Some call it the biggest hack of military computers; perhaps it was just a big embarrassment.

Gary McKinnon — accused of breaking into military and NASA computers in what he claims was a search for UFOs, allegedly causing nearly $1 million in damage — has lost his appeal against extradition to the United States.

McKinnon, 42, an unemployed computer administrator, allegedly broke into 97 computers belonging to the U.S. Army, Navy, Air Force, and Department of Defense from a bedroom in a north London home.

His attacks between 2001 and 2002 allegedly shut down the Army district responsible for protecting Washington, and cleared logs from computers at the Naval Weapons Station Earle in New Jersey that tracks the location and battle-readiness of Navy ships.

That last attack, coming immediately after the Sept. 11, knocked out the station’s entire network of 300 computers. NASA and privately owned computers also were damaged, prosecutors said, putting the total cost of his online activities at $900,000.

At the time of his indictment, prosecutor Paul McNulty said McKinnon pulled off “the biggest hack of military computers ever — at least ever detected.”

In his defense, McKinnon, known online as SOLO, said he was trying to expose security weaknesses and uncover evidence of UFOs.

“I was a man obsessed,” McKinnon wrote on The Guardian newspaper’s Web site last year, describing a year spent trying to break into U.S. military systems: eight hours a day at a computer in his girlfriend’s aunt’s house while unkempt, drinking beer and smoking marijuana.

In interviews, he claimed that his hacking uncovered photographic proof of alien spacecraft and the names and ranks of “non-terrestrial officers.”

Prosecutors accuse him of deliberately trying to intimidate the U.S. government by tearing through their networks. They pointed to a note written by McKinnon — and left on an Army computer — attacking U.S. foreign policy as “akin to government-sponsored terrorism.”

“It was not a mistake that there was a huge security stand down on September 11 last year,” he wrote. “I am SOLO. I will continue to disrupt at the highest levels.”

McKinnon was caught in 2002 after some of the software used in the attacks was traced back to his girlfriend’s e-mail account. The U.S. sought his extradition, a move his lawyer Claire Anderson claimed Wednesday was motivated by the government’s desire to “make an example” of a man who humbled officials in Washington by hacking into their systems using off-the-shelf office software and a dial-up modem.

Aspects of American cyber-security had been shown up as “really shameful,” with some computers not even password-protected, said Graham Cluley, a security consultant with Sophos PLC.

He said the United States appeared to be pursuing McKinnon in an effort to flex its legal muscle before the hacking community, which has watched the case with interest.

“The overriding message is: You shouldn’t mess with American government and military computers, particularly right after Sept. 11,” Cluley said.

McKinnon’s lawyers had hoped to hold any trial in Britain, saying he could be dragged before a military tribunal or even end up at Guantanamo Bay.

In their appeals, they said McKinnon was warned by U.S. officials that he would not be allowed to serve any part of his sentence in Britain unless he agreed to cooperate with his extradition. That, they argued, amounted to an unlawful threat and abuse of process.

Not so, Britain’s House of Lords said Wednesday. Lord Brown, writing for Britain’s highest court, said plea bargaining could only be called an abuse of process “in a wholly extreme case.”

“This is far from being such a case,” he said.

While the decision exhausts McKinnon’s legal options in Britain, Anderson said she would appeal to the European Court of Human Rights in Strasbourg, France. She said British authorities had agreed to keep McKinnon in Britain for at least two weeks to allow his lawyers to prepare their application.

“If that fails, then it’s off to jail in America for 60 years,” McKinnon told the British Broadcasting Corp. “Rapists and murderers and real terrorists get less.”

Should McKinnon be extradited, he would face trial in Virginia and New Jersey on eight charges of computer fraud.

Each charge potentially carries a sentence of up to 10 years in prison and $250,000 in fines. However, U.S. sentencing guidelines would likely recommend a much lighter sentence.

A 60-year sentence is “extraordinarily unlikely,” according to Scott Christie, who was the lead prosecutor in the case in New Jersey before going into private practice.

McKinnon is charged in New Jersey and Virginia with eight counts of computer fraud. While each count potentially carries a sentence of up to 10 years in prison and $250,000 in fines, Christie said U.S. sentencing guidelines would likely recommend a much lighter penalty.

“His general exposure would be in the range of between three and five years,” he said.

