for failing to comply with a March 2004 antitrust ruling and for charging "unreasonable" prices to rivals seeking documentation for workgroup servers. In the statement from the European Union, Kroes singled out Microsoft as the first company in the last half-century of EU regulation fined for failing to comply with an antitrust mandate:
"I hope that today's Decision closes a dark chapter in Microsoft's record of non-compliance with the Commission's March 2004 Decision and that the principles confirmed by the Court of First Instance ruling of September 2007 will govern Microsoft's future conduct."
Steve Ballmer's not looking to reprise the role of industry bully. Remember the blowback after his "the hell with Janet Reno" yowl in the late 1990s? He will write the check and order his legions to move on.
Neelie Kroes
(Credit: European Community)There's not enough upside to fight Kroes over what, for Redmond at least, is essentially chump change. Besides, he's anxious to gain EU goodwill for Microsoft's pledge last week to open up its APIs and protocols. The idea was to foster the impression that Microsoft was trying to be more open and not impede rivals seeking to make their products more compatible.
And, of course, to get Kroes off its back.
The EU is within its rights to wield a big stick. Whether this really was necessary is another story. While U.S. regulators took a powder when the Bush team took over the Justice Department, European trustbusters remained aggressive and actually forced changes in Microsoft's behavior (or at least got Redmond's braintrust to sign off on paper).
But pouring salt on the wound--and that's what it is--doesn't change anything on the ground. Microsoft's already paid big fines, and so now it will pay another one. Kroes made her point for the cameras and guaranteed a boatload of press attention over the next 24 hours.
I was poring through a university research paper Tuesday afternoon on the connection between the use of corn-based ethanol in the U.S. and greenhouse gas levels. That was just a grim appetizer for the big eco-news du jour later in the afternoon.
Turns out that Riau, Sumatra, a province in Indonesia, has the dubious honor of producing more average annual greenhouse gas emissions "from deforestation, forest degradation, peat decomposition, and peat fires between 1990 and 2007" than does the Netherlands. That's due to the local practice of supplying global paper giants and palm oil plantation with raw materials processed from forests and peat swamps.
Because of the ongoing forest clearance projects in areas with deep peat soils, experts warn that the region's carbon emissions will likely climb. (In the last quarter century, companies working in the province have cleared about 10.5 million acres of tropical forests and peat swamp.)
The report was jointly published under the auspices of Hokkaido University, the World Wildlife Fund, and Remote Sensing Solutions GmbH.
The researchers painted a sober picture of the changes wrought by deforestation. Here's the link to the full report (PDF).
WWF
Steve Jobs: What, me worry?
Browsing the headlines on Yahoo Finance this morning was enough to make anyone briefly consider jumping out the window. To wit:
• Job worries sink consumer confidence
• S&P: U.S. home prices down sharply
• U.S. home foreclosures soar in January
• Harsh light shines on iPhone, iPod sales
So here's the multiple choice test: Which headline does not fit with the rest? If you chose letter "D" you win a dream date with my colleague Michael Kanellos (No worries: Kanellos is off reporting on start-ups in Ireland this week, and so you're safe.)
I have to confess that the depth of emotion punctuating the "whither Apple" debate never ceases to baffle me. Throughout its history, Apple has always received more than its fair share of scrutiny. The commentary has usually been marked by extremes, pro and con, between the bulls and bears. That just went with the territory. And now a new element has been injected into the debate over Apple's prospects: recession. On Monday, my ZDNET colleague, Larry Dignan, wrote eloqently about Apple: the angst versus the reality. And he's right in many respects.
What with home foreclosures on the rise, crude oil prices breaking record highs, and the banking industry in its deepest crisis since the S&L mess of the early 1990s, there's enough to worry even the most Panglossian optimist in the crowd. And so in the last couple of months, Apple shares have plummeted from the $200 level late last year to under $120.
Which side has it right? Based upon the current stock price, you have to go with the bears--at least until the free fall ends. The gist of their argument is as follows:
• Apple doesn't have any upside surprises coming off one of its biggest product cycles.
• Sales of iPhones are said to be coming up short of expectations, while the number of people unlocking the devices is higher than anticipated.
• There are increasing signs of iPod saturation.
• With the economy worsening, why assume strong demand for (relatively) expensive Apple electronics products will continue?
Eric Savitz from Barrons has a good synopsis of the current concerns being articulated by analysts at Bernstein Research, J.P. Morgan, and Morgan Stanley.
The problem I have with the bears is that they've been wrong for much of the last three years. Everyone knows that the iPod is maturing. That's yesterday's news. In fact, Piper Jaffrey analyst Gene Munster believes the debut of the iPod touch signals the start of more Internet- and Wi-Fi-connected iPods in the future. If he's right, that may well turn out to be a game changer.
