Yesterday brings the news that the feds intend to closely scrutinize Microsoft's development of its next-gen operating system Longhorn. This is coupled with an announcement from Seattle that Microsoft intends to distribute some $75 billion in cash to its shareholders over the next four years. Lets see now, the feds are essentially saying "we intend to continue to stick our noses on your business, and effectivley maintain a veto power on future functionality that you intend to incorporate in your monopoly operating system." It is control over this operating system, and the API's associated with it, that has led to the huge cash flows Microsoft has generated over the last 20 years. So, realizing that the feds seem to be intent on killing the goose that laid the golden egg, Microsoft decides its investors can find better investment opportunities for its cash than the Company can, provided the current regulatory climate.
This is by no means meant to imply that the Company does not face material issues with respect to control of the OS and the associated API's. One need only read this enlightening piece about How Microsoft Lost the API War to understand the competitive challenges facing the Company today. So Bill Gates and Company have decided to take their billions and go to another playground........
I believe that we are staring to see the beginning of some fundemental shifts in market structure in the software/communications/networking markets. This news out of Microsoft is one signpost. Other signposts include:
AT&T and MCI exiting the consumer voice business. Leaving this the domain of the RBOC's and emergent VoIP providers.
DOJ taking a closer look at the AT&T Wireless acquisition, indicating a potential stumbling block to closing this deal (structural separation of wireless and wireline in the offing?) If the folks at DOJ realize that the market definition is local (spectrum is a local asset) and that the RBOC's dominate the competitive platform (wireline) this deal would be a no brainer to reject. This would also create some interesting issue woth respect to the RBOC's bundling VoIP, DSL and wireless. In terms of local markets, the RBOC's control of the consumer market is akin to Microsofts control of the OS market.
Comcast announces internet content deal with Disney, reiterating the need to control content in order to prevent price erosion in its broadband service. Does anyone still believe cable can support the high price and high margins for much longer? And incremental competition is coming....
With Craig McCaw ready to launch a low cost wireless data/VoIP service and Nextel and Flarion readying an IP based last mile solution, competition in the consumer data space should be heating up.
And there is the increasing momentum in the VoIP market with respect to intelligent endpoints (with a nod to David Isenberg, author of The Rise of the Stupid Network) in the form of cheap, wifi phones with VoIP software embedded in the handsets. Its sort of like the early nineties when a consumer could go to a store and buy a modem to connect to an ISP. The phone Company became a dumb pipe operator, with the intelligent endpoint (modem equipped comuter) connecting over the phone line to an ISP such as AOL. Dumb pipes and intelligent endpoints....
Speaking of intelligent endpoints, check out the latest from Garmin. This GPS navigation device can pinpoint you location to within several feet, provide detailed directions and even provides a comprehensive directory of local restaurants, shopping, hotels, service stations, etc. All for the cost of the device with a software update fee for the database updates. No wireless data connection required. Intelligent endpoint indeed! Verizon, can you hear me now? Seems to me that this is a better service than andy wireless provider could ever hope to deliver in thier on demand, 3g data world.
Thats more than enough for now. Lets just say that we are at the early stage of a fundemental realignment of the software/communications/networking markets. Navigating this terrain requires an understanding of the complex interplay of communications services, data networking, software applications, digital media and wireless. All this combined with a strong dose of economics, game theory and competitive strategy. There is no doubt that we live in interesting times!
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