SUMMARY: A case involving Microsoft and overseas data puts a familiar tech issue before the Supreme Court, the balancing act between the interests of law enforcement and personal privacy. Marcia Coyle of The National Law Journal joins Judy Woodruff to break down that case, as well as the justices’ ruling on the detainment of undocumented immigrants.
SUMMARY: A global ransomware attack has hit more than 200,000 victims, such as hospitals and schools, in more than 150 countries since Friday. The virus takes advantage of a security flaw in Microsoft's Windows operating system, which the company patched in March, though many users ignored the fix or refused to pay for it. William Brangham reports and Judy Woodruff talks to Microsoft President Brad Smith.
SUMMARY: If the government can detect that there is a hole in a company's software that makes it vulnerable to attack, do they have an obligation to tell that company, even if it gives away the government's tool for conducting surveillance? William Brangham speaks with Eric Geller of POLITICO about that tension and what consumers need to know when it comes to cybersecurity and how to protect themselves.
SUMMARY: In the wake of the FBI’s showdown with Apple last month, a new tech giant is taking up arms against government oversight. Microsoft sued the Department of Justice Thursday, arguing that it is unconstitutional for the government to request access to a customer’s data while banning Microsoft from informing the individual in question. Microsoft president Brad Smith joins Judy Woodruff for more.
JUDY WOODRUFF (NewsHour): A high-profile showdown between a tech giant and the U.S. government over accessing private data.
This time, it’s Microsoft. Yesterday, the company filed a suit against the Department of Justice in federal court. Microsoft argues it’s unconstitutional for the government to ask for customers’ personal data or e-mails in most cases without the individuals’ knowledge. The company says it’s received more than 5,600 requests for such data from the government in the last year-and-a-half, often from the cloud or remote servers. And nearly half of those requests come with a ban from the government on alerting customers.
Brad Smith is the president of Microsoft. He joins me from company headquarters in Redmond, Washington.
And welcome to the program, Brad Smith.
I do want to point out we invited the Department of Justice to join the interview, but they declined.
So, let me begin by asking you, what is it that the federal government is doing that Microsoft doesn’t like?
BRAD SMITH, President, Microsoft: Well, what gives us concern is the fact we have received almost 2,600 — almost 2,600 of these so-called gag or secrecy orders over the last 18 months.
Over two-thirds of them have no end date at all. So it means that we are permanently prohibited from telling customers that the government has accessed, read and obtained copies of their e-mails. We feel that infringes on the constitutional rights of consumers and businesses to be secure from unreasonable government searches.
It infringes on our First Amendment right to speak, to share information with our customers.
JUDY WOODRUFF: Well, we know the Justice Department has not responded to the lawsuit. They have not said anything publicly, but we know that in the past they have said these are investigations that involve criminals, people who are breaking the law, that involve — that are perhaps involved in potential terrorist acts.
Why not work with the government when they’re trying to go after the bad guys?
BRAD SMITH: Well, this is an issue that we have discussed with various officials in government for some time.
And we readily recognize that there are many cases where there should be some kind of secrecy, that there is a real danger if information is disclosed. But we feel that these kinds of secrecy orders have been — become too routine. They’re being issued in cases that involve businesses, as well as consumers.
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GWEN IFILL (NewsHour): There are new reports out of yet another tech giant, in this case Microsoft, trying to purchase a popular gaming company. It’s part of an industry and market that you may not know about unless you are wise in the ways of Xbox and PlayStation.
Game sales in the U.S. topped $21 billion last year. The industry often boasts that it earns far more than what Hollywood makes at the U.S. box office. And more than 70 million people worldwide watch games played as e-sports over the Web or on TV.
Hari Sreenivasan has more from our New York studios about this potential deal and the wider phenomenon.
HARI SREENIVASAN (NewsHour): In the hit game “Minecraft,” players maneuver through a LEGO-like landscape to build whatever they can imagine or to battle monsters, as seen in this YouTube video by the game’s Swedish creator, Mojang.
WOMAN: Yes, it’s very popular.
HARI SREENIVASAN: With more than 50 million copies sold since 2011, “Minecraft” has even contributed to a trend of users simply watching others play online.
MAN: Why did I just do that?
HARI SREENIVASAN: Now it’s being widely reported that Microsoft is in talks to buy Mojang for more than $2 billion. The deal isn’t a certainty.
