Why falling Flash prices threaten Microsoft

The surprise success of the Asus Eee could mark a change in how people view open source — and cause problems for Windows

Girl with laptop

It seems that the £200 ultraportable Asus Eee PC can do no wrong. The size of a paperback, weighing less than a kilogram, with built-in Wi-Fi and using Flash memory instead of a hard drive for storage, the Eee PC has been winning positive comments not just from hyperventilating hardware reviewers, but also from ordinary people who have actually bought it.

According to an (admittedly biased, because it was self-selecting) online survey of 1,000 users on the independent Eee PC site eeeuser.com, around 4% were dissatisfied with their purchase, 33% found the system pretty much what they expected and 62% thought it was even better than they had hoped.

Looking through the thousands of postings in eeeuser.com's user forums, the same comments keep coming up: it's so small, the build quality is high, it boots up quickly, it just works. In fact, it's hard to find many negative points. Most are about the placing of the right-hand shift key, the small size of the keyboard, the limited battery life and the slightly awkward mousepad. One thing that is almost never mentioned as a problem is the fact that the Eee PC is running not Windows, but a variant of GNU/Linux.

Better in store

Until now, the received wisdom has been that GNU/Linux will never take off with general users because it's too complicated. One of the signal achievements of the Asus Eee PC is that it has come up with a front end that hides the richness of the underlying GNU/Linux. It divides programs up into a few basic categories - Internet, Work, Learn, Play - and then provides large, self-explanatory icons for the main programs within each group. The result is that anyone can use the system without training or even handholding.

This combination of good functionality and out-of-the box ease of use with a price so low that it's almost at the impulse-buy level could prove problematic for Microsoft. Until now, there has been no obvious advantage for the average user in choosing GNU/Linux over Windows on the desktop, and plenty of disadvantages.

The price differential has been slight, and there has always been the problem of learning new ways of working. The Asus Eee PC changes all that. Because the form factor is so different, people don't seem to make direct comparisons with the desktop PC, and therefore don't expect the user experience to be identical.

The price differential between the basic Eee PC running GNU/Linux and one running Windows XP is now significant as a proportion of the total cost. One of the main suppliers of the Asus Eee PC, RM, sells the GNU/Linux version with 4Gb of storage and 512Mb of RAM for £199. The cheapest machine running Windows XP costs £259, 30% more, not least because Microsoft's operating system needs more storage and memory - 8GB and 1GB respectively. It is that difference, far more than any cost of licensing Windows, which means that Linux-based machines can remain consistently cheaper.

That disparity seems likely to increase when Microsoft phases out Windows XP at the end of June. Vista costs more than Windows XP and it requires a minimum of 15GB of storage for installation of even the most basic version. In order to run Vista on the Eee PC, users will need to buy models - currently non-existent - with much more Flash memory.

At least Moore's Law should mean that the price of memory chips will continue to plummet. For example, in 2001 $8 (£4)would have bought you around 8MB of Flash memory, whereas in 2011 it will buy you 8GB, according to projections by Gartner. As a result, Alan Brown, Gartner's research director for semiconductors, says the price of ultraportables like the Eee PC "could decline about 15% within three years to between £160 and £170".

The UK company Elonex has already set an even lower price point: it has just announced its own ultraportable, called The One, which offers most of the features of the Eee PC for £100. Other companies that have launched, or announced, similar machines running GNU/Linux include Acer, Everex, and the Australian company Pioneer Computers; even HP seems to have one on the way. At least one manufacturer of traditional portables is worried by the downward trend in prices. According to Cnet, Sony's Mike Abrams commented: "If [the Eee PC from] Asus starts to do well, we are all in trouble. That's just a race to the bottom."

This makes the relative cost of systems running Microsoft's products greater. The argument that its software is "worth more" because it has more features is unlikely to cut much ice as users discover that functionality of the kind offered by Firefox and OpenOffice.org is fine for most everyday uses - the target market for these new small devices. Moreover, the rise of free browser-based online services such as Gmail and the Google Docs office suite means you can get by with just Firefox.

The situation in developing countries is even worse. Not only must Microsoft and its partners compete with new low-cost portable GNU/Linux systems specifically designed for these markets, like the XO-1 from the One Laptop Per Child (OLPC) project or Intel's Classmate PC, but they must also sell against unauthorised copies of Microsoft's products, which are routinely available on the streets for a few dollars. To combat this, Microsoft has started selling copies of Windows for around $3 in these markets.

