TechFlash: Seattle's Technology News

It was a huge week in the technology industry. Amazon.com and Microsoft posted strong earnings. Apple released its highly-touted iPad. And, to top things off, there was even a sex scandal involving the co-founder of Bellevue's Intelius. Here's a look at the past week through the eyes of reader comments.

After Apple unveiled the iPad, many dubbed the device a Kindle killer. Reader Darren Erik Vengroff said he probably wouldn't buy an iPad, but he saw trouble ahead for Amazon's electronic reader: "When Amazon ports the Kindle iPhone app to the larger screen size it's over for the DX."

But Madrona Venture Group's Scott Jacobson -- an Apple customer who previously worked at Amazon -- wasn't so sure. He offered five reasons why the Kindle would survive, which prompted Wetpaint CEO Ben Elowitz -- who had previously written a post on TechCrunch citing 10 reasons why it would die -- to note: "Kindle may have a niche - but it's a specialty device for a specialty audience, while Apple is going after changing consumers' behaviors and lives."

Technology executive John Arnold allegedly lied to a grand jury about having sex with dancers at a Seattle strip club, which prompted several readers to refer to the past legal troubles at the Bellevue company he co-founded. Reader Web 3.0 wrote: "Here is a clue, don't lie to a grand Jury or bad things happen." But some readers also noted that the government shouldn't meddle in these types of activities. Nonamesnomas wrote: "Just because he broke the law, doesn't mean he did anything morally wrong. What right does a government in a free society have to ask, even in a court of law, about what a person does privately?"

Our story -- "Old-school Classmates.com forced to face up to Facebook" -- led to comments from people who had abandoned Classmates and others who found the company's mission misguided. Wrote George Anderson: "Classmates has never realized that people resent being forced to pay for information that they themselves entered. Social media must be free because the content is generated by the users, not the companies that control the website."

The appearance of Bill Gates on The Daily Show this past week prompted one reader to suggest that the world's richest man needed a wardrobe overhaul. (Perhaps someone should nominate him for "What not to Wear"). Janet remarked: "I liked how relaxed Mr. Gates appeared to be and totally admire the work his foundation is doing. However, can we take a moment to talk about his clothing? He was wearing a shirt that was at least two sizes too big. I'm all for frugality, but he can surely afford one tailored shirt."

A revival in consumer spending helped boost Microsoft's results for the December quarter, especially in the company's Windows division, leading to record revenues for the company overall and quarterly profits well above Wall Street's expectations. But beneath the surface, some other Microsoft divisions struggled to keep up -- particularly those that traditionally rely on technology purchases by businesses.

"While consumer demand remained healthy, we have not seen the return of enterprise spending growth," said Peter Klein, speaking on his first quarterly earnings call since taking over as Microsoft's chief financial officer.

Continue reading for a breakdown of each division's results.

Microsoft this afternoon reported revenue of $19.02 billion for the quarter ended Dec. 31, up 14 percent from the same quarter last year. The company credited strong Windows 7 sales for putting it back on track at the end of one of the most difficult years in its history.

The reported number was artificially inflated by the inclusion of $1.71 billion in revenue that had been deferred from the previous quarter to account for Windows 7 upgrade promotions. But even discounting the impact of that accounting requirement, the company would have posted $17.31 billion in revenue for the quarter, an increase of 4 percent over the same quarter last year, and still a quarterly record for the Redmond company.

There were no doubt some momentary sighs of relief inside Microsoft -- at least inside the Windows division -- as the official details of Apple's iPad emerged yesterday. But should there have been?

Apple CEO Steve Jobs says the iPad will fill the niche between the smartphone and the computer. But rather than positioning the iPad as a new platform for Mac OS X programs, Apple is coming from the other direction, leveraging the booming market for iPhone and iPod touch apps. Apple says nearly all of the 140,000 apps developed for those devices will work on iPad, plus native apps made for its larger screen.

iPad: TechFlash on WHAS-AM sound bite

In that way, at least initially, the iPad doesn't seem to pose as much of a threat to Microsoft's traditional PC Windows business as it could have. But there's a lot more going on here under the surface.

In a post today on the company's official blog, Microsoft CEO Steve Ballmer laid out the company's position on doing business in China, making it clear that Microsoft doesn't plan to follow Google's lead by censoring its search results following a cyberattack believed to have originated in the country.

"Engagement in China and around the world is very important to us, in part because we believe it accelerates access to 21st century technology and services and helps provide the widest possible range of ideas and information," Ballmer wrote. "We have done business in China for more than 20 years and we intend to stay engaged, which means our business must respect the laws of China. That’s true for every company doing business in countries around the world: we are all subject to local laws."

