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Microsoft plans to offer hardware vendors significant price cuts on Windows XP licenses for low-cost computing products, but the deal will only be available for computers with low hardware specs. This tactic is part of Microsoft’s strategy to stifle adoption of Linux by computer manufacturers that are targeting the budget market, where low cost and high flexibility give the open source operating system an edge.

The popularity of the game-changing Asus Eee PC, which ships with a heavily-modified version of the Xandros Linux distribution, spawned a whole new class of inexpensive computers. Other vendors have entered the market with their own competing products, many of which also use the open source operating system. Windows is a poor fit for such computers, which are designed and priced like budget appliances. Vista requires too much hardware overhead, while Windows XP licenses add extra expense to the budget hardware that can be avoided by using Linux. So as products like the Eee bring Linux into homes and schools, Microsoft has struggled to squeeze into the growing budget hardware niche.

According to IDG, which obtained details about the price cuts from hardware vendors, Microsoft will offer Windows XP licenses for $26 for developing countries and $32 for the rest of the world. In order to qualify for these deep discounts, products will have to be limited to a maximum of 1GB of RAM, 10.2 inch screens, and single-core processors clocked no higher than 1GHz (though there are apparently some exceptions). Products must also not have hard drives exceeding 80 GB in capacity and cannot have touch-screen technology.

The offer will likely attract some interest from hardware vendors, but it suffers from some serious strategic weaknesses. Microsoft is only making this deal available for Windows XP, a seven-year-old operating system that is on its way out. Microsoft originally planned to stop selling Windows XP on June 30, but it has made a special exception for budget computing products. Compared to Microsoft’s legacy operating system, modern Linux distributions offer a more future-proof option and more comprehensive software stack.

Microsoft has seen some modest success with Windows XP Starter Edition, a crippled version of the operating system that is designed for developing countries which has been sold for similar prices. Microsoft’s XP price cut strategy seems like a new angle on the Windows XP Starter Edition concept. Instead of crippling the operating system, Microsoft is providing the real thing, but with caps on the hardware it can run on. This might buy Microsoft some time, but the relative age of Windows XP and the hardware overhead of Windows Vista make this move unsustainable in the long term.

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The platform wars are going mobile. Whether it’s the iPhone, Blackberry, Android or Windows Mobile, the mobile platform that will win in the end will be the one with the best and broadest collection of applications. To give developers a little extra financial motivation, funds are being set up to invest in them. Google announced a $10 million Android challenge back in November, and Kleiner Perkins announced its $100 million iFund for iPhone-only startups in March. Now, it looks like Research in Motion is about to announce its own $150 million Blackberry Partners Fund (site not up yet) to spur applications and services for its mobile device.

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The Apple online store has stopped selling iPhones completely, stating they are currently unavailable. What does it mean? In some way I’m inclined to say “not much.” Apple rarely telegraphs its moves this far in advance. However, since O2 in the UK has stopped selling iPhones and a number of folks have had trouble buying them in stores, we might be seeing a next-gen iPhone in the next few days. Here’s hoping.

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If you thought spam on your computer was a bother, brace yourself: spammers want to find you on your cellphone.

Cellphones have become consumers’ most personal technological devices. Some industry executives, along with consumer groups and security experts, are concerned that unwanted text messages on phones will be an even greater headache than unwanted computer messages.

Cellphone spam is particularly annoying to its recipients because it is more invasive — announcing itself with a beep — and can be costly.

Taber Lightfoot, an assistant director for new media at the Yale School of Management, is among those who have paid for the privilege of receiving cellphone spam.

“I was at work and I got so annoyed,” she said of the first burst of three messages she received. She got another burst two days later.

“That is when I called Verizon and demanded they reimburse me $1.60 for eight text messages,” Ms. Lightfoot said. “It wasn’t a lot of money, but it was my money.”

American consumers are expected to receive an estimated 1.5 billion unsolicited text messages in 2008, according to Ferris Research, based in San Francisco, which tracks mobile messaging trends. That is nearly double what they received in 2006.

Of course that is a small percentage of the overall number of messages: an industry survey showed that consumers in the United States sent and received about 48 billion text messages in December alone. But for many people who are charged as much as 20 cents for an incoming message or are interrupted in the middle of dinner, even one is too many.