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Microsoft just released videos of the “Mojave Experiment”, which basically was a survey session aiming to convince a bunch of folks that Windows Vista is not as bad as they may have heard: People with a negative opinion about the software were shown what they thought was the next generation of Windows code-named Mojave. They loved this product and raved about it, only to find they were actually shown Vista.

This very specific example reminded me of just how good a job Apple and specifically Steve Jobs do with regard to managing perceptions. The current example is the new 3G iPhone, which has a number of serious problems, but people are still lining up to buy.  Regardless of how obvious the problems seem to some of us, clearly they are not important to the buyers even though phone battery life, radio performance, and service reliability (where the problems exist) would typically keep a phone from selling well.

But a better example may be how Steve Jobs recently created the perception that he is healthy using a reporter who typically is critical of the company.

It’s all about perception

Back when I was doing my marketing study work in graduate school, we had an exercise that taught a key lesson. You may recall it as the taste test. And advertisers would use it regularly to showcase that people preferred Pepsi over Coke or one beer over another. So each class, mine being no exception, would do a similar taste test and you quickly concluded that people had no clue what it was they were drinking.

What was also funny was the number of people who had firm opinions that Pepsi or Coke was better ended up choosing the other product. This just points to the fact that people can have firm opinions about even basic subjects that are based on perceptions that are not consistent with reality.

The educated marketer knows this as a fact and the term I use to describe this is that “perception is 100% of reality”, meaning that it generally doesn’t matter what actually is true. It only matters what you and I believe is true.  To an experienced marketer like Steve Jobs, this means that he can manipulate our reality and get us to like things we otherwise might not. To the experienced buyer it means we can be manipulated and we often need to pause and assure we are grounded in reality before making a purchase.  Any of us, and I include myself (ask my wife about the motorcycle I once bought), can be fooled.

Steve Jobs:  Watching a master at work

Recently Steve Jobs had a problem in that Apple’s stock price was dropping largely on concerns about his health.  He was between a rock and a hard place: If he is sick and admits it, the stock craters and, regardless of his health, if he claims he isn’t sick some won’t believe him and his health will be a constant uncomfortable topic going forward.

So he used his skills to address the problem.  If you read this piece by Joe Nocera of the New York Times, you can actually see Steve’s brain work.  (By the way an excellent book on understanding how Steve thinks is Inside Steve’s Brain).

Rather than calling a loyal reporter like Walter Mossberg of the Wall Street Journal he calls Joe Nocera who has historically been more critical (and thus more credible). Steve Jobs starts by calling Joe some nasty names to make sure there is no basis for loyalty and then asks for that loyalty before disclosing the secret of his health. Joe agrees to hold this information confidential but clearly is not in the mood, thanks to Jobs comments, to follow the letter of that promise.  As a result, he credibly certifies that Jobs is healthy while thinking he is actually being critical of the process, which is exactly what Jobs wants him to do. Even if there is an SEC exposure because of insider information (Steve’s health is material to Apple), since Joe breached the confidentiality agreement, Steve may be safe - especially if he denies giving Joe the information that has been reported.

Steve created the impression, very credibly, that he is not critically ill without any connection to any truly credible source and the reporter fills that credibility gap personally. If it isn’t true, Steve just says what he said was in confidence and Joe misunderstood him or says that Joe made it up and, in both cases, it is Joe’s word against Steve’s.   And why would Steve share personal and private information with a reporter he doesn’t like rather than one like Mossberg whom he does like?  Who would you believe if the two disagreed?  The guy known for incredible secrecy or the reporter trying to sell papers?

Brilliantly done. Let’s move to the Vista example.

Windows Vista:  Turd or gem?

For some time, a number of us who have been using Windows Vista with great success have been listening to others slam the new OS largely for things that were corrected earlier this year. A combination of a lack of benefits-oriented marketing by Microsoft, one of the most disparaging campaigns I’ve ever seen in my life from Apple, and what had been a nasty first year had folks who had never actually seen or touched the product believe that it was, well, crap.

