Shivers From a Hailstorm

Problem:

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 Hotmail.com. 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

Net.

pkr@cmil.com