Size does matter

Although this kind of bargain basement pricing helps make its products competitive with low-cost alternatives like open source or unauthorised copies, Microsoft's profit margin is cut close to zero. That's not necessarily a disaster for a company with huge cash reserves, but it could be dire for one planning to take on billions of dollars of debt - as Microsoft has said it will need to do in order to finance the acquisition of Yahoo. What if it is forced to extend this kind of pricing to western markets in order to match the cheap GNU/Linux systems in this "race to the bottom"?

The first effects may already be being felt. Notably, last week Microsoft cut the cost of retail copies of Vista, apparently because people don't see it as a necessary upgrade at the prices charged. While the vast majority of Windows "upgrades" will still come through people buying new PCs, as corporate customers hold back, the erosion of Microsoft's ability to set prices for its operating system - and perhaps more importantly its hugely profitable Office suite - could spread deep into its product suite.

And if people don't think that the extra features of Vista are worth the price, at least at retail, it makes the argument that Windows is "worth more" than Linux harder to sustain. It's an interesting - and, for Microsoft, critical - question just how low the price of these "basic but good enough" portables can go.

The original target price of the OLPC machine was around $100, but its designer, Mary-Lou Jepsen, already thinks she can do better. She says that a $75 system is "within reach," and she set up a new company, Pixel Qi, to help realise that vision.

In the process, she hopes to spawn an entirely new generation of computers. "We'll have decent, highly portable, rugged, multi-use computers everywhere. That poses constraints on the circumstances of use - the input aspects and the screens, the networking and the software, all will have to evolve." If they're to be cheap enough for many people in developing countries to buy, these systems will almost certainly be using open source, but Jepsen doesn't see the zero price tag as its main advantage: "The true and large value of free [software] is the ability to change and customise it."

In other words, Microsoft could give away its software, and it still couldn't compete with the truly open, customisable nature of free code. It seems that the only way Microsoft can hope to get people using its software on this new class of low-cost, ultraportable machines is by going fully open source itself.

Microsoft Crashes: The Fallout

One day after it claimed human error shut down all of its websites, Microsoft admitted that a second shut-down was the result of a denial of service attack.

The news left many wondering whether both attacks were actually the work of crackers, or whether Microsoft might have chosen to cover up a second internal error by shifting the blame outside of the company.

But sources close to the company insist that Microsoft had indeed been the victim of a denial of service attack on Thursday.

It also appears that Microsoft has now handed over the management of its DNS routing systems to Akamai, and may be running Linux on at least one of its servers.

A network technician at Microsoft, who declined to be identified, dismissed reports that indicated that the media's extensive coverage of the first outage gave crackers the inside information that they needed to bring down Microsoft's network on Thursday.

"I'd love to blame it on you people in the media, but the truth is that everything that was written about the configuration of our network was pulled from easily and always-accessible records. Anyone who looked up Microsoft's domain name registration records, an easy thing to do, could have figured out how we were set up."

The technician believed that the DoS attack was probably due to the attackers assuming that Microsoft already had its hands full.

"I believe that maybe someone saw our network as a wounded antelope and attacked. And they were right. Everything was so messed up that although we saw the attack coming we weren't sure if it was a flood of visitors who wanted to check their Hotmail accounts, or a DoS attack. We were, for a few moments, like the proverbial deer caught in the headlights."

Only after the problem had been fixed, the technician said, did the sick jokes start circulating.

"The joke of the day over here was, 'Did the janitor shut off the same light switch in the closet again?' and 'Did the temp (worker) trip over that cord again?' It was either laugh or puke. Some of us did both."

Although some reports indicated that Microsoft engineers had said that the attacks "appeared to be relatively sophisticated, judging by the choice of such vulnerable targets," many are scoffing at the idea that DoS is a tool that a skilled cracker would use.

DoS attacks are considered to be the province of "script kiddies," relatively unskilled youngsters who have just enough technical knowledge to follow instructions on how to attack networks.

No self-respecting real cracker would ever consider doing a DoS," said "Tepes," who defines himself as a "cracker, not a hacker ... and damned proud of it."

DoS attacks are simple to implement. Many websites contain step-by-step instructions on where to download the tools and how to launch the attack. "And real crackers don't use cookbooks," Tepes said. "We explore new territory and make our own maps."

Microsoft falling to a few unskilled kids struck Tepes as "funny, but not remarkable."