Apple's Steve Jobs may be getting most of the tech headlines this morning (and we'll have more on Apple's tablet announcement as details emerge) but Microsoft's Steve Ballmer was the hot ticket for the world's law enforcement agencies -- drawing an overflow crowd of police and public officials from around the world as part of the company's Worldwide Public Safety Symposium in Redmond.

Ballmer talked generally about the importance of online security, but missed an opportunity to address the complex international legal and policy issues raised by cyberattacks such as the one that prompted Google to say it would stop censoring its search results in China, at risk of being forced out of the country. Ballmer and Microsoft Chairman Bill Gates have distanced themselves from Google on that topic.

Thomas

We've been intrigued by the flow of aQuantive talent out of Microsoft over the past few months -- tracking folks such as Brian McAndrews, Karl Siebrecht, Brent Turner and others as they land new gigs at companies around the Seattle area. Now, tiny Marketfish has hooked a former aQuantive manager who comes to the Seattle startup via Microsoft.

Andrew Thomas, who served as software development director at aQuantive for more than a decade, has joined Marketfish as chief technology officer. Thomas joined Microsoft after it acquired aQuantive in a $6 billion deal more than two years ago, managing the development of reporting applications across the Microsoft ad platform.

Microsoft chairman Bill Gates appeared on The Daily Show Monday night, and this time he actually hung around after the interview concluded. Jon Stewart started the interview by noting Gates' recent adoption of Twitter -- asking whether the software billionaire can simply think words and have them appear on computer screens.

Gates appeared relaxed during the comedy show, spending much of the interview talking about the philanthropic work of his foundation. Stewart did sneak in one iPhone joke, which Gates handled with aplomb.

Stewart: "Do you feel unburdened now, not having to deal with Microsoft? Now you can have an iPhone, I mean all of the things that you could never do before. Don't you think?"

To which Gates replied: "I am a very loyal Microsoft user." (Earlier in the show, Stewart also made a hilarious reference to the Zune. That bit starts at 3:05).

Gates exits the Daily Show set in 2007. (Credit: Comedy Central)

The Bill Gates media onslaught continues tonight on the Daily Show, where the Microsoft chairman is scheduled to talk about the work of the Bill & Melinda Gates Foundation, following the release earlier today of his annual letter on the state of innovation, the economy, philanthropy, education and global health.

It's also a chance for Gates to redeem himself, following his first appearance on the show three years ago. Back then, not only was he talking up Windows Vista, which would soon reveal itself as a clunker, but he also surprised host Jon Stewart and the audience by standing up and walking off the set before the show actually went to break.

Bill Gates' dance moves during a John Legend/The Roots concert at Sundance over the weekend are grabbing their share of headlines and tweets this morning, and no doubt it was quite the sight to see. But if you're interested in something more consequential, like the future of the world, it's worth reading Gates' second annual letter in his role as Bill & Melinda Gates Foundation co-chair, issued earlier this morning.

"Although the acute financial crisis is over, the economy is still weak, and the world will spend a lot of years undoing the damage, which includes lingering unemployment and huge government deficits and debts at record levels," Gate writes in the introduction. "Despite the tough economy, I am still very optimistic about the progress we can make in the years ahead. A combination of scientific innovations and great leaders who are working on behalf of the world’s poorest people will continue to improve the human condition."

Video-game enthusiasts are looking forward to the release of Microsoft's motion-sensitive video-game control system, code-named "Project Natal," later this year. Maybe investors should be doing the same.

That's the underlying message in an analysis of Project Natal issued this morning by Sarah Friar and Derek Bingham of Goldman Sachs. The analysts make a series of assumptions -- including an $85 retail price for the camera-based system -- and estimate that Natal will boost Microsoft's revenue by $1.7 billion in its 2011 fiscal year (which begins in July 2010) and $2.3 billion in its 2012 fiscal year.

It's a bullish position, to say the least, and it will no doubt be greeted with some skepticism. For a bit of context, Microsoft's entire Online Services Business posted only $3 billion in revenue in the 2009 fiscal year, out of $58.4 billion in companywide revenue.

Thanks to everyone for reading TechFlash. Here's a look back at some of the stories that generated discussion over the past week, along with some featured comments.

Bill Gates jumped into the blogosphere and Twittersphere (more than 330,000 followers as of Sunday afternoon). Some said they were looking forward to Gates' musings on everything from science to philanthropy, but reader zaine_ridling wasn't one of them: "Why should I care about Gates's thoughts? I keep replaying his testimony in his US Antitrust case where he was both dishonest and confused."

