Arriving late to the internet revolution, Microsoft seems more interested in blocking the competition rather than building a long term business.  The software giant has already spent months paying people to use its search engine rather than convince them its a better product. But more payoffs are on the way.

Microsoft is paying or offering free software to developing countries to use its products rather than free alternatives like Linux (though Microsoft denies specific examples).  Microsoft is discovering the high price it charges for Windows and Office are pushing poor countries toward free and cheap alternatives. Instead of realizing the long term implications, Microsoft is hoping to lock in these customers with big payoffs now hoping they’ll pay in the future (even though they still won’t be able to afford Microsoft’s prices).  This is not a new business model, but it’s a nice way to blow millions of dollars (don’t need that research and development money anyway).

Further, to stave off Google’s free cell phone operating system, Android, Microsoft is looking to payoff cellular providers to use its expensive alternative. Steven Ballmer showed (once again) how disconnected he is from the realities of the software world when he said about Google’s Android “I don’t really understand their strategy. Maybe somebody else does.” I do: Google’s investing in a long term strategy, increasing the value of Google search and other Google products. It’s a way to make more money (even if that money is not from Android licenses).

The truth is Microsoft is still relevant and obviously has a place in the market.  The Xbox brand, with all its foibles, is a refreshing example of Microsoft’s innovation and willingness to take risks.  Even Xbox has relied on massive payoffs to game developers to push its way into the market – but that’s not a bad thing when it’s part of a long-term strategy. Microsoft wants Xbox to be profitable on its own merits, something that’s harder to say about Windows and its other products.

Even Microsoft’s branding strategy failed because of a lack of a long term plan – one that the company had faith in.  After three commercials, Microsoft pulls its controversial Seinfeld ads because bloggers didn’t like them.  But they were talking about them! People watched them over and over again to try to understand them.  But that understand would have come later on.  Instead, the new “I’m a PC” commercials reveal Microsoft’s lack of faith in their own branding and instead let their adversary, Apple, dictate the conversation (just ask McCain how well “change” worked for him).

I’m still an avid Microsoft customer (I’m writing this post on Live Writer).  But the company needs to realign itself with the new technology realities.  Branding, reminding customers how much we’ve trusted MIcrosoft all these years (even though they were fun to hate), shows they can still be relevant in our lives, for business and fun.  Paying off customers, buying also badly run companies (Yahoo), and criticizing successful competitors you don’t understand are not recipes for success.  Long term planning and real investment are.

The most talked about new web 2.0 sites, from Facebook to Twitter, are facing business model challenges. Scott Karp points out the challenge of print advertising online while Alexander van Elsas goes farther in his post “Advertisement holds web 2.0 in a death grip.”

Web 2.0 has focused on free services - free services that build virally fast and then, hopefully lead to a business model when the venture capitalists get impatient. But banner ads and tier subscriptions aren’t enough.

Advertising, as Karp and van Elsas point out, isn’t useful. Google pioneered ads that use your search terms so they are relevant and unobtrusive, whereas the only thing Facebook can sell me are gay dating sites (Google advertises better ones). The challenge isn’t simply advertising isn’t working, but that you can’t charge people for your services.

Most web services offer a paid option with valuable features. Remember the Milk charges $25 a year just to sync my tasks to my phone. Yahoo Mail wants another $20 to give my email portability. Each service doesn’t cost too much, but add them up, and suddenly the internet got expensive.

Bernard Lunn says social networking “is at a major fork in the road” (leading to web 3.0?) where they have to choose between walled gardened, open APIs, or mix. All the free on the web will need a business model, and every site from social to content providers will find charging customers harder and harder and advertising spread thinner and thinner.

Google’s strength came from reinventing advertising to its strength - search - creating a unique model that let companies and individuals advertise without upfront costs. Amazon and eBay have built retail businesses that couldn’t exist in brick and mortar stores. Most other sites have relied on 7-8 figure buyouts to make money.

Other websites will need to find new business models. Some ideas like market research and statistics, like I discussed for Facebook and other social networks, make excellent use of their large user bases, but will lead to a decrease in value when every social site starts offering this research. Further, with open source and APIs all the rage, regular pageviews will become less reliable as people use services how they want, not how the websites want them to. For example, advertising will work even less for content providers once RSS readers takeover the mainstream.

This is a lot of doomsaying without many solutions. I think sponsorships and product placement has potential, but again, it’s going to be impossible to control users. The best business models thus far have been enterprise level customer service, best seen in companies like Red Hat which provides customized Linux solutions and and MySQL’s Enterprise Unlimited. Companies will pay for customized services and research which individuals have no use for. Less than one percent of MySQL’s customers pay, but that was enough for Sun to pay $1 billion to buy the company.

The focus over the next few years needs to be on developing new and hopefully revolutionary business models that recognize the internet, software, and content want to be free (yes, even music and movies). The old business models required payment, but the future doesn’t have to be constrained by old-fashioned thinking. Think outside the tubes.

Sure the iPod is great for listening to music and watching movies on a really tiny screen, but why limit yourself.  The iPod is a powerful tiny computer and you might try using it as such.  Most of these tricks take some advanced computer skills, so if your iPod explodes, blame Microsoft like everybody else.

Install Linux

What free games and programs for your iPod?  The open-source miracle worker Linux has been developed specifically for the iPod and its handy click-wheel.  iPodLinux allows you to play more media files and you can still load the regular Apple firmware.  Unfortunately the newest iPods and some older ones are not supported.

Wikipedia on your iPod

If you get into a lot of discussions about the House of Burgundy but can’t remember the order of the monarchs, try carrying Wikipedia with you.  With no need for the internet, you can install almost 2 gigs of Wikipedia goodness onto your iPod for anytime viewing.  Now you always have something interesting to read on the train.

Change the iPod theme

For very advanced users (Windows only), use the iPodWizard to change the visuals of your iPod OS.  Tweak the colors, fonts, and maybe make your music sound better as a result.

Read a book

With a slight of hand, you can upload ebooks to your iPod.  Simply paste any text into a simple text file (.txt) and load it into Notes or Contacts on your iPod.  Files must be less than 4kb so novels need to be broken up between several files  Programs Text2iPod X and iPoDoc can help simplify the process.

You can even buy software

I know, who buys software these days.  Depending on if you want to learn a language, create flash cards, or listen to some female robot read your notes, you can find software for your iPod.  We are not here to judge.