News > Hardware

By Dawn Kawamoto, CNET News.com, CNET.com
Monday, November 29, 1999 04:30 PM

Etailers' uncertain ability to handle the start of the holiday shopping season seemed to loom over all else in a shortened work week.

Online retailers say they are ready to handle the extra business, but even giants Amazon and Dell recently have been hit by outages, prompting skepticism among many analysts and consumers. Security breaches and a recognized shortage in customer service representatives also are a problem.

Nonetheless, during the five weeks between Thanksgiving and New Year's, 8.6 million households will shop for items on the Internet, spending a record $4 billion, Forrester Research estimates.

CNET News.com's special report, "Click or Miss," details why Net retailers are in the eye of the holiday storm.

Worrisome
SGI again changed its strategy for Intel-based workstations, reversing a decision to transfer the division to another company. Having admitted failure to find a buyer, the struggling company plans to keep the product line under its own roof, but will drastically reduce the refinements it puts into high-end desktop systems running the Windows NT operating system. Intel-based workstations had been a key part of departed CEO Rick Belluzzo's turnaround strategy.

Desktop PC makers can't get enough of Intel's latest Pentium III processors, but don't seem to be as excited about the most recent Xeon chips. Hewlett-Packard is dropping the Xeon from its workstation product lines because of tepid demand, while Dell too will not be adopting the more expensive derivative of the Pentium III, although it will pick up later versions. The duo are the leading makers of Intel-based workstations. The cold shoulder is a result of overlap in the Intel product line.

Separately, Dell said it will begin to sell two-way pagers and incorporate wireless technology into its corporate desktops. Made by Canada's Research In Motion, the Blackberry pager allows users to receive and send emails and numerical messages. The deal marks Dell's entry into selling non-PC devices. The announcements underscore both the growing demand for wireless communication as well as the unlikely emergence of the pager as a chic, "must have" item for corporate executives.

Apple's iBook was the best-selling notebook at retail, online and mail-order sales outlets in October, besting offerings from the likes of notebook stalwarts Compaq Computer, Toshiba and IBM (but leaving out sales by "direct" PC makers such as Dell). Including its PowerBook line, Apple last month nearly doubled its overall market share to 11 percent, up from 6.5 percent in the previous month. Despite earlier shortages, the iBook laptop is helping the company expand its retail presence.

Laying tracks?
More than a year after it was formed, a high-profile wireless telecommunications firm backed by Microsoft and Qualcomm is struggling with its strategic direction. Hampered by service delays and the recent departure of its chief executive, Wireless Knowledge has labored to make a name for itself with the corporate customers it hopes will use its mobile data services for cell phones and other handheld devices. Its first product will be available in the first quarter of 2000.

Excite@Home's board approved creating a tracking stock for the company's media assets. The move, planned for as soon as August, caps more than six months of negotiations concerning the sometimes confusing strategic direction of the Redwood City, Calif.-based company, which provides both Internet content and high-speed cable access. "Now when the media side of the company wants to do things that might in any way impact the subscriber side, it has a separate financial vehicle and its own equity. That is the degree of flexibility that we've gained here," chief executive Tom Jermoluk said.

AT&T too may be poised to issue a tracking stock for its wireless phone business. Executives have toyed with the idea of a tracking stock before, originally planning to issue separate shares for AT&T's Internet and wireless divisions shortly after the merger with Tele-Communications Incorporated. The rapid growth of competing wireless companies like Vodafone AirTouch and Nextel, a share price languishing in comparison with MCI Worldcom's rise and investors' cautious attitude toward the company's $110 billion string of cable network buys may finally persuade the company to take the plunge.

US West is poised to launch a package incorporating some of its newest high-speed Net access services. The menu will range from a televison-based Internet service to a "broadband" portal. Looking to tap customers who have yet to embrace the Internet, the company is preparing for stiff competition from AT&T and other cable companies that expect to begin offering their own set-top television, Internet and telephone packages sometime next year.

Changing plans
America Online is again forcing its subscribers to jump through hoops to avoid receiving unsolicited junk email, or spam. AOL recently informed users that their "marketing preferences" are due to expire next month--just 18 months after the company unveiled new privacy and security policies ostensibly aimed at bolstering consumer protections. Marketing preferences give users the option of blocking any direct-marketing pitches (including pop-up ads, direct mail, email and telemarketing) from AOL's partners. The company's direct marketing practices have often been criticized, particularly its "opt out" policy, under which members grant permission to direct marketers to send them email by default until they personally go to the preferences area and turn it off.