Markus Persson, who came up with “Minecraft,” has stressed the importance of smaller independent developers like Mojang.
MARKUS PERSSON, Game Developer, Mojang: If you get a game from a big publisher, you kind of expect it to be something different, where, on the other hand, because the indy scene has grown so much and you kind of know where that is, you look at it with different eyes. And you can actually explore new game ideas and concepts and even styles, which is really cool.
Documents related to Microsoft's successful challenge of a governmental request for information about one of the company's customers have been unsealed.
The order, a Federal Bureau of Investigation National Security Letter, sought "basic subscriber information" about one of Microsoft's enterprise customers, according to according to a post by Microsoft’s general counsel and executive VP of Legal and Corporate Affairs, Brad Smith on the company's TechNet blog.
A federal court in Seattle unsealed the documents on May 22 2014.
"This marks an important and successful step to protect Microsoft's enterprise customers regarding government surveillance," Smith wrote.
Microsoft challenged the nondisclosure provision of the Letter in June 2013, arguing that it would violate the First Amendment.
"It did so by hindering our practice of notifying enterprise customers when we receive legal orders related to their data," Smith wrote.
After the petition was filed, the FBI withdrew the Letter. According to Smith, governmental requests for information related to enterprise customers are "extremely rare."
In the previous cases where similar requests for information occurred, Microsoft was able to obtain permission from the customer in question, or to ask directly. In this case, the FBI was able to get the info from the customer, according to the notice of withdrawal.
Microsoft, along with major tech firms like Apple, Facebook and Google, have ramped up their efforts to gain greater abilities to disclose the government's requests for data to their customers.
"As more users migrate from locally installed software and locally stored data to cloud-based computing platforms, Microsoft increasingly is entrusted to store its customers' data safely and securely," the petition states.
In December 2013, Smith wrote a post on the TechNet blog reaffirming Microsoft's commitment to protecting customer data, and promising to inform customers of any legal orders Microsoft receives or to challenge any gag orders prohibiting them from doing so.
Smith also stated the company’s belief that when seeking information, government agencies should go directly to customers except in exceptional circumstances, "just as they did before customers moved to the cloud."
With cloud services, such as Microsoft's Office 365, customer data is stored in Microsoft data centers, rather than on the customer's own systems.
"As more users migrate from locally installed software and locally stored data to cloud-based computing platforms, Microsoft increasingly is entrusted to store its customers' data safely and securely," the petition states.
Earlier this month, Glenn Greenwald, who has been a key part of disclosures related to how the National Security Administration collects information, published documents including details of Microsoft's relationship with the agency.
Greenwald had previously claimed in July 2013 that Microsoft had worked with the NSA to circumvent encryption on Outlook and had also worked with the FBI to help them better collect information from OneDrive. Microsoft responded to the allegations shortly after, with the basic message that the company complies with data requests only when legally necessary.
"This new capability will result in a much more complete and timely collection response [...] for our enterprise customers. This success is the result of the FBI working for many months with Microsoft to get this tasking and collection solution established," the recently revealed document states.
Microsoft has named Satya Nadella, an executive in charge of the company’s small but growing business of delivering software and services over the Internet, as its new CEO. Company founder Bill Gates is leaving the chairman role for a new role as technology adviser.
The software company announced Tuesday that Nadella will replace Steve Ballmer, who said in August that he would leave the company within 12 months. Nadella will become only the third leader in the software giant’s 38-year history, after Gates and Ballmer. Board member John Thompson will serve as Microsoft’s new chairman.
Nadella, who is 46 and has worked at Microsoft for 22 years, has been an executive in some of the company’s fastest-growing and most-profitable businesses, including its Office and server and tools business.
For the past seven months, he was the executive vice president who led Microsoft’s cloud computing offerings. That’s a new area for Microsoft, which has traditionally focused on software installed on personal computers rather than on remote servers connected to the Internet. Nadella’s group has been growing strongly, although it remains a small part of Microsoft’s current business.
“Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together,” Gates said in a statement. “His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth.”
The company said that Gates, in his new role as founder and technology adviser, “will devote more time to the company, supporting Nadella in shaping technology and product direction.”
Gates will also remain a member of Microsoft’s board.
Analysts hope that Nadella can maintain the company’s momentum in the rapidly expanding field of cloud computing while minimizing the negative impact from Microsoft’s unprofitable forays into consumer hardware. Major rivals in cloud computing include Google Inc., Amazon.com Inc., Salesforce.com Inc. and IBM Corp.