Our new TechFlash series, Startup Confidential, generated plenty of feedback especially after Seattle entrepreneur Damon Cortesi wrote about the challenges of splitting equity with his co-founder. Entrepreneur Tony Wright, aka as webwright, advocated for a 50-50 split. "Startups have a vanishingly small shot at success. It's pretty clear to me that an unequal split decreases that shot by a tiny amount-- it's just not worth it."

We've been surprised by the continuing popularity of the Cheezburger Network, the oddball lineup of comedy Web sites. But Andy Sack isn't. "Makes total sense to me. Frankly I'd rather be a repeat visitor to the Cheezeburger network than any real estate, restaurant or utilitarian site. Your article is more a question about what has happened to US culture....when the number one news site is John Stewart....If you think about popular culture and the US, one has to scratch one's head a bit. That said, I don't fight it, I admit it -- I read People magazine when I travel and watch American Idol...and love cheezeburger network."

Want to watch ESPN on the Xbox 360? Some TechFlash readers were intrigued with that idea after reading our post: "ESPN on Xbox 360: A tipping point for cable workarounds?" callmeMurph wrote: "If this does happen I would never need cable tv again."

After Facebook announced plans to open a new data center in Prineville, Oregon, some readers said Washington officials needed to do more to foster tech jobs here. Wrote reader jgertz33: "Good news for Oregon, bad news for Washington. This is not an indictor of the Pacific Northwest becoming a beacon for these data centers. It's an example of Oregon becoming popular and the continuing irrelevance of Washington in a major up-and-coming industry because of an unfortunate decision by our attorney general three years ago. Rob McKenna ruled then that data centers don't qualify for a manufacturing sales-tax exemption and boom, all the companies that had been locating data centers here started looking elsewhere. And they won't come back unless the Legislature does something about it soon. It's time that our lawmakers started creating jobs."

If Apple can prevent another computer maker from selling unauthorized Mac OS X machines, then Microsoft should be able to stop another accessory vendor from selling unauthorized Xbox 360 plugins loaded with video-game cheats.

That's one of the arguments the Redmond company makes in a new motion to dismiss an antitrust lawsuit filed in November by Datel Design & Development, a maker of attachable memory units and game controllers for the Microsoft console.

Whether or not you buy Microsoft's contention, it's a pretty fascinating twist in a case that could ultimately determine the rules of competition in the business of video game consoles, games and accessories.

Have you patched your Internet Explorer yet? In case you missed it, Microsoft yesterday issued a rare "out-of-band" patch for its web browser, meaning that the situation is so critical that it can't wait until the company's regularly scheduled monthly security updates. You should receive it if you've activated the automatic updating feature on your Windows machine, or download it manually via this page.

"This is not a patch to put on the back burner," writes Craig Schmugar on the McAfee Labs blog.

Connecting the dots, this is the same IE vulnerability believed to have been exploited in the cyberattacks that led Google to declare it would no longer censor its search results in China. USA Today reporter Byron Acohido has a good summary of the situation on his Last Watchdog blog, and Ed Bott has stirred up a good discussion and debate in this post on ZDNet: Will switching from Internet Explorer make you safer?

Emil Protalinski of Ars Technica asks another good question: Could Microsoft have fixed 'Google hack' prior to attacks? "In short," he writes, "Microsoft did what it always does: work on a fix, but don't tell the public until it is absolutely necessary to warn them, and then release it as soon as possible."

Rodriguez

In other Microsoft news, the company has moved elements of its TV, video and media group -- including Zune software and Windows Media Center -- into its Interactive Entertainment Business, the same unit responsible for the Xbox and video-game business. Enrique Rodriguez, who led the reshuffled group, is leaving the company. Mary Jo Foley, who broke the news, has more on the implications in this post, including some speculation about the future of the Windows Mobile business. More from Joe Tartakoff of PaidContent.org.

On the legal front, a lawyer in Philadelphia has filed a proposed class-action suit against Microsoft over the points-based purchasing system used by Xbox Live and other online properties. According to Information Week, the lawyer alleges that he was wrongly charged for downloads that he attempted to make but was unable to complete because of problems with the system.

Interesting read from Joe Wilcox on BetaNews, running contrary to the sentiment among some Microsoft shareholders: Microsoft, don't give up on Steve Ballmer just yet.

And finally, for a Friday afternoon laugh, the Joy of Tech blog has a funny take on Bill Gates becoming a Twitter user.

Here's a scene that will make Mac fans feel like they're watching Thomas Kinkade scribble on a Van Gogh.

During an event in Nashville this week, a Trevecca Nazarene University student asked Steve Ballmer to sign a laptop. But as you can see in the video above, it wasn't just a laptop -- it was a MacBook Pro. And the Microsoft CEO eagerly obliged, signing his name directly on top of the Apple logo and then adding the note, "Need a new one?"