Week in review: Microsoft's memos

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 News.com. "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."

"So now there is a 'second tsunami' coming. 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."
--Earl Benser

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 News.com readers were dubious about Gates' predictions.

"So now there is a 'second tsunami' coming," wrote Earl Benser in News.com'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 News.com 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,