More and more I think about Microsoft. How they flew from dastardly to discounted! The other day Gates leaked a memo about a "sea change" needed at Microsoft to--truly, finally--grapple with the internet. Now everyone talks of Google. A few people even talk about Yahoo. Nobody talks about Microsoft. Somehow it took me a few tries to clarify for myself why this happened. Microsoft's business model counts on selling software. Open source software has offered decent replacements for pretty much every Microsoft offering for some time now. I think we software people talk a lot during the innovative period, but we get bored when the products move out into sales. Look closely at how few recent Slashdot posts describe new open source software, or even new releases of old open source projects. The innovation thrill may be gone, but the business impact is just beginning. Microsoft found a model that worked, and like most companies, ran with it. What I have come to realize is that software products, like everything else, commoditize. The sharper minds at Microsoft realize this, but to abuse Adlai Stevenson's line, I'm not sure that's enough. Some debate has broken out about whether Microsoft can make as much money via ads as they make (made) selling software. This strikes me as missing the point. Microsoft can't put the ad-funded genie back in the bottle and demand everyone keep paying their price. Companies who figure out how to make open source work for them will be lower cost companies. Lower cost companies have a nasty habit of beating higher cost companies. So either way Microsoft gets to learn to live with lower profits. The only thing that never becomes a commodity is an innovation. Who generates innovations steadily these days and who doesn't?

Secure in the asset-driven spending posture that resulted, consumers saw no need to save the old-fashioned way out of earned labor income. That's why the personal saving rate has collapsed and currently stands near zero.

- Stephen Roach, Morgan Stanley

Roach goes on to point out that low rates are vital to creating asset booms such as the US housing bubble, and demotivate income savings. Imagine a place where everyone could see the way the government was trying to play them and just said no. Imagine ordinary consumers continuing to live within their means, invest some income for the future and taking on only debt they can clearly repay. The US economy would have stayed weak but stable, corporations would have been forced to slog through years of low returns, employment numbers would have remained shaky...

That is, about like now, but without the risk of major financial collapse.