“The reason this really burns people up is because they have to pay for messages they don’t want, and they shouldn’t have to,” said Chris Murray, senior counsel for Consumers Union, a nonprofit group.

Now some consumers, like Ms. Lightfoot, are monitoring their cellphones more aggressively for unwanted messages and, in some cases, demanding refunds. Computer security companies have developed products to help fight mobile spam. And AT&T, Verizon and others are making it easier for customers to block unsolicited messages and keep spammers at bay.

The fees that customers pay to receive messages are a source of profit for the phone companies. It is hard to estimate how much they make. Many consumers pay for a monthly plan that allows them to send and receive large numbers of messages. But for those without a plan, getting as few as 10 unsolicited text messages a month at 20 cents each would cost an extra $24 a year.

Communications companies say they are not interested in spam as a profit center. They want to one day exploit the power of customized advertising on mobile phones, and tawdry spam pitches threaten to make their customers hostile toward all commercial messages. The companies are trying to head off the problem before consumers revolt.
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With all the commotion over the rise of social networking sites, parental groups and government bodies have been asking for someone to think of the children. In response to rising concerns that Facebook and MySpace have become beacons for sexual predators and bullies, these two leading sites have agreed to add over 40 new safeguards aimed at protecting young users.

Announced today by Connecticut Attorney General Richard Blumenthal, the agreement “marks another watershed step toward social networking safety, protecting kids from online predators and inappropriate content.” Officials from Washington, D.C. and 49 states have signed on to the agreement, which took months of negotiations.

Texas is the only state that passed on signing the agreement, stating that it wants even “quicker action” when verifying users’ ages and identities than the current agreement provides for.

The actual safeguards Facebook and MySpace have agreed to implement cover a wide range of protection, not just from sexual predators and bullies, but also from companies and their products. One change that will be made, for example, will require these sites to “keep tobacco and alcohol ads from users too young to purchase those products.” Other changes include: “Remove groups whose comments or images suggest they involve incest, pedophilia, bullying or other inappropriate content,” “Send warning messages when a child is in danger of giving personal information to an adult,” and “Review users’ profiles when they ask to change their age, ensuring the update is legitimate and not intended to let adults masquerade as children.”

Naturally, these rules and the new protection technology they are intended to inspire are by no means limited to Facebook and MySpace. The parties involved hope that all other social networking sites will follow suit. Facebook and MySpace were simply included in this initial round of negotiations due to the fact that they are the two most popular sites worldwide.

How well these agreements and new rules hold up once they run into the real world will likely determine whether further negotiations ensue. As they stand, they aren’t much more than a set of good-faith handshakes between the social networking sites and government bodies. There’s no word of a time table for implementing the new tools or repercussions if the sites decide they have better things to do. That said, it’s in the companies’ best interests to try, as living up to commitments like these will help keep lawmakers and regulators off of their backs.

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Google has been boosting its Google Apps product suite as fit for corporate use for months, with new security and deployment features arriving on a regular basis. The company’s latest endeavor, Google Web Security for Enterprise, is now available, and promises to provide a consistent level of system security whether an end-user is surfing from the office or working at home halfway across town.

The new service is branded under Google’s “Powered by Postini” product line and, according to the company, “provides real-time malware protection and URL filtering with policy enforcement and reporting. An additional feature extends the same protections to users working remotely on laptops in hotels, cafes, and even guest networks.” The service is presumably activated by signing in directly to a Google service, as Google explicitly states that workers do not need access to a corporate network.

Unlike other Google-purchased companies languished for a long time after being acquired, the Postini brand and related products have been the foundation of many of Google’s corporate-oriented initiatives this year. It’s a marked contrast to the company’s behavior in recent years, during which several companies were purchased and apparently left to rot with no clear sense of how their own products and services would be integrated into the Google product portfolio.

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Sumner Redstone, who controls the twin media giants Viacom and CBS, is leaning on Internet service providers and online media outlets to do his heavy lifting. Speaking at the Seoul Digital Forum 2008, the 84-year-old media mogul came down particularly hard on YouTube, equating the video platform with piracy and demanding that ISPs and web sites do more to police content.

“Solutions turn on enlisting the aggregators—ISPs, device manufacturers, hosting companies, and site operators—this effort,” Redstone said, according to the Associated Press. “We ask that companies that become aware of piracy using their facilities do something about it.”

