The Big Secret

                   An exclusive first look at Microsoft’s ambitious-and
                   risky-plan to remake the personal computer to ensure 
security,
                   privacy and intellectual property rights. Will you buy it?

                   By Steven Levy

            —  In ancient Troy stood the Palladium, a statue of the
       goddess Athena. Legend has it that the safety of the city depended 
on that
       icon’s preservation. Later the term came to mean a more generic 
safeguard.

         HERE’S SOMETHING THAT cries for a safeguard: the world of computer 
bits.
       An endless roster of security holes allows cyber-thieves to fill up 
their
       buffers with credit-card numbers and corporate secrets. It’s easier to
       vandalize a Web site than to program a remote control. Entertainment
       moguls boil in their hot tubs as movies and music are swapped, 
gratis, on
       the Internet. Consumers fret about the loss of privacy. And computer
       viruses proliferate and mutate faster than they can be named.

               Computer security is enough of a worry that the software 
colossus
       Microsoft views it as a threat to its continued success: thus the
       apocalyptic Bill Gates memo in January calling for a “Trustworthy
       Computing” jihad. What Gates did not specifically mention was 
Microsoft’s
       hyperambitious long-range plan to literally change the architecture 
of PCs
       in order to address the concerns of security, privacy and intellectual
       property. The plan, revealed for the first time to NEWSWEEK, is...
       Palladium, and it’s one of the riskiest ventures the company has ever
       attempted. Though Microsoft does not claim a panacea, the system is
       designed to dramatically improve our ability to control and protect
       personal and corporate information. Even more important, Palladium is
       intended to become a new platform for a host of yet-unimagined 
services to
       enable privacy, commerce and entertainment in the coming decades. “This
       isn’t just about solving problems, but expanding new realms of
       possibilities in the way people live and work with computers,” says
       product manager Mario Juarez.
               Because its ultimate success depends on ubiquity, Palladium is
       either going to be a home run or a mortifying whiff. “We have to 
ship 100
       million of these before it really makes a difference,” says 
Microsoft vice
       president Will Poole. That’s why the company can’t do it without
       heavyweight partners. Chipmakers Intel and Advanced Micro Devices have
       signed on to produce special security chips that are integral to the
       system. “It’s a groundswell change,” says AMD’s Geoffrey Strongin. “A
       whole new class of processors not differentiated by speed, but 
security.”
       The next step is getting the likes of Dell, HP and IBM to remake 
their PCs
       to accommodate the system.

               “It’s one of the most technically complex things ever 
attempted on
       the PC,” says Gartner analyst Martin Reynolds. And the new additions 
will
       make your next computer a little more expensive. Will the added 
cost—or a
       potential earlier-than-otherwise upgrade—be worth it? Spend a day or 
two
       with the geeks implementing Palladium—thrilled to be talking to a 
reporter
       about the project—and you’ll hear an enticing litany of potential uses.
        Tells you who you’re dealing with—and what they’re doing. Palladium is
       all about deciding what’s trustworthy. It not only lets your 
computer know
       that you’re you , but also can limit what arrives (and runs on) your
       computer, verifying where it comes from and who created it.
        Protects information. The system uses high-level encryption to “seal”
       data so that snoops and thieves are thwarted. It also can protect the
       integrity of documents so that they can’t be altered without your
       knowledge.
        Stops viruses and worms. Palladium won’t run unauthorized programs, so
       viruses can’t trash protected parts of your system.
        Cans spam. Eventually, commercial pitches for recycled printer 
cartridges
       and barnyard porn can be stopped before they hit your inbox—while
       unsolicited mail that you might want to see can arrive if it has
       credentials that meet your standards.
        Safeguards privacy. With Palladium, it’s possible not only to seal 
data
       on your own computer, but also to send it out to “agents” who can
       distribute just the discreet pieces you want released to the proper
       people. Microsofties have nicknamed these services “My Man.” If you 
apply
       for a loan, you’d say to the lender, “Get my details from My Man,” 
which,
       upon your authorization, would then provide your bank information, etc.
       Best part: Da Man can’t read the information himself, and neither can a
       hacker who breaks into his system.
        Controls your information after you send it. Palladium is being 
offered
       to the studios and record labels as a way to distribute music and film
       with “digital rights management” (DRM). This could allow users to 
exercise
       “fair use” (like making personal copies of a CD) and publishers 
could at
       least start releasing works that cut a compromise between free and
       locked-down. But a more interesting possibility is that Palladium could
       help introduce DRM to business and just plain people. “It’s a funny
       thing,” says Bill Gates. “We came at this thinking about music, but 
then
       we realized that e-mail and documents were far more interesting 
domains.”
       For instance, Palladium might allow you to send out e-mail so that 
no one
       (or only certain people) can copy it or forward it to others. Or you 
could
       create Word documents that could be read only in the next week. In all
       cases, it would be the user, not Microsoft, who sets these policies.