"I do find it interesting that every techie in Redmond, home of the ├╝bergeeks, had to be hunched over those servers, looking at what was happening on that network. So even though they are saying someone took advantage of them when they were down and out, in truth it should have been harder to get in when they were all on the alert.

"Sort of like showing up in the afternoon to rob a bank when the feds are still there investigating that morning's robbery."

But most security experts agree that the network configuration problems that were revealed by Microsoft's original blackout are far more serious than the company's later fall to DoS attacks.

Microsoft itself seems to agree with those sentiments, and has evidently asked for help in managing its DNS records. DNS (domain name system) servers are analogous to an Internet business phone book: They translate computer names into the numbers that are needed to actually access the computer.

Greg Keefe, the owner and operator of DNS service provider HammerNode.com, noted that the company had "frantically off-loaded the management of their DNS to another company today."

"I simply can't respect that move coming from a Fortune 100 company that develops and sells DNS software as part of their core business," added Keefe.

Keefe also had his doubts about whether Microsoft definitely suffered from a DoS attack.

"When DNS service returns after an extended outage, a higher-than-normal load should be expected, because cached DNS information has expired around the Internet. Since it's trivial to masquerade the originating IP address of most DNS queries (the nature of UDP/IP packets), Microsoft could easily hide behind the veil of a 'possible' DoS attack."

Matt Power of the BindView Corporation's RAZOR Team also noted Microsoft's outsourcing of its DNS.

"The central '.COM' DNS servers now list a number of servers in the akadns.com domain as authoritative DNS servers for Microsoft's domain names, such as microsoft.com, msnbc.com and passport.com. The akadns.com domain belongs to Akamai Technologies," Power said.

Power and Keefe both interpreted this to mean that Microsoft has, at least in part, outsourced its DNS service to Akamai.

Power also noted that his research indicated that the "z*.msft.akadns.com" servers are using a "networking implementation very similar to that of Linux."

Yahoo! says no to Microsoft - again

The Yahoo! board has again rebuffed Microsoft's acquisition proposal.

Microsoft recently gave Yahoo!'s board three weeks to enter into a definitive acquisition agreement or face a proxy battle.

In a reply signed by CEO Jerry Yang and chairman Roy Bostock, the board again rejected Microsoft's proposal, saying it undervalues the company and is still not in the best interests of Yahoo! or its shareholders.

As for the threatened proxy battle, the rejection seems to say 'bring it on': "Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo!," wrote Bostock and Yang.

"We consider your threat to commence an unsolicited offer and proxy contest to displace our independent Board members to be counterproductive and inconsistent with your stated objective of a friendly transaction. We are confident that our stockholders understand that our independent Board is best positioned to objectively and knowledgeably evaluate our Company's alternatives and to maximize value", they added.

The Yahoo! board also shrugs off the changes in market conditions since the bid was originally made

"[A]s a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal... Yahoo!'s business forecasts are consistent with what we outlined in our last earnings call... our three-year financial and strategic plan which we have made public demonstrates significant potential upside not previously communicated to the financial markets."

There's also a suggestion of dirty pool on Microsoft's part. Microsoft CEO Steve Ballmer's recent letter said there had been "some limited interaction between management of our two companies, [but] there has been no meaningful negotiation to conclude an agreement", but Yang and Bostock say this was a mischaracterisation and reminded Ballmer that "you personally attended two of these meetings and could have advanced discussions in any way you saw fit."

The letter also claims it is Microsoft that is holding up discussions by failing to provide information requested by Yahoo! relating to regulatory issues.

Yahoo!'s position seems to be "You made an offer, we rejected it, now it's your turn to come up with a better bid so things can move ahead," while Microsoft's is "We think our bid represents full value even if you don't, so take it now or we'll offer even less."

So Yahoo! is apparently holding out for a price that reflects what the board sees as the company's full value plus a premium reflecting its value to Microsoft.

The Yahoo! executives closed their letter with the words "we will not allow you or anyone else to acquire the company for anything less than its full value."

Yahoo!'s future: MicroNewshoo! or YahAOL!?

The Yahoo! takeover story has shifted up a gear with reports that the company is trying to negotiate a tie-up with AOL, while Microsoft may bring News Corp in on its increasingly hostile bid for Yahoo!.

According to various reports, The Yahoo!-AOL proposal involves Time Warner merging AOL with Yahoo! and injecting a substantial amount of cash in return for a 20 percent share in the enlarged Yahoo!.

The merger would be followed by the purchase of billions of dollars of the company's own shares in an attempt to drive the price above that originally offered by Microsoft.