Redstone’s statements make sense in the light of his long-running legal campaign against piracy in general and YouTube in particular (Viacom is suing YouTube for $1 billion at the moment). It’s also far from a unique stance among studio bigwigs. But is it really fair to ask the service providers to beat piracy on behalf of the content producers, when the networks and studios already have much better tools at their disposal?

Game theory

Matt Mason, in his book The Pirate’s Dilemma (look for our review next week), shows how a culture of piracy tends to grow up whenever and wherever a human need meets draconian restrictions—economic, legal, what have you. The establishment that gave birth to hip-hop, Wikipedia, disco, and YouTube must change in the end or risk losing out as new players monetize the new market staked out by the pirates. Rap and graffiti started out as rebel yells, then became accepted as art forms, and they have now been integrated into the multibillion-dollar pop culture machinery that once was the enemy. It happened to Dr. Dre because the record companies couldn’t silence him and his fans with cookie-cutter pop, so hip-hop quickly became a business model instead.

What Sumner is missing with his comments is the fact that pirates can be beaten—it happens all the time—but not primarily by means of legal threats and lawsuits. No, you subjugate these rebels with the tools of free enterprise. Piracy is just another business model, and the pirates will lose and go away when you come up with a better model (or they will become legitimate players themselves).

Stripped down to the bare essentials, consumers will choose the service with the most attractive balance of price, convenience, and quality. Piracy will always win on price, because you can’t really beat free. The other two components are up for grabs, but the media companies are only now starting to seize the opportunity.
Quality

Take YouTube as competition for the Comedy Central cable network, for example. Redstone’s Viacom has asked Google to remove clips of Colbert and Jon Stewart, time and again. But a YouTube search on “Colbert” today still returns more than 6,200 results. And if Viacom managed to shut YouTube down entirely, you’d see those clips moving to MySpace Video. Or perhaps Yahoo, MSN, or some platform that doesn’t exist yet. The pirates will always keep a steady supply of free clips on hand, if you’re willing to chase down the sources and deal with bad quality, clip length limits, and other flaws.

So Comedy Central eventually fought back hard, hosting the complete Daily Show archives online, and tagged the clips to make them searchable. NBC and Fox formed Hulu to distribute their shows with minimal commercials, and ABC and CBS are doing their own experiments with online distribution (ABC offers Lost in HD, for instance).

Make sure the videos are of high quality, preferably in high-def and surround sound. Don’t skimp on the extras: if anything, there should be exclusive content online only, not the other way around. Remember, you’re creating a new distribution channel, and need to promote it. There’s the quality play.
Convenience

If Redstone really wants YouTube to stop “stealing” his viewers, it’s easy to do. In fact, his companies are already doing it. Start up a one-stop shop for all the Comedy Central content you want or, even better, everything you’d ever want to watch on any Viacom or CBS property. Some shows are produced by other companies—just tell them to put up with this, or they’re off your airwaves. An industry-wide content portal would be even better, but it will take years to sort out the branding, control, and revenue sharing issues there.

Then promote this site. Relentlessly. If you watch just one episode of South Park or Tila Tequila, it should be impossible to walk away without the awareness of a convenient service that will fill you in on missed episodes, shows you never heard of, and all the classics, too. They start on demand and play stutter-free from any PC, Mac, or Linux box, anywhere in the US, any time. There’s the convenience play.

So Viacom can concede the price point to piracy, having won the other two battles. Throwing in the towel entirely and charging retail DVD prices for a season of Family Guy may still be a mistake, but with any reasonable scheme, this should become a profitable venture very quickly. Figure out an ad-supported model if you can, or charge less than a dollar per episode. Let people burn it to DVD or play the file on iPhones for a buck.
Endgame

In the end, piracy will force all the big-time content producers to move in this kind of direction. Capitalism, properly applied, will beat the rebels every time, and the odd thing is that the content companies are finally moving full-speed ahead with these new initiatives even as the bosses sometimes seem fixated on the “stick” half of the “carrot and stick” approach. Even Sumner Redstone is starting to understand this.

“Media companies need to make it easy for consumers to obtain our content in a legal manner,” said Redstone. “We cannot let the lack of perfect antipiracy tools keep us from forging ahead in providing the best, most innovative, creative content to the consumer over whatever medium they prefer, whenever and wherever they prefer it.”

Media companies think they’re moving as fast as possible, but consumers are impatient creatures, and have moved even faster.

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