[vox] [ot] OS/2 and Linux, why has IBM changed?

[Joel Baumert]

On Fri, May 09, 2003 at 11:17:20AM -0700, Don Werve wrote:
> On Fri, May 09, 2003 at 10:34:06AM -0700, Joel Baumert wrote:
> > > 
> > > (a) Pay stockholders back for the illegal withholding of dividends
> > > 	over the past twenty or so years (that's why they've got $50 
> > > 	billion in the bank).
> > 
> > I am not sure why you would require this. I'm not sure what the
> > illegal thing that Microsoft has done here. They may need that
> > money here shortly to protect themselves from a number of patent
> > and antitrust actions that are winding through the courts.  If
> > they spend that money they could be in serious problems if they
> > have multi-billion dollar patent losses.
> 
> Microsoft doesn't need this type of money to protect itself from 
> lawsuits of any type -- thats what their (rather large) legal department 
> is for, and that cost is covered strictly out of operations funds.

There are a number of cases that could cost Microsoft in excess
of 10 _billion_ dollars to resolve. It is not a matter of the
money to litigate... I am talking about what happens when they
lose. There are a couple that look very bad for M$. For example:

http://archive.infoworld.com/articles/hn/xml/01/01/08/010108hneolas.xml

> 
> Microsoft's cash-hoarding practices are both illegal and detrimental 
> to minority shareholders; the only reason why Microsoft hasn't paid
> dividends is because it grants a tax-break to Bill Gates and Co., who
> would otherwise have to pay the top-marginal tax rate as applied to
> dividends (a little under 40% as of 2002).  Microsoft is also guilty of
> tax-dodging; accumulating wealth "beyond the reasonable needs of the
> business" subjects Microsoft to an Accumulated Earnings Tax[1], which
> they have never paid.
> 
> (But you are correct -- not paying dividends isn't illegal).

Hmmm... The shareholders  may loose as much as 40%, but they 
get to keep the other 60% of the dividend. Many companies do
not generate a dividend because the money is double taxed, 
ultimately reducing the value of that case to the shareholder.
If minority share- holders have a problem with the practice 
they can sue M$, if there is something unethical here. This 
part of the discussion comes down to a public policy decision 
that is _very_ complicated and not really logical.

They are either guilty or not guilty... Tax dodging is only a
crime if you operate outside the legal framework. This is 
something that the auditors should not allow. They wouldn't
happen to be Andersen Consulting customers, would they :-)?
I dodge taxes with the mortgage deduction, but because of the
tax law this is not illegal, just the opposite it is 
encouraged.

I agree that 50+B is probably out of line for the needs of the
company, but they have an easy out... They could go on a buying
spree and drop that reserve down. Hmm... NVidia and ATI look
like good targets.  How about ASUS, ABIT, and IWill as well.
What is Creative Labs or other sound card companies worth?
If vendors do not cooperate with Palladium, just buy them...
Linux drivers... screw you... We do not release proprietary
information, figure it out for your selves... But if you do
we will put you in jail under DMCA. Be careful what you ask
for... you might just get it.

Recently M$ announced a dividend, I'm not sure how quickly it
draws down their cash reserve... The reduction or elimination
of the double taxation of dividends will probably encourage
M$ to increase the dividend.

> 
> > I think that should be allowed to partner, but would have
> > completely different management, stock, and would have to offer
> > the same agreement terms to any taker.  This could obviously be 
> > abused, but separating the shareholders from an operating system
> > and applications group should fundamentally change the value
> > equation.
> 
> Not really; if they're allowed to partner, they can engage in the same
> underhanded deals that they have in the past; even if they allow the
> 'same agreement terms to any taker'.  What's to stop them from putting
> explicit requirements in the term of the agreement that would only be
> acceptable to the other half of the former juggernaut, even if it isn't
> listed explictly by name?

No... I think that you miss the general problem with Microsoft.
They can lose money in one area for an extended period of time
because they subsidize or include the cost of that product within
the flagship OS or Office packages. The lock on document formats,
APIs, drivers, developer mind share, standards steering all 
complement each other to allow for M$ in every PC type contracts,
which are truly a competition killer.  Splitting the companies
would allow other "Office" competitors to be bundled with the
OS. This is a problem for M$ when free or near free software
can replace apps on one side or the OS on the other.

> 
> > I think that Microsoft is in for significant legal and market 
> > pressure in the next decade that may make it difficult for such
> > a large company to compete as it has in the past. Essentially,
> > I think that their days are numbered, not that they are going
> > to disappear, but that they will become less relevant as we move 
> > foreword.
> 
> On this, I agree -- Microsoft stock growth rates have slowed down quite
> heavity, and it's pretty clear from their management decisions that they
> have become a problem looking for a solution, rather than the other way
> around.  Linux is kicking their collective ass in the low-end server
> arena, and hardware capable of running Windows isn't powerful enough to 
> tackle the high-end dominated by Sun and IBM.  Their licensing changes
> are pissing off customers left and right[2], and even Joe Consumer is
> starting to look towards alternatives.
> 
> > I would probably add another item. You cannot change the
> > licensing agreements with maintenance patches. I think that
> > going forward it will be more likely that product liability
> > laws will be applied to software without regard to the EULA.
> > Software companies will probably have to face increasing 
> > pressure from trial lawyers for sloppy releases and this 
> > will fundamentally change the way that software is produced.
> 
> That's actually covered by contract law already; the terms of a contract
> cannot be changed unless both parties explicitly agree to the change.
> This is probably why Microsoft has never tried to test the EULA in
> court -- it really is unenforcable.

Sure... If you want this security patch, you will agree to the new
XYZ terms. Otherwise your server is going to rooted (Admin'd) by any
hacker that notices. I grouped these two areas together because
a set of bug fixes should not dramatically change the agreement.

http://www.informationweek.com/story/IWK20020816S0001

Maybe this type of extortion is already covered by contract 
and/or liability law.

> 
> As per product liability laws, I think that we should stick with the way
> the rest of the economy does things -- the provider of a tool is only
> liable provided that gross negligence was demonstrated.  For example, if
> my company finds a security hole, and immediately begins work on a patch
> that is released a month later, my company would *not* be held liable
> for damages (due dilligence).  On the other hand, if we tried to cover
> the exploit up without fixing the problem, we would be liable.
[...]

I suspect that the current culture within Microsoft stresses
innovation over due diligence :-), though probably not bordering
on what could be defined as gross negligence. I am not saying that
product liability laws applied to software are going to be a healthy
thing, but watch... It will be the largest growth area for the
legal industry since toxic mold, asbestos, and breast implants.

Joel