The merger of AOL and Time Warner was one of the biggest deals during the dot-com boom, but very little of the perceived value remains. Suggestions that Time Warner wants to offload the AOL operation have been circulating for several years. At one stage, Microsoft was tipped as a possible buyer.

Details of the rumoured Microsoft-News Corp alliance are sparse, almost to the point of non-existence. Presumably a joint bid by the potential partners would be at a sufficiently high price to attract existing Yahoo! shareholders (even if it wasn't high enough to gain board support), with News Corp able to extract some value from the deal in ways that Microsoft can't.

Previous reports had Yahoo! investigating a merger with News Corp's Myspace as an alternative to Microsoft's bid.

In related news, Yahoo! has made several announcements this week that seem to be intended to show the company is moving ahead in the face of Microsoft's acquisition attempt.

• Yahoo will begin a limited test of Google's AdSense for Search service. The two-week trial will see AdSense ads appearing alongside the results of up to three percent of Yahoo! searches originating in the US. Microsoft general counsel Brad Smith responded "“Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market in Google’s hands. This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo!"

• The Flickr photo-sharing site now allows paying customers to share video clips as well as stills. Clips can be up to 90 seconds long and must be no larger that 150M.

• Yahoo! has a definitive agreement to acquire Tensa's IndexTools web analytics business and technology. The acquisition is expected to be completed by June 2008.

• Major League Baseball's MLB.TV coverage will be available live or on-demand via Yahoo! Sports for the next three years. The deal covers 11 countries, including the United States, Canada, Mexico, the UK, the Philippines and Germany. The second and third years of the agreement will see Yahoo! take sole responsibility for selling video advertising on MLB.TV.

Microsoft releases “Windows Search 4.0” for XP, Vista, Server 03, 08 and Home Server

Mid last week, Microsoft released an update to its “instant search” software for XP, Vista and other recent versions of Windows. What are the claimed benefits?

Although Microsoft has long had ‘search’ capabilities built into Windows, the versions that were built in to Windows 95 through until Windows XP would search through files on your computer in real time, not through the mechanism of building an index on your PC that could be searched much faster.

When Microsoft started talking about the successor to Windows XP, it spoke of an ‘instant search’ capability to come. Instead, Vista still took several years, while competitors such as Google, Copernic and others came out with their own local desktop search products, while Apple built Spotlight into OS X.

Eventually, Microsoft came out with its own standalone desktop search product with the, er... imaginative name of “Windows Desktop Search” for Windows XP.

Actually, for years, there was a 'Fast Find' program built into different versions of Office which did indeed build an index of Office files, but it wasn't system wide, from memory, and 'slowed' your computer down. I remember I always used to turn it off.

Anyway, when Vista was launched, a desktop search program was built-in, giving Vista relatively fast desktop search capabilities, but still slower than software such as Google Desktop Search.

Now, Microsoft has just released “Windows Search 4.0”, an upgrade for major versions of Windows from XP up, after a “preview” period that saw over 300,000 downloads.

The Windows Vista Team Blog broke the news, with Vista Team blogger Brandon LeBlanc making the announcement “on behalf of the Windows Search Team”.

According to LeBlanc, the major improvements are that Microsoft has “introduced some performance and reliability improvements. Queries are faster, as is indexing - how much faster depends on your machine and your data. Improved reliability means that system failures won't get in the way of the indexer and all of your data will be scanned and available for searches.”

Futher, LeBlanc notes that: “We've also extended remote index discovery, also known as PC-to-PC searches, which allows data to be searched quickly and efficiently across machines running Windows Search 4.0. This means that Windows Vista-to-Windows XP or Windows Vista-to-Windows Server 2008 queries are now possible.”

I’ve just downloaded and installed it, something that requires you to reboot your computer. As it is shutting down, you’ll notice Vista applying the update. Once the computer has restarted, your existing index is gone and will start rebuilding right away.

The index speed is "reduced" when you are actively using the computer, so it could take a "while" before your index is completely rebuilt once more.

What this means is that you won’t get any search results immediately after installing the software, but all will be back to normal soon enough, and if you leave your computer on without using it for a while the index rebuilding will happen much faster.

As for Microsoft’s promises of a faster search experience – I don’t know about that yet, it’s too soon, but hopefully it lives up to the promise of a faster experience.

LeBlanc notes that Windows Search 4.0 also “offers manageability improvements that IT Pros should take note of.”