FBR Capital Markets analyst Daniel Ives said he views Nadella as a “safe pick.”
Ives said investors are worried that rivals “from social, enterprise, mobile, and the tablet segments continue to easily speed by the company.” In a note to investors, he said the company’s main need now is “innovation and a set of fresh new strategies to drive the next leg of growth.”
Microsoft shares rose 8 cents to $36.56 in morning trading Tuesday.
Nadella’s appointment comes at a time of turmoil for Microsoft.
Founded in April 1975 by Gates and Paul Allen, the company has always made software that powered computers made by others — first with its MS-DOS system, then with Windows and its Office productivity suite starting in the late 1980s. Microsoft’s coffers swelled as more individuals and businesses bought personal computers.
But Microsoft has been late adapting to developments in the technology industry. It allowed Google to dominate in online search and advertising, and it watched as iPhones, iPads and Android devices grew to siphon sales from the company’s strengths in personal computers. Its attempt to manufacture its own devices has been littered with problems, from its quickly aborted Kin line of phones to its still-unprofitable line of Surface tablets.
Analysts see hope in some of the businesses Nadella had a key role in creating.
Microsoft’s cloud computing offering, Azure, and its push to have consumers buy Office software as a $100-a-year Office 365 subscription are seen as the biggest drivers of Microsoft’s growth in the next couple of years. Both businesses saw the number of customers more than double in the last three months of the year, compared with a year earlier.
Those businesses, along with other back-end offerings aimed at corporate customers, are the main reason why investment fund ValueAct Capital invested $1.6 billion in Microsoft shares last year.
Last April, the fund urged investors to ignore the declining PC market — which hurts Microsoft’s Windows business — and to focus on the so-called “plumbing” that Microsoft provides to help companies analyze massive amounts of data and run applications essential to their businesses on Microsoft’s servers or their own.
“Satya was really one of the people who helped build up the commercial muscle,” said Kirk Materne, an analyst with Evercore Partners. “He has a great understanding of what’s going on in the cloud and the importance of delivering more technology as a service.”
Nadella is a technologist, fulfilling the requirement that Gates set out at the company’s November shareholder meeting, where the Microsoft chairman said the company’s new leader must have “a lot of comfort in leading a highly technical organization.”
Born in Hyderabad, India, in 1967, Nadella received a bachelor’s degree in electrical engineering from Mangalore University, a master’s degree in computer science from the University of Wisconsin, Milwaukee, and a master’s of business administration from the University of Chicago.
He joined Microsoft in 1992 after being a member of the technology staff at Sun Microsystems.
One of his first tasks will be integrating Nokia’s money-losing phone and services business. Microsoft agreed in September to buy that and various phone patent rights for 5.4 billion euros ($7.3 billion) in one of Ballmer’s last major acts as CEO. That deal is expected to be completed by the end of March.
Partly because of Nadella’s insider status and the fact that both Gates and Ballmer will remain Microsoft’s largest shareholders and for now, company directors, analysts aren’t expecting a quick pivot in the strategy of making its own tablets and mobile devices.
Some hope, however, that he will make big changes that will help lift Microsoft stock, which has been stuck in the doldrums for more than a decade. Since Ballmer took office in Jan. 13, 2000, Microsoft shares are down a split-adjusted 32 percent, compared with a 20 percent gain in the S&P 500.
“We do not want to see a continuation of the existing direction for the business, so it will be important that Mr. Nadella be free to make changes,” Nomura analyst Rick Sherlund wrote in a note Friday.
JUDY WOODRUFF (Newshour): We turn now to rapidly changing world of technology and telecommunications, where two big deals have been announced in as many days.
The latest, Microsoft is buying Nokia's smartphone and cellular handset business for just over $7 billion. It comes just days after questions were raised about the future of Microsoft when CEO Steve Ballmer announced his intention to retire.
On Monday, Verizon announced that it would buy Vodafone's stake in Verizon Wireless for $130 billion, making it one of the largest merger and acquisition deals in history.
Cecilia Kang of The Washington Post has been covering these stories, and she joins me now.
Welcome back to the NewsHour, Cecilia.
Let's start with the later -- or the newsiest of the two stories, and that is Microsoft buying Nokia. What is behind this?
