Bayosphere

The stunning rise of Internet company stocks is sometimes followed by equally stunning drops. That’s the case with the formerly high-flying DrKoop.com, which went public with such hype and is, according to auditors, in danger of running out of money (CBS Marketwatch).

Even if DrKoop.com makes it through its troubles, as the company says it will, I suspect we’re about to see a slew of flame-outs in the Internet business. It’s about time, actually, for some reality to intrude into the fantasyland that has attracted so many dollars from so many small investors who stand to lose big when reality strikes.

For a worthwhile take on the situation, here’s Floyd Norris’ column in today’s New York Times (free registration required): Modigliani’s Message: It’s a Bubble, and Bubbles Will Burst.

Patents, Patents, Patents

More noteworthy coverage:

I have to say there’s something moderately creepy about the Security and Exchange Commission’s plan to monitor Internet postings (Wired News) in stock chat rooms and bulletin boards. But I also have to note that these are public postings, not private conversations.

Critics who liken this to wholesale monitoring of telephone conversations are creating straw men. They’re clever, because they’re gaining traction in public opinion, and they’re doing it by misleading people.

The SEC’s plan is a bad idea, anyway, and probably a violation of the federal Privacy Act. But it’s a response to a genuine problem.

Some of the postings on the financial Web sites are plainly being created by con artists. Their techniques are typical sleaze: pump up lousy stocks and then dump them; plant false rumors to persuade share owners to sell perfectly good stocks; and other such stuff. The SEC has a right and duty to go after people who defraud others.

At the heart of this problem, however, is the nature of the chat rooms and bulletin boards. I’m astonished at the way otherwise rational investors will almost automatically believe what they read in an online forum. I’m also not very sympathetic to everyone who gets conned, because in some cases people are so greedy that they ignore obvious signs of fraud.

The Net’s diversity is its greatest feature, not a horrible problem. But it’s also a new kind of place, and we need to recognize that.

We need new rules of behavior — our own behavior, that is — in this new cyber-world. I am a relatively trusting soul in the physical world. But I don’t have any particular trust for things I read online when I don’t have a basis to know whether the writer is credible.

And I don’t believe anything I read in an anonymous posting, ever. I don’t assume it’s untrue, either. I do assume I’ll have to check it out.

What Concessions from Microsoft?

ZDNet’s Mary Jo Foley has done the homework the national press forgot to do: She asked manufacturers and software developers how the leaked terms of a proposed Microsoft antitrust settlement would affect them. It’s a con game, most replied.

Steve Baller, Microsoft’s CEO, says the company’s settlement offer is the real thing.

If the World Wide Web has any major theme, it’s linking. People use hypertext to point from one page to another, one site to another, and from one page inside a site to a page inside another site. This is the whole idea.

But Ticketmaster believes it has the right to ban deep links in its page. It wants people who point to the site to point to the pages where Ticketmaster sells advertising. The arrogance — and maybe stupidty — of this stance is beyond comprehension, given that people pointing at Ticketmaster are sending the company more business. But Ticketmaster has shown repeatedly it is in an arrogance class almost by itself.

Thank goodness, then, that a judge has pronounced deep links to be legal. Ruling otherwise would have been a direct threat to the fundamental nature of the Net.

If Ticketmaster wants to block deep linking by perceived competitors or anyone else, there are technical ways to do it. Nuking the essence of the Internet is a bad approach.

The Patent Office Thinks Harder

Q. Todd Dickinson, commissioner of the U.S. Patent & Trademark Office (PTO), says the agency will change the way (Wall Street Journal) it looks at business process patents — the kind of patents that Amazon and other Internet companies have been getting for blatantly obvious and already-invented “inventions.”

Dickinson was in Silicon Valley yesterday to speak at a patent-lawyers’ conference. I was also a speaker at the meeting, and told the group that there is something deeply amiss with the patent system, and with most intellectual property law, for that matter. Several of the lawyers said — off the record — that they thought I was more right than wrong.

Dickinson, in an interview, made it clear he couldn’t disagree more. The system works well already, he said, though any system can work better (hence today’s announcement).