These include an “extended Group Policy to control more aspects of search functionality and made this control more granular with per-user policies. You can use Group Policy Objects to control how desktop search accesses remote resources - such as Microsoft Exchange Server resources or file shares - to manage network utilization.”

LeBlanc continues for several paragraphs: “Speaking of accessing Microsoft Exchange Server - if your organization selects not to use Microsoft Office Outlook in cached mode, you can set a Group Policy to index Exchange in online mode. Windows Search 4.0 will then index with minimal impact to the server. Our internal testing of this configuration shows significant decrease in the load on the server and the network as compared to Windows Desktop Search 3.01.”

“IT Pros can deploy a new link that will be added to the Instant Search UI of Windows Vista (or Windows Search UI on Windows XP) on client PCs and allow the query entered in the search box to access your company's search server, by opening the search UI of the server in your browser and executing the query in it. With this functionality, users get a single launch pad for all of their searches.”

“Based on a large amount of customer feedback, we have added support for indexing files encrypted with EFS. Users in an organization can now encrypt files and still be able to search their contents. When running on Windows Vista, they also can get an additional level of data protection by using BitLocker and storing their index on the protected drive.”

Windows Search 4.0 can be downloaded from this Microsoft Help and Support page.

However if you don’t want to download it now, it will become available to download from Windows Update in the not too distant future. XP users will see it as an “optional update”, while Vista will see it as a “recommended update”.

LeBlanc advises Vista users that: “By default, recommended updates are installed automatically; however, users can prevent automatic installation of Windows Search 4.0. We will publicly post specific instructions prior to publishing Windows Search 4.0 on Windows Update.”

Windows Server 2008 users are advised that “the update will be applicable only if the File Server Role is enabled.”

So, unless you’re a firm user of Google Desktop or some other search tool, updating Windows own built-in search to a claimed faster version should be a great idea. If I experience any hiccups I’ll let you know, but for now the index is rebuilding and all is good so far!

Top 10 iPhone 3.0 feature demands for the 2009 iPhone

So, the iPhone 3G – the iPhone 2.0 – has launched at last. Here’s what I want for iPhone 3.0, which is all the stuff left out of the iPhone 3G!

Ok, ok, so the iPhone 3G – the iPhone 2.0 version – has JUST launched today. You can read the story here. But already, the Steve Jobs "reality distortion field" is wearing off and people are noticing what's missing.

Also, this article is in homage to my colleague Adam Turner’s article on Top 10 iPhone 2.0 feature demands - but so much was left out of the iPhone 2.0, that I had to write a list of what I want in the iPhone 3.0! Read on...

1. Tethering

The new iPhone 3G makes no reference to being able to use it as a 3G modem. That’s a shame – so many other phones can do this it’s not funny. No voice or data plans have yet been announced – perhaps Apple’s done an amazing deal to get unlimited or near-unlimited 3G data, and no carrier wants that abused on laptops. But it doesn’t matter – I still want to be able to tether my iPhone to my PC or Mac – by Bluetooth, or USB cable – in the iPhone 3.0 if possible.

2. iTunes Wireless music/video/podcast syncing

Although the iPhone 2.0 software for the iPhone 2G and new 3G models lets you synchronise your emails and calendars to MobileMe, a new online feature that costs US $99 per year (AUD $119 per year), replacing .Mac, there’s still no wireless synchronising of iTunes with a computer, as far as I can tell.

3. Better camera, video capture and flash.

The iPhone 3G’s camera is still only 2 megapixels! Where’s that 3.2 megapixel or 5 megapixel camera we were all expecting? It’s gone AWOL. And there’s no mention of video camera capabilities either, even though third party apps for jailbroken 2G iPhones now enable the feature – if you purchase the app. Maybe something will come in the official App Store – but for now, it seems to be the same camera features. And there’s no flash! Other cameras offer a ‘Xenon’ flash that’s like the type you see in real cameras. iPhone doesn’t even have one of the LED flashes. Sigh.

4. Video calling and a front camera

So, what happened to the video calling features that 3G provides? Not available on the iPhone 3G. There’s no front camera, so even IF video calls are possible, you’d have to turn your phone around so people can see you. But it’s likely video calls are not possible – and they probably can’t even be received, which is also a shame. We’ll have to see when it launches, but videocalling and video chatting with iChat looks like it’s a no-go.

5. Copy and paste

What happened to copy and paste? Still not available. Maybe someone will make an App for the App Store, but it won’t be a ‘native’ thing that would have Apple’s totally smooth way of doing things. Which is a shame.