So the folks at Microsoft had a theory they decided to test, similar to the Coke/Pepsi challenge I mentioned above. The strategy was to expose people with a negative opinion of Vista, but who actually never had seen Vista, to Windows Vista’s best features.  So they pulled a decent number of them into a focus group setting and showed them Vista, but told them they were actually seeing a product code-named Mojave. At the start they asked folks what they thought of Vista and most seemed to agree with one woman who gave it a “zero”.  They were then shown the wonders of a new OS code named Mojave.  At the end, after they had been told that what they actually had seen was Vista, most seemed to agree with that same woman who now gave the product a 10. If you’ve never seen a focus group, the videos are kind of interesting to watch.

True, the focus group setting was skewed to showcase what Vista does best. But it was the same product people never would have considered to buy before the test. The only thing that had changed was the perceptions of the people talking about it.  Kind of makes you wonder what would happen if Microsoft really marketed Vista, doesn’t it?

Wrapping up:  Know your reality

The lesson here isn’t really about Jobs’ health or Windows Vista. It is that our perceptions are often manipulated to our own detriment.   Whether it is marketing folks who want to get us to buy what we don’t need (or get us to dislike a product we might otherwise like), or politicians who want us to vote in ways that aren’t in our best interest, we are constantly being manipulated.   Knowing that allows us to look for the smoke and mirrors and perhaps be tricked less often.  To be tricked less often is my annual, and recurring, personal goal.

Rob Enderle is one of the last Inquiry Analysts.  Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them.  Currently he provides his services to most of the major technology and media companies.

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A group of security researchers demonstrated on Monday one way to use the recent domain-name service (DNS) security issue to compromise computers by redirecting insecure update services to fake servers that install malicious code instead.

The attack tool — dubbed Evilgrade by its creators at non-profit Infobyte Security Research — will enable penetration testers to exploit computers using the automated update feature of Sun Microsystems’ Java, Winzip, Winamp, Mac OS X, OpenOffice, iTunes, Linkedin Toolbar, DAP, Notepad++, and Speedbit, according to the group.

“It works with modules — each module implements the structure needed to emulate a false update of specific applications/systems,” the group said in the ReadMe file availlable on its site. “Evilgrade needs the manipulation of the victim DNS traffic.”

The fully developed attack tool is the latest setback for domain-name system (DNS) security, since a group of software vendors and network infrastructure experts announced earlier this month that a major flaw existed in the protocol. Last week, the details of the flaw were made public and, two days later, the Metasploit Project released two exploits that could allow an attacker to poison a servers DNS cache using the flaw.

On Friday, Austria’s computer emergency response team (CERT) announced that a survey of that country’s domain-name servers found that two-thirds of the systems have yet to be patched.

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Japan’s Nintendo Co Ltd (7974.OS) said on Tuesday it had filed a lawsuit against five Japanese firms for importing and selling equipment that enables illegal game programs to be played on Nintendo’s popular DS portable video game player.

Nintendo said it filed the lawsuit earlier in the day at the Tokyo District Court together with 54 other Japanese software makers.

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The Microsoft CEO has Apple, Yahoo and Google in his sights and will deliver a $300 million ad campaign to address any lingering doubts about Vista. He will try to copy-cat Apple’s vertically integrated approach; turn Microsoft into the leading enterprise software company in the world, and squash Linux. He will push into subscription software services and will make sure that the cloud remains an extension of desktop applications, not a replacement. He stressed that Microsoft is still after search, against Google, with or without Yahoo. To show that he means business, he let one of his key generals leave, split his division into two and reshuffled executives. This is the summary of Steve Ballmer’s leaked memo aimed at boosting his troops’ morale. It also offers unique insight into Steve Ballmer’s new head. Still as shiny as the old one, but perhaps a little wiser, and maybe more determined. Or, have we heard it all before?

Following the departure of Bill Gates, Steve Ballmer became the visionary, and commander in chief, of Microsoft. Thanks to a leaked internal memo, published in its entirety in this All Things Digital article , we now know more about Ballmer’s ambitions. The document offers an interesting insight into the new Ballmer persona. Sadly, Ballmer had this other set of personas that were popularized on the web: the “used car salesman” , the “monkey boy” , the “man who laughs off” the iPhone , Google’s Android and pretty much everything else, the “developers motivator” and the “advertising guru.”

Yes, Steve Ballmer is a unique character and he has obviously grown into his role as CEO of the world’s largest tech company. In the upbeat memo he comments on rivals with respect and actually acknowledges areas where they have the edge over Microsoft. He refrains from laughing off competitors arrogantly. Ballmer makes it clear that Microsoft is still the mighty force that moves and shakes the industry, but he knows that he can’t party like its 1999 anymore.