I asked him about the recent New York Times magazine article, “Patently Absurd,” which notes a sign at the patent office — “Our Patent Mission/To Help Our Customers Get Patents” — and says the PTO has forgotten its other customers, the American people.

A cheap shot, Dickinson says — the sign refers to providing better customer service. But that’s not what the sign says. Anyone watching the PTO lately knows that its primary mission genuinely is to award patents, and the quality of the patents is too often secondary.

I’ll post more of our interview later.

Not all politicians are blind to the need for laws protecting people’s privacy, or at least putting some brakes on the wholesale violations we’re seeing every day by an assortment of Big and Little Brothers. One of the consequences of our current system is rampant identity theft. The credit industry thinks it’s just a nuisance, but the consequences are horrible for the victims.

California State Sen. Debra Bowen is one of the politicians who gets it, as I discuss in Tuesday’s column.

UPDATE
A sign of the times: You can buy identify-theft insurance. I’m not sure this is progress…

Prime Time for BeOS 5.0

It’s here. As of today you can download BeOS 5.0 for Intel-compatible computers. The cost to you is no dollars plus, no doubt, a considerable amount of your time.

Be is also opening up some of the source code, though not all. From a press release:

The advanced BeOS user interface known as Tracker (the desktop) and Deskbar (the taskbar) form the user’s experience with the operating system. Be is placing source code for these applications on the Internet for programmers who want to increase the integration between their applications and the award-winning architecture of the multimedia-rich Be system. The source code for Tracker is available at http://www.opentracker.org and the source code for the Deskbar is available at http://www.opendeskbar.org. Both websites are operational and available immediately.

Cisco Hits the Top Market Spot

It finally happened. At least for a day, though one suspects considerably longer, Cisco Systems became the most valuable company in the world (Mercury News). As of the market close last night, Microsoft was second.

Last week, as this day drew closer, I asked Cisco’s chief executive how he’d feel when the company he leads reached this pinnacle. His answer was a bit surprising.

Consolidation in Speech Recognition Market

It’s sobering to see the news that Lernout & Hauspie is buying Dragon Systems (Dragon press release). The innovation shown by the latter, a tiny company up against industry giants — including IBM, Philips and Microsoft, which has a big stake in L&H, has been inspiring to watch. Dragon has deservedly captured a large market share.

Perhaps competition will continue at the frenetic pace we’ve seen in recent years. But this merger should get some antitrust scrutiny.

Or are Justice Department and states prosecuting the antitrust case losing their nerve?

The latter is a lot more likely, based on history.

A report in this morning’s Wall Street Journal (ZDNet) suggests that Microsoft is backing away from its extreme stance — that, for all practical purposes, antitrust law does not apply to software — and is genuinely trying to come up with a settlement it can live with. But as always with a company like Microsoft, the fine print is not just important. It’s the ballgame.

The Journal reports that Microsoft has offered to toss a couple of bones to the government — making its Windows internal code more available to competitors and giving all computer manufacturers who buy Windows the same price. As concessions go, those are almost worthless. They close the barn door, in the old cliché, long after the horse has gone.

The alarming part of this development is that we’ve heard it all before. Microsoft has a habit of making and breaking promises. It has a habit of using fine print and deliberately imprecise languate, pretending to mean one thing while actually meaning another. It has, to put this bluntly, a habit of dishonesty.

Unfortunately, the government has a history of being snookered by Microsoft. The 1995 Consent Decree was a sick joke on consumers. It ceded Microsoft’s ill-gotten monopoly and begged the company not to abuse it — and we all know what happened then.

If you care about the rule of law, about genuine competition in personal computing, you should be hoping the Justice Department is doing its homework this time.

Privacy and the Census

Technologist and pundit Bob Metcalfe wonders whether privacy advocates are missing a really big story (Infoworld). In an e-mail, Bob “urges revolt against United States Census 2000, especially the 40-page long form, which is to be returned, without even 56-bit encryption, in a securely sealed paper envelop through the mails, and read only by Census employees, unless there’s another of those White House file snafus.”

Nice try, but Bob’s onto a mostly bogus issue. The Census Bureau is required by law to keep private the personal information it collects, and it has done so in recent decades. The numbers are used only in aggregate. This is in total contrast to the private sector’s policies, which are to buy and sell the information it collects on us to anyone with a big enough bankroll.