Please read on to page 2 – there’s plenty more missing that I really want to see in iPhone 3.0, like better Blueooth, more storage, removable battery, turn-by-turn voice directed GPS and much more, including a number 11 in what is supposed to be a Top 10 list!

6. Better Bluetooth
What happened to Bluetooth? There’s still no A2DP that I can see for wireless stereo Bluetooth headsets and no profile so a wireless keyboard can be used with the iPhone for even easier data entry. C’mon Apple, you’re crippling the iPhone – wireless stereo headphone listening would be cool. But the specs make no mention of it...

6. Better Bluetooth
What happened to Bluetooth? There’s still no A2DP that I can see for wireless stereo Bluetooth headsets and no profile so a wireless keyboard can be used with the iPhone for even easier data entry. C’mon Apple, you’re crippling the iPhone – wireless stereo headphone listening would be cool. But the specs make no mention of it...

7. More storage!

What happened to the 32GB iPhone 3G? It’s missing, that’s what. There’s a 32GB iPod Touch, but no 32GB iPhone. Perhaps it will come later this year, just like the 16GB 2G iPhone and 32GB iPod Touch arrived late last year.

Still, it would have been nice to see it now – plenty of people would have gone straight for that model. 8GB and 16GB doesn’t cut it in a world of 160GB iPod Classics.

8. A removable battery.

Apple, you’ve managed to increase battery life, but that doesn’t mean that I still don’t want a removable battery. It’s such a simple thing – what’s the big deal? Yes, you can buy batteries that can connect to the dock connector to recharge the main battery, but I’d rather carry around a spare charged battery instead. But this will probably never change.

9. Haptic feedback

Feeling a slight ‘vibration’ when you press on-screen virtual keys is something that’s standard on quite a few other touch-screen phones. Maybe it chews through too much battery life, and maybe Apple’s saving it for the iPhone 3.0. But I’d still like to see – and feel it.

10. MMS messaging.

Yes, I know that I can send an email to someone with a photo attached. But what if I want to send a photo as an MMS to a non-iPhone owning friend? Can’t do it, or at least, no MMS capability was mentioned. Perhaps an App Store app will bring this feature, but it should be part of the iPhone software as standard.

11. Other stuff - turn-by-turn voice GPS, FM radio, Voice recording etc etc etc etc!

Hey, this is supposed to be a top 10 list, right? Ah well. What about support for Flash, or Java? Other browsers? Voice recording? An FM radio? And is the GPS going to have turn-by-turn voice navigation? Will Google enable that? Or will it be something to purchase from the App Store?!

What do you want from iPhone 3.0? What other features are missing? Let me know

Has Apple killed the grey iPhone market?

Steve Jobs has promised global price parity for the iPhone 2.0, but will it stop cheap US iPhones flooding the world? It depends on whether or not Telstra sticks to its knitting.
His Jobs-ness has promised the iPhone 2.0 will be roughly the same price everywhere in the world. Talking about the iPhone 2.0 at Apple's WWDC , Jobs only revealed the US pricing - $US199 for the 8G model and $US299 for the 16G model. A two-year contract with AT&T will be required.

I have to admit that in all the pre-iPhone 2.0 speculation, I didn't consider the possibility of a price drop AND global pricing parity. It makes sense though, as the greenback is so weak right now that buying gear online from the US can save you a bundle, but put a serious dint in local sales. Just because it make senses doesn't mean you'd expect Apple to actually do it, as Australians have become accustomed to paying outrageous markups on Apple gear sold locally compared to the US price tag.

One thing is for sure, the price drop will kill the secondhand iPhone 1.0 market stone dead. It's estimated Australia has roughly 60,000 imported iPhones and I was interested to see what happened when the bulk of them hit eBay after the iPhone 2.0 was released. I don't think iPhone 1.0 owners will bother selling them secondhand now. Australian iPhone 1.0 owners paid at least $AU430 for their US 8GB iPhone, but probably a lot more - especially if they bought it when the iPhone was first released. If Jobs sticks to his global pricing parity promise, the 8GB iPhone 2.0 will sell for around $AU220 in Australia. At that kind of bargain basement price for the iPhone 2.0, you'd be lucky to get $AU100 for your old iPhone on eBay. Most people would rather keep their iPhone 1.0 as an iPod touch, or hand it down to a friend, than sell it for a mere $100.