“We are the best in the world at doing software and nobody should be confused about this. It doesn’t mean that we can’t improve, but nobody is better than we are. Nobody works harder than we do. Nobody is more tenacious than we are. We’re investing more broadly and more seriously than anybody else,” he wrote to employees. Although such statements primarily serve to re-energize troops and boost morale, the memo lays out the direction for Microsoft and drops hints at its strategy against rivals. If you had any doubts who the enemies are, Ballmer makes it blatantly clear: Apple, Yahoo and Google.

Windows remains Microsoft’s “number one job.” Ballmer says that with SP1 “we’ve addressed device and application compatibility issues in Windows Vista,” despite a survey which revealed that IT administrators don’t plan to deploy Vista SP1 anytime soon. He said that Microsoft now needs to tell its customers that Vista isn’t bad after all, referring to the upcoming $300 million marketing blitz aimed at striking back at Apple and those pesky Mac vs PC ads.

“Now it’s time to tell our story. In the weeks ahead, we’ll launch a campaign to address any lingering doubts our customers may have about Windows Vista. And later this year, you’ll see a more comprehensive effort to redefine the meaning and value of Windows for our customers,” Ballmer said. In a surprising departure from his trademark arrogant dismissal of Cupertino-based gadget maker, Ballmer acknowledges Apple’s vertical integration as the new direction for Microsoft.

“In the competition between PCs and Macs, we outsell Apple 30-to-1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience. Today, we’re changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises. We’ll do the same with phones —providing choice as we work to create great end-to-end experiences.”

Ballmer said that Microsoft is “on the verge of becoming the number one enterprise software company.” He intends to push Microsoft’s key enterprise products “on all fronts”: mail with Exchange, business intelligence with PerformancePoint, virtualization with Hyper-V, and databases with SQL Server. Linux is also in Microsoft’s sight. “We must continue to compete against Linux in key workloads such as Web servers and high performance computing,” Ballmer said.

As expected, Microsoft has no intention to cut the branch it sits on by embracing cloud services at the expense of desktops. Instead, cloud services will serve as value-added extension to its business and consumer desktop applications. “Some people think software plus services is all about search,” said Ballmer. “The future is about having a platform in the cloud and delivering applications across PCs, phones, TVs, and other devices, at work and in the home.” Microsoft will reveal more about its cloud platform initiatives and the next version of Live and Online technologies at this year’s PDC.

Shift towards cloud computing will “drive changes in business models through advertising, subscriptions, and online transactions.” If you had any doubt about how you will purchase the software in the not-so-distant future, Ballmer confirmed that the company will experiment further with the software subscription model for consumers aka Equipt.

Ballmer still admits Google’s lead in search, but hails Microsoft’s lead in the enterprise. “We continue to compete with Google on two fronts — in the enterprise, where we lead; and in search, where we trail,” he said. There’s an enormous cash pile circulating in online advertising and most of it goes through Google. Ballmer said that Microsoft will continue to invest in search and its online division (the one that generates losses quarter after quarter) because “search is the key to unlocking the enormous market opportunities in advertising.” If you had been following Microsoft’s strategy over the years, then you can bet that it will just keep coming, and coming, and coming until it gets Google.

Ballmer assured troops that Microsoft “will out-innovate Google in key areas,” citing its maps and news search as an example of search that tops Google Maps and Google News services. He announced “new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world,” though he didn’t elaborate the new approach in more details.

Ballmer insisted in the memo that the attempted Yahoo acquisition was “a tactic, not a strategy,” assuring his troops that they “will get there with or without Yahoo,” although he admitted that “Yahoo would have helped us get there faster.”

Ballmer is old guard Microsoft. He may also represent the last link to its legacy. His legacy, however, rests on how he handles the coming challenges to Microsoft’s supremacy. Google, the botched Yahoo deal, and Apple’s resurgence have hurt Microsoft’s image. Not too long ago, the Justice Department dented its ego, and shackled its competitive excesses. Not too long before that, Netscape gave it a big fright. We seem to have come full circle. Now, the Internet threatens its position in the tech status quo. For a Microsoft lifer like Ballmer, there’s never been a time when Microsoft was so besieged. Never before. Times change and so does the man, maybe. Maybe.

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