Cisco Aims Yet Higher

Cisco Systems want to sell you Web-based office phones.

The contents of this post have not been recovered from the archives yet.

Give Microsoft credit for brazenness. It has lost on the facts at the antitrust trial and is about to lose on the law. Its stock price has been flat while the rest of the tech industry is soaring.

Suddenly the stock price is jumping. By sheer coincidence we’ve seen a blizzard of leaks (Mercury News) this week, the most recent of which is a report (USA Today) suggesting that the company will make a settlement offer today. All of the leaks have a common thread, that Microsoft is ready to settle the case because the Justice Department and states are willing to give significant ground.

Think about this. It’s as if a boxer has been flattened by his opponent. The referee has reached nine in the count. Suddenly the on-his-back boxer says, “Let’s call it a draw.”

The only conceivable source for these leaks is Microsoft, which is positioning itself to be able to claim it really, really tried to settle but those unreasonable goverrnment people wouldn’t listen. I doubt the Justice Department and states will give into this ploy, but they have to be feeling some heat at this point.

At the close of business one of these days, Cisco Systems is likely to have become the most valuable company on Earth, moving ahead Microsoft Corp. in market capitalization. Assuming that happens, we’ll all note what a watershed it represents — the growing primacy of data networks in our lives.

Being top dog will certainly be a pleasant experience, says John Chambers, Cisco’s chief executive. But he was prouder when Cisco became Number Two, he told me today at his office in San Jose.

”The move that meant the most was passing GE,” he said. By Chambers’ reckoning, General Electric Co. sets the standard as ”the best-run company in the world.”

I’m not in the Microsoft-is-in-trouble camp, which has lured some naive observers. But I am a believer in the what is behind Cisco’s ascendence — the rise of the network as the dominant story in technology.

”The network is the computer,” people said presciently in the 1980s. We’ll soon need a new aphorism. The network won’t be everything, but it’s clearly becoming the environment for a stunning amount of what we do every day.

In that world, Cisco holds an enviable position. Chambers and his team have bought and grown and maneuvered their way into the sweet spot, and they deserve plenty of credit.

Mattel’s Arrogance

A Mattel Inc. Web-censorware subsidiary is going to extraordinary lengths (CNN) in enforcing a court order designed to stop distribution of software that reveals which sites the censorware blocks. Not only has the company steamrollered some hackers, but it’s now going after journalists who dare to provide hyperlinks to the software.

Cyber Patrol is the censorware, one of the many products designed to keep kids away from inappropriate material on the Web. But Peacefire and other critics have shown persuasively that these products also block perfectly reasonable sites. The companies making censorware generally refuse to reveal which sites they’re blocking, and they get furious when people dare to point out their software’s flaws.

According to CNN, Mattel’s latest legal moves attack one of the best online journalists, Declan McCullagh, a writer for Wired News and maintainer of the excellent Politech mailing list on politics and technology. He posted the addresses of the Web mirror sites that had the offending software cracking the Cyber Patrol secrets, but not the software itself. Mattel apparently wants a list of his subscribers so it can go after them, too.

Declan has set up a Web site to tell you more about Mattel’s abuse of the legal system.

A Microsoft Antitrust Settlement?

The whispering that Microsoft will settle the antitrust case with the Department of Justice and various state governments is picking up volume. A report in the Wall Street Journal is the loudest noise yet.

For everyone’s sake, let’s hope the latest speculation is true. But keep something in mind. It’s difficult to see how Microsoft, given the way it does business, can accept a settlement that has sufficient teeth to change the company’s behavior.

Still, as Mary Jo Foley points out in her latest column, Microsoft isn’t behaving as though it will change. The company’s attitudes and behavior, which make it simultaneously great and dangerous, are hard-coded in the corporate DNA. The legal system has a hard time with this kind of genetic engineering.

The PC Follies

Peter Lewis of the New York Times reminds us (free to read but registration required) how fast computers are changing and what that means when we order one.

The corporate representatives on the Internet Tax Commission, which met in Dallas this week, gave a classic demonstration of how self-interest trumps good policy. They gave all appearances of trading their votes (AP) to the anti-tax crowd in return for targeted exemptions that help their industries but do little else but jumble an already idiotic mess.

