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By Carl Howe

Microsoft (MSFT) yesterday announced version 2.0 of Windows Genuine Advantage, something called the Software Protection Platform. And the press release account has to be read to be believed:

In alignment with our anti-piracy policies we have been continually improving the experience for our genuine customers, while restricting access to ongoing Windows capabilities for those who choose to use counterfeit software. Reduced functionality mode has been a part of the initial Windows XP product activation process for retail and OEM (original equipment manufacturer) installations since its launch, and, similarly, Windows Vista will have a reduced functionality mode but one that is enhanced. Reduced functionality mode in Windows Vista will allow the user to use the browser after the reduced functionality mode has begun. Reduced functionality mode can occur as a result of failed product activation or of that copy being identified as counterfeit or non-genuine. In most cases customers will be able to correct this situation quickly with the options provided.

Ignoring the Orwellian language around enhanced reduced functionality mode, this sounds harmless, right? Well, not so much. The "enhanced" reduced functionality mode gives you a black screen, a browser, and an Internet connection. If you use the Web browser for more than 60 minutes, you will be logged out and have to start over. No other OS functions work until you can successfully connect up with Microsoft and validate your configuration is a legally purchased product.

Think about the effect this might have on an executive getting on a plane to prepare for an important meeting with a newly upgraded laptop, and you have a recipe for disaster. No vendor should have a "kill switch" for a product you bought from them, but that's exactly what Microsoft is announcing (despite its denials that this enhanced functionality is a kill switch). And unlike with Windows Genuine Advantage, even corporate licensees will have to deal with Software Protection Platform activations and checking.

In theory, the program should be harmless for everyday users. But Microsoft software has never won any awards for its theoretical purity. Ed Bott at ZDNet analyzed responses regarding validation problems and found that 42% of Window Genuine Advantage problems were from people running Genuine Windows according to Microsoft's own Genuine Advantage Diagnostic tool. So being a legal, law abiding buyer doesn't protect anyone from this new Windows Vista feature. And we won't go into false positives generated by things like corporate firewalls and anti-virus protection; suffice it to say that even if you have perfectly valid Windows licenses, you will probably have at least one run-in with the Software Protection Platform.

This is a great example of technology driving bad marketing decisions. Because it is technically possible, Microsoft is taking the tack that every user, legal or not, should prove regularly that they are running a legal copy. From a marketing point of view, that's just absurd. It actively reduces the value of the product in the eyes of the consumer. It says loudly and clearly, "You have no rights to use our product unless we say so." It screams that the end customer doesn't matter.

Now there'll be some who say it doesn't matter because there aren't any other choices. But that view is so 1990s. Apple (AAPL) now makes Intel-based (INTC) laptops, desktops, and servers that have none of this absurd protection and are more virus-resistant to boot. And for those businesses who want more control, there's always Ubuntu and other Linux systems, which companies like IBM (IBM) and Dell (DELL) will be happy to support for you. And programs like WINE allow an awful lot of Windows programs to run unchanged on systems like Linux and Mac OS X. All it will take is for Microsoft to paralyze a Fortune 100 CEO's laptop at a major investment conference for the phones at those vendors to start ringing with corporate migration requests -- and at that point it will be too late for Microsoft to fix this blunder.

There's a reason Microsoft stock has been a losing money investment over the past six years, despite a never-ending chorus of analyst buy recommendations: customers determine the value of both a brand and a company. And no amount of holding the customer ransom by technology is going to change that fact.

MSFT 1-yr chart:

MSFT 1-yr chart

Full disclosure: I have no position in Microsoft stock.

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