Time Warner is expected to launch a much-awaited Web site promoting its entertainment programming. Entertaindom's debut that will be the first indication of the giant's push to redefine its online strategy. In April, the company said it was planning to introduce a handful of "vertical hubs" focusing on news, finance, sports, lifestyle and entertainment; shortly afterward the company shut down its sprawling Pathfinder site.

Timing
Court papers show that the federal judge presiding over the Microsoft antitrust case appointed a mediator because of "divergent views" in the government camp. "I think this is probably as propitious a time for any possible negotiated outcome as you have," Jackson surprisingly told lawyers from Microsoft, the Justice Department and 19 states during a meeting in his chambers last week. Last Friday, U.S. appeals court judge Richard Posner was named as mediator.

Firms that offer stock trading on the Internet may sometimes have a legal responsibility to make sure their clients' investments are suitable for their financial goals and experience, according to a member of the Securities and Exchange Commission. Laura Unger's report was released as New York's attorney general said the securities industry would spend $500,000 for an advertising campaign to educate consumers about the benefits and pitfalls of Internet trading.

In its final report card on the government's efforts to combat Y2K, the House Subcommittee on Government Management, Information and Technology gave the government a B+, although a few agencies are still behind in their efforts and some programs weren't issued a grade at all. In a change from previous surveys, the committee decided not to issue grades for more than 40 vital government programs, including Medicaid and Medicare. As the committee sees it, many programs not ready for the transition to 2000 are dependent on the states and private organizations.

Also of note
The Clinton administration released draft rules to relax export restrictions on data scrambling technology, but the proposal was quickly criticized as inadequate by the software industry ... Consumer advocates made a last-ditch effort to hinder the $1 billion merger of Internet advertiser DoubleClick with market researcher Abacus Direct, charging that the deal will be an assault on user privacy ... Two of the biggest contract manufacturers for the computer industry, Flextronics International and DII Group, agreed to merge in a $2.4 billion deal ... AOL and Intuit will create a new service enabling customers to view, track and pay bills online. Separately, Electronic Arts will create and deliver online games and interactive entertainment for the online giant.

The fledgling online grocer industry faced its most crucial test of the year--the traditional gastronomic excess of the Thanksgiving holiday--but did not deliver the goods, literally, on at least some occasions..

In a spot test by CNET News.com in San Francisco, where the competition between online grocers Webvan and Peapod is fierce, the selection was poor, damaged goods were shipped and, in one case, an item was not delivered at all. Both companies appeared overwhelmed by the holiday shopping blitz.

The good news was that each company delivered on time and was represented by courteous deliverymen. But overall, initial reviews of these industry leaders left little to be thankful for.

"We discovered some areas that we need to improve," said Patrick Graham, a manager of a Webvan delivery stations. "This has never been done before. We're pioneers in this field and were constantly refining our methods and operations in order to get better...Yes, we still have a ways to go."

With analysts forecasting massive online shopping this holiday season, Web grocers were hoping to make a good impression on customers that would encourage loyalty at this critical early juncture. Jupiter Communications projects that online grocers will take in $350 million this year, about 1 percent of the total U.S. market, and could earn as much as $3.5 billion by 2002.

News.com's informal competition was judged on Web sites, selection, price, delivery and customer service. Shopping at the Webvan and Peapod sites was simple: Their sites were well organized, and checking out was a breeze.

But their selection of goods, especially holiday-related products, appeared to show that both companies were underprepared. On Peapod's site, clicking on some Thanksgiving staples such as pumpkin pie or turkey products, shoppers found the message: "Image Coming Later." You had to guess from a written description on the products' appearance.

Chicago-based Peapod shoppers could only choose one brand of turkey, a 10-pound smoked "Willie Bird." Executives at Peapod were not available today for comment.

San Francisco-based Webvan customers who wanted pumpkin pie would have to buy one spiked with amaretto. Those who tried ordering a non-alcoholic version were informed that the pie would be available on November 26. (Note to Webvan: Too late.)