Oh, and they all denied any such crass motives. Uh, huh.

The no-Internet-taxes crowd has been exceptionally smart in its tactics. In a real coup, it has managed to persuade credulous reporters to call the other side “pro-tax,” as if that’s what the argument is about.

No, the issue remains as simple as ever. Should we continue to grant an exemption from sales taxes that gives a huge advantage to catalog and Internet merchants over Main Street merchants? The answer from the anti-tax crowd (a moniker that is accurate on this side of the debate) is a loud Yes.

If we do that and watch more and more sales move to the Net, how should we make up the difference in tax revenues that inevitably will sap local services, or what services should be cut when revenues dry up? The answer from the anti-tax crowd is silence — or, rather, the so-far correct but irrelevant claim that state and local sales tax revenues haven’t yet started sinking due to the Net effect. So, they ask, what’s the problem?

The answer is that we’re in an economic boom that will end someday unless the law of supply and demand has been repealed. When that happens, the Net tax drain will be blatantly obvious. The anti-tax tactics are plain enough — to wait as long as possible so that it will be politically difficult, if not impossible, to apply sales taxes.

The issue is tax fairness. We should either replace the sales tax — a measure I would support, as the sales tax is extremely regressive — or apply it evenly. It’s totally unfair to do otherwise.

By the way, please do not write me to point out that you pay shipping charges when you buy from an online merchant but not from a local one. The goods that show up on local store shelves did not just materialize there — those goods were shipped to the store, and the cost of shipping is already in the price.

Well, not exactly. But Bay Area universities — Berkeley and Stanford in particular — have a habit of giving leaves of absence to faculty members who become chief economists at the government agencies that have the most impact on the technology world.

Above, from left to right, are Jeremy Bulow, Tim Bresnahan (both from Stanford) and Howard Shelanski (Berkeley). I explain what they do in my Tuesday column.

More Patent Absurdity

Rich Gray, a prominent Silicon Valley attorney, agrees that the patent system is out of whack. He notes two related announcements, and offers this interesting analysis.

MicroStrategy Impodes, Small Investors Lose

The business media have done little but fawn over Microstrategy and its colorful leader, Michael Saylor, since the Washington-area technology company rose to prominence during the past several years. MicroStrategy’s stock blew to smithereens (Mercury News) yesterday when the company “restated” revenues and earnings. To restate such numbers is almost always to discover (or have auditors or government regulators strongly suggest) that the numbers weren’t as large as previously stated, and Wall Street goes predicably berserk when such things occur.

The Washington Post’s coverage today has a story about Saylor, whose shares dropped $6 billion in value, leaving him with a tidy $3 billion or so. Saylor naturally shrugged it off. He should. He’s still fabulously wealthy.

Buried in that story were the real victims of MicroStrategy’s aggressive accounting methods — the small shareholders who relied on the published numbers and the uncritical endorsement of Wall Street analysts. This sort of thing is going to happen again and again in the technology field. Count on it.

But I have no sympathy for the gamblers, the momentum players who bought the stock simply because it was going up and was “an Internet company.” They’re stupid, and greedy, and they don’t earn anything but a lesson. I hope they didn’t spend their childrens’ college money on this stuff, but no doubt some did.

3Com Gets Leaner

Networking equipment company 3Com is doing the right thing by shareholders, by contrast. It’s shrinking the company by selling the pieces that are worth more in the open market and quitting markets where it can’t compete.

The company expanded too fast a few years ago, buying businesses — including modem companies — that turned out to be dogs when prices collapsed. But 3Com’s purchase of Palm Computing, and subsequent spinoff, were extremely smart.

Eric Benhamou, 3Com’s able chief executive, deserves credit from shareholders for doing the right thing.

William Kennard

The Federal Communications Commission chairman is smart, talented, affable and tough. He needs all those attributes in this nasty city.

In a long interview yesterday, he talked about his leadership style and the issues facing the FCC. A substantial part of the conversation was about what it means to be the first African American chairman of the FCC, and how that affects the way he runs his life and his agency. Thoughtful stuff, and I’ll tell you more in an upcoming column.