CECILIA KANG, The Washington Post: Well, what is behind this is, Microsoft has really struggled to really get a foothold in the smartphone market that has really just dominated all of technology in the last six years, since the iPhone was released.
And it's struggled because its software development has been slow and it has not been able to compete with companies like Apple and Google, which now completely dominate the smartphone market. And this is really where the future of all technology is going.
Is Microsoft going the way of the Soviet Union? Vivek Wadhwa, vice president for academics and innovation at Singularity University, director of research at Pratt School of Engineering, Duke University, and a fellow at Stanford Law School, thinks so. A good friend of the Making Sen$e Business Desk, Wadhwa takes another look at Microsoft's future -- an issue he explored earlier this week in his column on the Washington Post's Innovations blog.
Vivek Wadhwa: When companies become too big, they usually lose their ability to innovate. There are a few notable exceptions, such as Apple, GE and Google, but most become complacent and focus increasingly on defending their existing turf rather than on creating new markets. Thus they begin their march into oblivion.
That is the present state of Microsoft. It has become an old giant, obsessed with defending its aging products. If Microsoft doesn't change course, it is likely to suffer the same fate as that old superpower, the former Soviet Union, whose obsession with preserving its bloated bureaucracy led to its destruction.
Microsoft has lost ground in practically every emerging field, including mobile computing, music players, smartphones, search and social networking. Yes, it has had an odd success or two, such as the Xbox, but these are just flukes.
It isn't that Microsoft doesn't have talented people working for it. Quite to the contrary, it has an abundance of talent. For two decades, it was the tech industry's strongest talent magnet. It hired the best of the best. And most of these geniuses haven't left -- yet.
My former students and friends who work at Microsoft tell me that they love the company, but are stifled by its bureaucracy, turf wars and central planning. Big ideas get quashed because they don't fit into the corporate vision; products with great potential are killed because they could threaten the company's core products. These employees believe that their talent is being wasted. They long for the days when Microsoft was a lean mean fighting machine.
That's why I believe that the best path forward for Microsoft is to break itself up into a number of fighting machines -- smaller companies that compete with upstarts in Silicon Valley and with each other. These micro-Microsofts need to have the freedom to take risks and cannibalize the company's core products. That won't happen under its present structure.
The Windows 8 fiasco illustrates the problems that Microsoft faces. Windows RT, the version of Windows 8 that was designed for tablet computers with touch screens, has a beautiful user interface and functionality. In many ways, it is better than Apple's iOS and Google's Android. But Microsoft was obsessed with protecting its Windows operating system and Office tools franchise. So it bundled a version of Microsoft Office into RT. To make the desktop version of Windows 8 consistent with RT, it added to it the same tiled user interface and removed the Start button.
Most desktop computers and laptops, however, don't have touch screens. And Windows users aren't used to computers without Start buttons. So they hated Windows 8 desktop, and it was a commercial disaster.
The inclusion of Microsoft Office on RT and Microsoft's desire to protect its operating system's pricing structure led it to charge re-sellers a price rumored to be about $85 (the re-seller price is a well-guarded secret). This is more than what lower-end tablets will soon cost, and competes directly with Android, which Google gives away. That's why RT, too, was a commercial disaster.
The sensible thing for Microsoft to do would have been to provide a lighter version of RT -- for free. It would have competed head to head with Android and would likely have won because it has a superior user interface. Microsoft could have made money by charging for special features and apps such as Office. If Microsoft's RT division had had the freedom, it might also have done the unimaginable by bundling Google's Office apps and other competitive products into it.
Tablet prices are dropping rapidly. I expect that next year, there will be several players selling devices that cost less than $100. Full-featured tablets that cost around $50 -- and less -- are also on the horizon. When these become available, the market for tablets will explode. There will be hundreds of millions, perhaps billions, of such devices. Instead of running Microsoft's RT, they will likely run Android. Microsoft has lost its opportunity to sell additional products on these devices through its obsession with protecting its legacy software. Windows and Office will likely slip into oblivion like the five year plans and Politburo the Soviet Union clung to.
But there is still hope for Microsoft. It has a wealth of great people and great technologies in its labs. They need to be untethered from the central bureaucracy and set free to compete and take big risks. I am not too optimistic, though, that this will happen. I worry that Microsoft will go the way of Kodak, RIM and Nokia -- or even the former Soviet Union -- all of which tanked because they were busy protecting old turf.