To its credit, Webvan, which this year spent $1 billion for a automated distribution system, did offer four brands of fresh turkeys at a variety of sizes.

Orders were placed Sunday with each grocer for one turkey, a pumpkin pie (one with amaretto) and a bottle of wine. Customers had large blocks of time to choose to have their groceries, but neither company offered delivery on Thanksgiving Day.

Both delivered on time the night before Thanksgiving and did not charge delivery fees. But at $3.99 a pound, Peapod's smoked Willie Bird weighed in at a hefty $47.68 for almost 12 pounds. By contrast, Webvan's Willie Bird, non-smoked, was $1.87 per pound. The pies cost about the same.

As for the wine, deliveryman Andre Smith said Peapod was out of Turning Leaf California Chardonnay. Peapod never informed News.com of that fact at the time the purchase was made online, nor did it phone or email any warning that no wine would be delivered. Smith, who was pleasant, apologized repeatedly and said the charge for the wine had been taken off the bill and promptly left.

Webvan also stumbled in its delivery, literally. When Webvan deliveryman Jason Neri opened the crate that housed the order, he found that the turkey had pulverized the pie. He too was apologetic, but instead of simply leaving, he phoned his manager, Graham, and informed him of the problem. Graham arrived 20 minutes later with a new pie in hand.

While both companies received good marks for personal interaction, it is difficult to declare a clear winner. But in the end, if such problems are inevitable in this perishable business, the customer may eventually be swayed by the grocer that's willing to go the extra mile.

"We know these problems will occur," Graham said. "While they do, we want to make sure to do everything we can to make it up to the customer. We want them to trust us with their business."

NEW YORK--Shoppers who turned to Internet stores to avoid long lines and parking hassles at malls encountered some Web sites that were slow or had already run out of popular items such as Pokemon toys.

The KBkids.com online store operated by Consolidated Stores couldn't be accessed earlier in the day and offered consumers a $5-off coupon as a consolation. EToys and Amazon.com, for their part, said they were out of some Pokemon toys such as a plush Pikachu doll or trading card games.

The leading online retail sites may process almost 60,000 orders a day, about double last year's level, according to research firm Jupiter Communications. The crush is expected to start this weekend and last until about Dec. 19. Retail spending on the Internet excluding travel purchases will almost double this holiday to $5 billion from $2.6 billion a year ago, Jupiter said.

Internet retailers "got hit up earlier this week as people came online to really begin their shopping," said Peter Schwab, national director for Ernst & Young's corporate finance group for retail and consumer products. "We're anticipating significant hits to some of these sites today, and it will be interesting to see how they pick up the load."

More consumers are using the Internet to buy holiday gifts, lured by the convenience of shopping at home as well as the selection, discounts, coupons and free-shipping offered on a number of sites.

KBkids.com is a joint venture between Consolidated Stores, operator of the KB Toys retail chain, and BrainPlay.com, a closely held online toy retailer.

Copyright 1999, Bloomberg L.P. All Rights Reserved.  
special coverage

 

Following are the latest developments in the antitrust suit filed against Microsoft by the Justice Department and attorneys general from 19 states. Latest stories Microsoft antitrust mediation to open Tuesday in Chicago The initial meeting with appeals court judge Richard Posner is expected to last less than a day, a person familiar with the case says. (November 26, 9:30 a.m PT) Two suits filed against Microsoft in Ohio The suits allege that the software giant overcharged customers and come in the wake of a judge's ruling that the software giant abuses its monopoly power. (November 23, 5:30 p.m. PT) Judge taps Posner to fight "divergent" government views Court papers show that the federal judge presiding over the Microsoft antitrust case appointed a mediator because of "divergent views" in the government camp. (November 23, 8:20 a.m PT) Will Microsoft class-action suits spawn more? Class-action suits stemming from Microsoft's legal tussle with the government are brewing, but plaintiffs may face an uphill battle. (November 22, 12:40 p.m. PT) Judge appoints mediator in Microsoft antitrust case update The judge in the Microsoft antitrust case today refers it for "voluntary mediation" to Judge Richard Posner, who heads the U.S. Court of Appeals in Chicago. (November 19, 3:25 p.m. PT) Microsoft faces legal scrutiny at every turn Can the giant continue to expand in a mercilessly competitive business environment without creating the perception that it is intentionally disregarding the issues raised in the antitrust suit against it? (November 18, 12:55 p.m. PT) Drama unfolds in wake of judge's ruling Microsoft meets with Judge Thomas Penfield Jackson for the first time since the release of his harsh findings nearly two weeks ago in the ongoing antitrust case. (November 18, 4:40 a.m. PT) Linux firms gain from Microsoft's loss update Friday was a bad day for Microsoft, but makers of alternative operating systems are reaping the benefits on the stock market today. (November 8, 1:20 p.m. PT) Justice Department considers Microsoft breakup update The Justice Department is considering a breakup of the world's largest software company as a possible remedy in its historic antitrust case, Assistant Attorney General Joel I. Klein says. (November 8, 4:35 a.m. PT)    November 5, 1999 • Full text of the judge's findings of fact • Judge calls Microsoft a monopoly • Microsoft faces uncertain penalties in case • Judge: Microsoft's monopoly power hurt many • Microsoft's competitors "delighted" • Microsoft investors weigh impact on stocks    September 22, 1999 • Microsoft presents alternative facts in closing