So what about the grey market? Is there any reason why you'd still import an iPhone 2.0 from the US? If you recently spent $AU400+ importing an iPhone 1.0 from the US, did you just shoot yourself in the foot?
Whether or not the grey market in iPhones continues depends on the outright price local telcos charge for the iPhone 2.0.

Yes, I know Jobs talked about global pricing parity, but that's $US199 for an 8GB iPhone 2.0 on a two year contract with AT&T. It might translate to $AU220, but that's almost certainly dependent on you taking out a two year contract with your local telco. Optus and Vodafone recently announced they'd be selling the iPhone 2.0 in Australia, but we're still waiting on them to confirm the pricing.

There's no word yet as to how much a US iPhone 2.0 will cost if you want to own it outright rather pay it off on a plan. Jobs didn't say anything about pricing parity for buying an iPhone outright. We don't even know if you will be able to buy them outright in the US, or in Australia.

There are plenty of reasons why Australians would want to buy an iPhone outright rather than tie themselves down to a two year plan. The biggest reason would that so far Telstra has stuck to its knitting and refrained from announcing an Australian iPhone. So all those Next G customers out there who want to get a slice of iPhone goodness will be forced to break their Telstra contracts, pay out the contract to Telstra and then sign up for a new contract with Vodafone or Optus - neither of which can match Next G's coverage footprint.

If you've got 12 months to run on a Next G contract, breaking free will probably cost you at least $AU600. You'd be crazy to do this if you could buy an iPhone 2.0 outright for a good price and then start using it with your Next G SIM card. If buying an iPhone outright from the US is cheaper than buying one outright in Australia, Next G customers will ensure the grey market for iPhones continues. If Telstra doesn't add the iPhone 2.0 to its offerings soon, it might find its customers have already bought them outright elsewhere.

If it turns out you can't buy the second-gen iPhones outright, Next G customers would probably be better off grabbing themselves a cheap iPhone 1.0 and unlocking it to work on Next G. At least you'll get EDGE data speeds. This should tide you over until your Next G contract runs out. By this time Telstra might offer the iPhone 2.0 and hopefully market pressures will have forced the telco to offer a decent data bundle to go with it. If Telstra doesn't offer the iPhone 2.0 by the time your contract expires, you can consider changing providers without penalty. By then Apple might have started selling the iPhone 2.0 outright, or you might even be able to pick up a secondhand iPhone 2.0.

So if you're locked into a long phone contract and you recently spent $AU400+ importing an iPhone 1.0 from the US, you haven't made an expensive blunder. Sit back and enjoy your first-gen iPhone while the dust settles and then evaluate your options when your contract runs out.

Microsoft continues to circle Yahoo!

Despite withdrawing its bid for Yahoo! in terms that suggested it was walking away completely, Microsoft continues to circle its prey. But the acquisition remains off the table, what's the next step?

Over the weekend, Microsoft issued this terse statement:

"In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo! Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.

"There of course can be no assurance that any transaction will result from these discussions."

The idea of purchasing selected parts of Yahoo! ties in with moves by Carl Icahn to take control of the board. Icahn's history suggests he would be far more amenable to the idea of breaking up the company than would the existing board and executives.

That said, it is not beyond belief that the Yahoo! board could see a selloff of selected assets or business units as a way of fending off Icahn's appeal to shareholders in the looming proxy contest. It would effectively send the message "hey, we've already realised some value for you - there's no need to bring in the other guy."

How did Yahoo! respond?

Yahoo!'s response was almost as terse:
"Yahoo! has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo! at this time. Yahoo! and its Board of Directors continue to consider a number of value maximizing strategic alternatives for Yahoo!, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo!'s Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value."

If Yahoo shareholders really do want their company to be acquired, presumably they will vote for Icahn's slate in the hope that the new board can attract a fresh bid from Microsoft.

But if you were running Microsoft and you knew the new Yahoo! board favoured a takeover, would you offer more or less than the previously rejected price? Icahn has already stated that $US33 per share is better than keeping Yahoo! as an independent business, so maybe the same goes for $US32, $US31 or maybe even $US30. Icahn probably paid less than $US28 for his Yahoo! shares and the bulk of his stake is in the form of options rather than shares, so even a $US2 or $US3 profit per share could be a nice little earner for him - providing the deal goes ahead.

If there's not even a partial acquisition, what's to stop the shares sliding back to $US20 or so, where they were languishing prior to Microsoft's bid? Sure, Yahoo! hasn't been sitting idle since the offer was made, but have there been any changes that might reassure potential shareholders that the value of the company will significantly increase even if it is no longer a takeover target?

