Shivers From a Hailstorm

You’re a big cola company with market share that you can’t increase much
more. What do you do? Increase the frequency with which people drink cola.
Compete with water. If people consume 5 liters a day, how much of that can you
shift to cola?

Problem: Your company has a global near-monopoly on desktop software. Not
much room for growth there. What do you do? Increase the frequency with which
people upgrade. That’s not easy. Look at those guys still using Windows 95!
What do you do?

You unveil a software-as-a-service initiative and call it .NET. First step:
force users to register online for a specific key product. Second: start
offering additional services and upgrades online only, free, then for a fee.
Third: get them to pay you a fixed monthly fee; upgrades to be included. Final
step: bundle in additional services that they’ve so far being using free on
the Web: mail, messaging, search. Get them all to pay you a monthly fee for
using the Internet…

.NET is probably Microsoft’s most ambitious plan so far. Its HailStorm
component is already live. This is Microsoft’s plan to collect customer
information on the Web, to be used by other apps in its .NET framework.

Hailstorm is based on Microsoft’s “Passport” authentication
service, most visible at If you have a Hotmail account, you have a
Passport. Passport is Microsoft’s secure user ID system and server, a database
to be used by future services. To top this, Microsoft will store user info–addresses,
credit cards, calendars, preferences–and Passport will control which apps and
services should have access to specific data. Microsoft paid Sabeer Bhatia $400
million for Hotmail with this long-term aim in mind: acquire a base of users who
will later pay monthly fees for future products and services. That base is over
100 million today.

Another .NET component: Office XP. It requires online user registration to
work. Yes, this will prevent piracy–one license, one user. But it will also
let Microsoft sell additional services, patches, upgrades…and move these users
someday to a monthly rental model.

Hailstorm sounds compelling for the user: a single identity for a range of
services, without requiring repeated logins. But this could be the first step to
serious Microsoft domination of the Net, a future where you will pay Microsoft a
fee for many of the services you use free on the Web today, or for which you buy
a one-time license.

Is there anyone else out there? Not really. AOL could do it, with more users
than MSN, users who already pay for access and other services. The two are
fighting it out over instant messaging. Microsoft will counter AOL with a copy
of its Messenger bundled with the future Windows XP. Will AOL counter Passport
with its own authentication service? If they don’t, we have the specter of
monopoly on an unprecedented scale: that of Microsoft controlling much of the

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