On the iPhone front, we'll have to wait for Apple to disclose the latest numbers during its next earnings call. But the same worry warts bemoaning the rise in so-called unlocked iPhones remind me of the sturm und drang surrounding the early days of the iPod. It took a couple of years but Apple had a major hit on its hands by 2003. I'd be floored if the iPhone did not repeat that pattern.
iPod unit growth rates
(Credit: PiperJaffrey)The problem I have with the bulls (maybe "perma-bulls is the better term?) is that they turn insane when the subject is Apple. These folks would ordain Steve Jobs dictator for life. Nothing he touches is unworthy of hushed reverence. And woe to the infidel reporter who dares breathe a syllable of criticism--the Mac mujahadeen make no allowance for the 4th Estate (or the First, Second and Third, either.)
So here's where I think we're heading.
Apple is not immune to what's going on in the rest of the world. If the U.S. economy goes into the dumper, some prospective buyers will defer their purchases until a sunnier day. But that's old news by now. The iPhone remains head-and-shoulders above any smartphone in the industry. Everyone knows the product is a long-term play. When my wife, perhaps the most nontechnical human on the planet, told me last month she wanted one, it spoke volumes to me.
Don't lump in Macintosh customers with regular PC shoppers. These folks have always been ready to pay a premium because they believed the Mac offered special value. Save the fight about whether they're right for another day. What's important to recognize is that they groove on Apple. Recession or no recession.
Brazil, the biggest nation in Latin America, has a number of firsts to its name. It's got the world's best football (soccer in the parlance of you Americans), the country is leagues ahead of everybody else on Planet Earth when it comes to alternative energy--and its citizenry have taken over Orkut. I'm still not clear why Brazilians so groove on this particular social network, but "quem sabe?"
So would the same formula, tailored for a North American audience, work the same magic north of the border? I put the question to Joe Kraus, whom I bumped into Monday at Adobe's San Francisco get-together. "Forget it" was the answer. Kraus should know: he directs product management at Google.
Joe Kraus
For the record, Kraus says the company's focus continues to be on Open Social. That's the ballyhooed initiative announced late last year that uses open-source code to allow social media sites to incorporate common application program interfaces and create "universal" applications.
Important, perhaps, but utterly boring. It would be so much more fun to watch Google try and rearrange the constellation of forces by starting a new social network. And since there seems no limit to the company's ambitions, why suddenly become modest when the topic turns to social networking? Nobody's yet confused Mark Zuckerberg with the second coming of Don Corleone.
Google's strategists have toyed with the idea of "doing an Orkut" and proponents inside the company indeed can make a plausible case for moving ahead with such a project. Considering how Facebook is in league with Microsoft, Google could wind up with a "twofer," causing grief both to a looming rival as well as its archenemy.
If you want a precedent, consider what Google is doing with its application suite. I very much doubt Google's managing troika believes it can destroy Microsoft's Office franchise. Still, Google's online applications are more than serviceable. Cyber-snobs may turn up their noses but Google's apps offer a reasonably good--and free--alternative to Office. Even better, from a Google perspective, each new user means one extra wrinkle on Steve Ballmer's forehead.
Now tell me why I'm all wet.
(Credit:
Outbrain)
Outbrain, which has come up with a different take on collaborative Internet filtering, has closed a $5 million A-round investment with Gemini Israel Funds, Lightspeed Venture Partners, and GlenRock Israel.
The start-up makes a rating widget for blogs and RSS platforms that lets you personalize recommendations, the idea being to help point readers to the better blog and news content on the Internet.
Will the concept survive the economic contraction that's pressuring an increasing number of Web start-ups? We'll only know with 20/20 hindsight. But while the days of easy finance capital may be over for now, good ideas still get funded.
It also helps if you have a reassuring pedigree. The co-founders of Outbrain are Yaron Galai, who helped start Quigo (since bought by AOL), and Ori Lahav, a former R&D exec at Shopping.com. What's more, Outbrain now claims that thousands of Web sites have since installed its widget and that "millions of ratings and recommendations are being served" each day.
Earlier this year, Galai presented before a audience of venture capitalists at Microsoft's Mountain View, Calif., campus. His was one of several Israeli start-ups brought to Silicon Valley auditioning for outside investment. Like Galai, most of these folks were experienced entrepreneurs. Most of what I saw that day made me nod my head in agreement that yes, this idea had potential.
Adobe CEO Shantanu Narayen
(Credit: Charles Cooper/CNET News.com)Good morning--belatedly, of course, to any folks living outside Pacific Time--from Adobe's San Francisco event Monday where the company is gathering developers supporting its much-ballyhooed Adobe Integrated Runtime software, or AIR. By now, all the world has read the first round of stories since the company made sure to brief everyone prior to Monday's "official" release. (Here's the link to our earlier AIR piece.)
I'll be blogging the event so tune back in for updates.
I'm looking forward to seeing what The New York Times has in store. I was talking with a couple of its developers. That's right--the Gray Lady is in the development business. That was news to me, but they say they've been working under the radar on some projects and ShiftD is the first fruits of their labors. They actually pushed the button last night around midnight, but some of the wires got crossed. Needless to say, the two guys from The Times who are demoing here didn't get much sleep. But they're mainlining coffee so I'm confident they'll last until their time slot.