Special reports  Puppet masters: Who controls the Net? August 6, 1999 The new world order May 10, 1998 Microsoft sued May 18, 1998 Microsoft and the $1 million question January 22, 1998 MS-DOJ case in court January 8, 1998 Microscope on Microsoft November 14, 1997

IPO investors will find only a little meat on the bone when post-Thanksgiving new issues roll out next week.

McAfee.com, a maker of popular anti-virus software, is scheduled to debut next week, along with Internet company Agency.com and digital anti-theft company Digimarc.

McAfee, currently a subsidiary of Network Associates, plans to raise up to $50 million, based on the high-end of its $6 to $8 pricing range and 6.25 million shares that will be sold.

One analyst, however, expects the pricing range and number of shares being offered to increase.

"McAfee has great name recognition and it's a Morgan Stanley deal. They have a penchant toward underpricing deals," said Jeff Hirschkorn, an analyst with IPO.com.

The company plans to trade under the ticker "MCAF." McAfee's products allow consumers to secure, repair, update and upgrade their PCs via the company's Web site.

McAfee's revenues grew to $16 million during the nine-month period ending September 30, up from $4.3 million a year ago. But its net loss swelled to $21.8 million for the period from a loss of $823,000 the prior year.

"A lot of companies are in this security business, but Internet customers are increasing so business will increase," Hirschkorn said. International Data Corporation "says the Internet security market will reach $1.3 trillion by 2003."

After the offering, Network Associates will hold a 95 percent stake in McAfee.

Another IPO scheduled for next week also has a strong tie to the Net. Agency.com advises clients on online business model strategies, marketing campaigns and e-commerce opportunities--a field that has produced other strong IPOs, Hirschkorn said.

iXL Enterprises, for example, priced its IPO shares at $12 last June. The stock produced an acceptable 49 percent return on its first day but today is up nearly three-fold from that point.

Agency also is connected to large shareholder Omnicom, which will hold a 46.6 percent stake in the company after the IPO.

Agency raised $74.8 million in pro forma revenues during the nine-month period ending September 30, up 34 percent from a year ago. The company's loss, however, widened to $16.7 million for the period from $14.1 million the previous year. Its clients include Compaq, Sprint and British Airways.

Agency hopes to raise up to $70.8 million. The company, which is being underwritten by Goldman Sachs, has a pricing range of $10 to $12 and plans to offer 5.9 million shares. The shares are expected to price next Thursday and begin trading Friday under the ticker "ACOM."

Digimarc, a developer of digital watermarks to prevent counterfeiting and copyright infringements, plans to raise up to $45 million--based on the high end of its recently raised $13 to $15 range and the 3 million shares that will be sold.

The company plans to price Wednesday and begin trading Thursday under the ticker DMRC.

Digimarc posted a loss of $824,000 on $4.2 million in revenues during the nine months ended September 30, compared with a loss of $2.3 million on $691,000 in revenues a year ago. About 92 percent of its revenues during the first nine months this year came from a consortium of central banks.

Hirschkorn, however, noted that deal is also attractive for its relationship with Adobe, which includes Digimarc in its software.