               Some of these ideas aren’t new—they’re part of the promise of
       public key cryptography, discovered 25 years back. Palladium is a
       dead-serious attempt to finally make it happen, with a secure basis and
       critical mass. But it didn’t start that way. In 1997, Peter Biddle, a
       Microsoft manager who used to run a paintball arena, was the company’s
       liason to the DVD-drive world. Naturally, he began to think of ways to
       address Hollywood’s fear of digital copying. He hooked up with ’ Softie
       researchers Paul England and John Manferdelli, and they set up a
       skunkworks operation, stealing time from their regular jobs to pursue a
       preposterously ambitious idea—creating virtual vaults in Windows to
       protect information. They quickly understood that the problems of
       intellectual property were linked to problems of security and privacy.
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               They also realized that if they wanted to foil hackers and
       intruders, at least part of the system had to be embedded in 
silicon, not
       software. This made their task incredibly daunting. Not only would they
       have to build new secrecy functions into Windows (without messing up 
any
       programs that run on the current versions), but then they’d have to
       convince the entire industry to, in effect, update the basic hardware
       setup of the PC.
               Intel originally turned down the idea before eventually 
embracing
       it. AMD had already been thinking along similar lines, and eagerly 
signed
       on. Biddle’s virtual team kept working, and in October 2001, it 
became a
       formal green-lighted project.

               As now envisioned, Palladium will ship “in a future version of
       Windows.” (Perhaps in the next big revision, due around 2004.) By 
then the
       special security chips will be rolling out of the fabs, and the 
computer
       makers—salivating at an opportunity to sell more boxes—will have
       motherboards to accommodate them. There will also be components that
       encrypt information as it moves from keyboard to computer (to prevent
       someone from wiretapping or altering what you type) and from 
computer to
       screen (to prevent someone from generating a phony output to your 
monitor
       that can trick you into OKing something you hadn’t intended to). Only
       certain applications will access the part of Windows (nicknamed “the 
nub”)
       that performs Palladium’s functions with the help of the security
       chip—everything else will work exactly the same.
               The first adopters will probably be in financial services, 
health
       care and government—places where security and privacy are mandated. 
Then
       will come big corporations, where information-technology managers will
       find it easier to control and protect their networks. (Some 
employees may
       bridle at the system’s ability to ineluctably log their e-mail, Web
       browsing and even instant messages.) “I have a hard time imagining that
       businesses wouldn’t want this,” says Windows czar Jim Allchin.
               Finally, when tens of millions of the units are in circulation,
       Microsoft expects a flood of Palladium-savvy applications and 
services to
       spring up—that’s when consumers will join the game.
               None of this is a cinch. One hurdle is getting people to trust
       Microsoft . To diffuse the inevitable skepticism, the Redmondites have
       begun educational briefings of industry groups, security experts,
       government agencies and civil-liberties watchdogs. Early opinion makers
       are giving them the benefit of the doubt. “I’m willing to take a chance
       that the benefits are more than the potential downside,” says Dave 
Farber,
       a renowned Internet guru. “But if they screw up, I’ll squeal like a 
bloody
       pig.” Microsoft is also publishing the system’s source code. “We are
       trying to be transparent in all this,” says Allchin.

               Others will note that the Windows-only Palladium will, at 
least in
       the short run, further bolster the Windows monopoly. In time, says
       Microsoft, Palladium will spread out. “We don’t blink at the thought of
       putting Palladium on your Palm... on the telephone, on your 
wristwatch,”
       says software architect Bryan Willman.
               And what if some government thinks that Palladium protects
       information too much? So far, the United States doesn’t seem to have a
       problem, but less tolerant nations might insist on a “back door” that
       would allow it to wiretap and search people’s data. There would be
       problems in implementing this, um, feature.
               Other potential snags: will Microsoft make it easy enough for
       people to use? Will someone make a well-publicized crack and destroy
       confidence off the bat? “I firmly believe we will be shipping with 
bugs,”
       says Paul England. Don’t expect wonders until version 2.0. Or 3.0.
       Ultimately, Palladium’s future defies prediction. Boosting privacy,
       increasing control of one’s own information and making computers more
       secure are obviously a plus. But there could be unintended 
consequences.
       What might be lost if billions of pieces of personal information were
       forever hidden? Would our ability to communicate or engage in free
       commerce be restrained if we have to prove our identity first? When
       Microsoft manages to get Palladium in our computers, the effects could
       indeed be profound. Let’s hope that in setting the policies for its 
use,
       we keep in mind the key attribute of the woman embodied in the first
       Palladium. Athena was the goddess of wisdom.


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