*****
Shantanu Narayen, who took over as CEO from Bruce Chizen, is talking about a future filled with "rich, engaging online experiences." (If I had a nickel for every time I've heard that line. Oh well, that's part of every strategic overview spiel.)
He's talking about a new generation of devices coming to market that will take advantage of the proliferation of rich content and applications. And of course, the ability to work offline with the connectivity of the Web. (Can you spell A-I-R?)
*****
Adobe CTO Kevin Lynch
(Credit: Charles Cooper/CNET News.com)Kevin Lynch just took the podium to give an AIR demo. He's showing off applications from different platforms--yes, Mac and Linux included--where AIR comes into play. He threw in a plug for the potential of AIR to give Linux a big shot in the arm. The product will be ready sometime later in the year.
He said the ability to reach mobile devices is where AIR may really have an impact. The product's still in concept stage but he talked about an AIR app for a small form factor. "The design center of what we build will shift" toward mobile devices first. "That's going to be liberating. Coming down from a big screen to a small screen doesn't really work that well."
Lynch just asked for a show of hands, how many people in the audience thought that was a workable idea? Looks like most people here agree.
*****
Lynch just clarified: the Linux version isn't yet ready for prime time. Still some tweaking to do but it's on the way.
Narayen is back on stage with Lynch to take questions and said the strategy will be "AIR anywhere." Unfortunately, no word from Adobe on what Apple might do. "Apple's a partner," he said. "You really have to talk to them about the road map. We're excited about seeing it on iPhones." Duh.
The R&D guys from The Times are onstage to demo ShifD. The product is still in beta and still has a few bugs. Drag content from a Web page to the Times' AIR app--in this case it was a smartphone. You're able to pull up the info, and it appeared seamless.
The Times is also working on an SMS way to send the content as a text message to your ShifD account, where it appears as an AIR app. (This will be available in another couple of days.) The same principle applies here as it did during the days when cut and paste really was cut and paste.
*****
FedEx is here. Its appointed rep is giving a dutifully company commercial on its AIR product. It's got all the expected shipping extras. Once logged in to the system, a user can pull shipment information based on the tracking number, filtering it every which way from Sunday. The product's on a limited beta for the next month. Once the company airs it out, so to speak, the plan is to roll it out globally.
The guy from MFG.com is taking his turn and I feel for him. He's going through demo hell right now, and the audience's attention is wandering while Adobe's technicians try to repair the glitch. Glancing around the auditorium, I just noticed that lots of guys turning out for the event are sporting chrome domes similar to yours truly. Call it geek chic or maybe there's something in the water in the Bay Area. Bald is beautiful, baby.
*****
Lynch and Demo conferences impresario Chris Shipley are onstage for a one-on-one ruminating about the state of software. Lynch obviously is bright but Shipley is a smart cookie. We used to work together at the now-defunct Interchange project (subsequently sold by Ziff-Davis to AT&T). She's worked hard, and it's great to see her inherit the role of (not-so) elder stateswoman. Lynch made an intriguing comment about the future of free software and a possible "sea change" on the horizon. I'm going to try to get him to elaborate during the lunch break.
*****
So I caught up with Lynch, who said that he and the Adobe brain trust envision a transition where "free" (for the user) may become the operative word. (I stress the word may.) The future's still hard to read, but he thinks it could feature a far more prominent role for advertising-supported options and premium subscriptions for products companies currently charge for.
Adobe's already dipping its toe in that pool. Premier Express, for instance, allows users to remix video. It doesn't cost you a penny but Adobe gets a revenue cut from videos that wind up on MTV.com, Photobucket, or YouTube.
"It's a lot like the move toward graphical user interfaces," Lynch told me. "That didn't happen overnight. It took awhile. We'll see what happens."
***AOL, as expected, trotted out the AIR-based file-management application version of its Xdrive application. (Check out Rafe Needleman's review by clicking here.) The company also showed off an AIR version of AOL Top 100.
AOL brings AIR to Xdrive.
Marc Benioff of Salesforce.com is on stage now and he's in danger of putting the audience to sleep. Not because he's boring--Marc is anything but. The problem is that the big guy seems to be on auto-pilot and has lapsed into one stemwinder of a company commercial.
Marc Benioff of Salesforce.com
After 10 minutes, he's getting to the news--an AIR tool kit for developers who write apps for the company's software platform.
Yahoo's on deck but I get the gist of what's going on. For Adobe, this is an important step. But the salivating over how to manipulate rich Internet applications may be premature. My colleague at our ZDNet sister site, Larry Dignan, nailed it earlier in the day when he wrote:
"I haven't had that "A ha!" moment where a hybrid application is a must have."
Bingo. Most of the demos I saw today were cool but what the heck am I supposed to do with them? Maybe by the next "Engage" conference a year from now, we'll have a clearer idea where this is heading.