Bluetooth, IE, DirectX targets of MS June patches

We won't know the details until next Tuesday, but Microsoft is readying patches for a list of critical bugs that even affect Vista with SP1.

Flaws in Buletooth, Internet Explorer and DirectX are all rated by Microsoft as critical on Vista and XP.

The Bluetooth issue is not applicable to Windows 2000, Server 2003 or Server 2008. The problem with IE only warrants an important tag for version 5.01 on Windows 2000, and moderate for version 7 on Server 2008.

Other issues scheduled to be addressed on June's Patch Tuesday concern WINS, Active Directory and PGM (all with a maximum rating of important) plus a kill bit issue that's rated moderate on most supported operating systems.

The usual update for the Malicious Software Removal Tool is also planned.

More details are available in Microsoft's advance notification (NB the content will be replaced with the actual bulletins on June 10).

Wanted: one million Australians

The Climate Savers Computing Initiative has arrived in Australia, and its movers and shakers are looking for one million people to commit to using more aggressive power management settings and to take energy efficiency into consideration when buying their next PCs.
The goal, according to Climate Savers Computing Initiative president Lorie Wigle, is to slash 50 percent from the energy used by PCs and servers by 2010. In Australia, this equates to slashing $100 million from energy bills.

Since around two percent of world energy use is accounted for by IT, a halving makes a significant overall difference. Theo Theophanous, Victorian minister for ICT, points out that the global target "would be like switching off Australia." (No cheap gags, please!)

Most operating systems and existing hardware support power management, so "we just need to leave it turned on," says Wigle. Simply using standby mode can reduce power consumption by 60 percent, she claims.

The initiative has broad support from the local IT industry, with representatives of the Australian Information Industry Association, Intel, Dell, Lenovo, EDS and CSC being present at the launch of the local campaign.

AIIA representative Ian Birks said "ICT must play a leadership role in driving the green transformation." The Climate Savers initiative "has practical targets and real outcomes," he added.

Frank De Petro, representing Dell, points out that most IT energy use takes place in data centres: around 1.5 percent of world consumption, which is roughly the same as that used by the world's TVs.

So if three-quarters of IT energy goes into data centres why make any fuss about desktop settings?
Presumably because it delivers savings at practically no cost. Ensuring computers are switched off over the weekend and set to automatically sleep when idle delivers worthwhile savings with no investment other than changing people's habits.
De Petro suggests notebook systems are now so common that people are used to power management to conserve battery life, and so the issue is now about educating "the big end of town" to use it on desktop systems.

EDS representative Sundeep Khistry says his company manages three million desktops (probably the world's biggest fleet) with between 80,000 and 90,000 of them in Australia. Policy, programs and people need to work together he says, because "every drop counts".

He suggests tailoring power settings to suit different functions. Revenue generating users may need their computers to remain ready for use throughout the working day, while back-office employees may be able to work satisfactorily with computers that go into sleep mode with a relatively short delay.

Another possibility is that some users could be moved from desktops to notebooks, with a corresponding power saving.

But whatever method you think will work in your home or business, "It's time to stop talking about it and start doing something about it," says Intel's Sean Casey.

IBM's Roadrunner sets new supercomputer record

A hybrid supercomputer built by IBM for the UD Department of Energy's National Nuclear Security Administration more than doubles the speed of Blue Gene, previously the world's fastest. And it does so with the aid of the processor used in the Sony PlayStation 3.

The hybrid tag refers to the way Roadrunner was designed to exploit the strengths of the Cell Broadband Engine as well as conventional x86 chips from AMD. This is said to be a first in supercomputer design.

Roadrunner features 12,960 Cell chips along with 6948 dual-core Opteron CPUs. Assembled from off-the-shelf IBM blade servers, the system is housed in 288 "refrigerator sized" racks.

The blades are configured in groups of three, comprising a pair of Cell blades with one Opteron blade. The Cell chips handle the mathematical and other CPU-intensive operations, while the Opterons take care of I/O and other less arduous tasks. With 400 gigaflops (400 billion floating-point operations per second) per tri-blade, the whole system is rated at over one petaflop (one million billion calculations per second).

IBM puts the processing capability into perspective by comparing it with 100,000 of today's fastest laptops, or around 1000 of what was the world's fastest supercomputer in 1998.

Not only is Roadrunner the world's fastest supercomputer, it is also one of the most energy efficient. Performing 376 million calculations per watt, IBM officials expect it to be one of the leaders in the next Green 500 list.

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