Under the "Draft-A-Friend" program, customers give Fogdog the email addresses of up to 25 friends, and the company sends those people a $10 coupon for the site. In return, the original customers get 20 percent off their next purchases and the chance to win free merchandise if their friends use the coupons.
If two friends use the coupon, the original customer gets a Fogdog cap; for five friends, a sweatshirt; 10 friends, a fleece jacket; and if more than 20 friends redeem their coupons, it means a $250 gift certificate for the original consumer.
"(This promotion) doesn't pass the sniff test for spam," said Barry Parr, e-commerce analyst for research firm International Data Corp. "It crosses the border of being a legitimate promotion to an abuse of people's relationships on the Net."
Such marketing programs are becoming standard practice for online retailers looking to lengthen their customer lists. But to many analysts and Web users, promotions that hinge on sending unsolicited commercial email, or spam, walk a fine line on the Web, even among "friends." Critics say turning friends into marketing bait breaches the code of ethics, or netiquette, of the online world.
Mark Welch, a marketing professional in the San Francisco Bay area and a Fogdog customer, says that no matter how you cut it, promoting the use of spam is wrong.
"My initial reaction was 'Gee, (Fogdog's) doing this, but they don't understand what they're doing is wrong,'" said Welch, who called Fogdog to complain.
John Mousseau, director of sponsorship and promotion for Fogdog, says the company looked at this promotion carefully before launching it, taking consumer privacy into account.
"When people join the program they can only send email to friends. We're checking for fraud, and if people are posting on newsgroups, we kick them out of the program," he said. "We've had less than a handful of complaints."
IKEA, a widely regarded home furnishings retailer, launched a similar online promotion earlier this month, but revised the offer after several complaints.
Spam is a close relative to "viral marketing," in which companies recruit current customers to promote their product or service. The difference with Fogdog and IKEA's promotion is that they offered merchandise or savings in exchange for their efforts.
Several other online start-ups are trying variations on the theme. Asimba, a health and fitness site, gives customers a fleece jacket if they coax 10 friends into becoming site members. Online gift site Flooz.com offers a $1,000 sweepstakes entry for each email shoppers send to their friends.
The mitigating points of Fogdog's promotion are that it involves savings to a consumer. In addition, the email is sent only once, and if they choose not to participate they aren't contacted again. And because Fogdog is sending the email, they will receive complaints directly, instead of the friend.
Fogdog, however, is encouraging shoppers to send up to 25 emails, and no more. Michele Slack, an advertising analyst from research firm Jupiter Communications, questions how close the original sender is to these 25 people.
"Above 10, you risk getting people to send email to others they don't have a close relationship with. That's not something you want to encourage consumers to do," Slack said.
Privacy is another great concern for consumers, and because they may not know how Fogdog got their email address, it could lead to ill effects for the company.
"Fogdog's sending unsolicited email, and because there's a huge sensitivity to spam right now, this could lead consumers to ask, 'What kind of company is Fogdog?' and 'Why are they sending me this email?'" Slack said. Prohibition is over again in Chicago.
This week, online liquor seller Drinks.com launched a service in Illinois, the third state it's signed up in a strategy aimed at complying with myriad state and federal laws that have hampered Net booze sales.
The company announced yesterday that it will use a network of brick-and-mortar retailers to fulfill online liquor orders in 30 states by 2001. By partnering with national retail chain Drinks America, Drinks.com said it can offer customers their choice of spirits from wholesale inventories throughout their state.
In addition, the company said it will be able to ship the alcohol without crossing state lines in compliance with state and federal alcohol laws.
If it works, small wine producers and others who looked to the Web as a way to cut distribution costs won't necessarily benefit. But liquor wholesalers who have lobbied hard to kill online competition may yet join the Internet party.
"This is basically the only way you're going to be able to sell alcohol online," said Argus Research analyst Alan Mak.
For many, the Net has promised to sweep out antiquated and inefficient business processes and reshape traditional supply chains. But the revolution has eluded online liquor retailing, in part because of a patchwork of laws banning direct liquor sales.
Almost 40 states have banned direct shipments of alcohol under laws going back to the end of Prohibition, according to industry observers. At that time, the Mafia controlled liquor distribution in the country, and the U.S. government encouraged these laws in an effort to weed out the mob.
But now some analysts believe the key beneficiaries of such policies are the bottom lines of liquor wholesalers, who take a big cut of the estimated $109 billion wine, spirit and beer business. Wholesalers last year helped convince Congress to add new teeth to laws banning direct liquor sales by enacting legislation allowing states to sue in federal court companies that ship alcohol directly to their citizens.
"The problem is that states do have legitimate rights to protect their interests," said Forrester Research senior researcher James McQuivey. "If they make a conscious decision to protect a franchise or industry, then they can do that."
The wholesalers have been opposed principally by small wineries, which have looked to the Internet as a way to build a national market.
Vintners in California and Virginia sued New York state last month, trying to overturn a law that bans wine sales over the Internet. The plaintiffs argue that New York's law is unconstitutional because it allows Internet sales within the state while preventing out-of-state companies from shipping wine to New York.
Going with the status quo
Rather than oppose the government, Drinks.com and other online liquor vendors are playing ball, inking deals with offline distributors to keep politically powerful wholesalers happy and comply with liquor regulations.
Under its plan, Drinks.com will process the liquor orders and allow Drinks America, a licensed liquor retailer in 30 states, to fulfill them. Because Drinks America distribution centers in each state buy their supplies from wholesalers in those states, they also should be happy.
Gail Zelitzky, chairman and founder of rival Liquor.com, said her company is pursuing a similar strategy.
"We have an affiliate network of licensed retailers," she said. "We offer delivery normally between three to five days, but we do offer same-day or next-day delivery in many areas. It depends on the location of the retailer."
Louis Amorosa, chief executive of Chicago-based Drinks.com, acknowledged that competitors such as Liquor.com and Wine.com also have partnerships with wholesalers and retailers. But he said none has yet partnered with a national retailer like Drinks America.
"The other guys have to find a retailer or have to ship to a retailer, and this takes time," Amorosa said. "Drinks America can deliver between 24 to 48 hours, and we think because of that we offer more convenience."
Whether there is a major market for online liquor sales has yet to be proven, however.
Forrester's McQuivey said that the Web could offer the alcohol industry the same thing it offered porn: a discreet way for consumers to buy.
"People don't want to go in public many times and let people know that they are into it this," he said. "Just like porn, alcohol has some stigma to it."
Online food sales have been lackluster, however, and there is little to indicate that alcohol would fare better. Companies such as online grocers Webvan, Peapod and HomeGrocer have yet to report sales that compare with those of their brick-and-mortar counterparts.
And Drinks.com is facing stiff competition from outside the liquor industry. Online convenience store Kozmo.com, for instance, has begun selling beer and wine, and Webvan has expanded its beer, wine and hard liquor offerings.
"They already have a mechanism working that could offer customers delivery in a half-hour," Argus' Mak said.
Business-to-business e-commerce is all the rage these days, but a few consumer e-commerce companies such as eBay entered the market before it was hot.
The leading auction house opened a small-business exchange today where companies can buy everything from computer printers to nail guns. But the move is more of a change in marketing than a sudden shift in focus, analysts say.
Business trades have been quietly happening on eBay for some time, and its format inspired many of the exchanges that have cropped up, such as AutoExchange and Chemdex.
"Everybody in the B2B world looks at eBay as the progenitor of the whole model," Keenan Vision financial analyst Vernon Keenan said. "eBay is clearly the 500-pound gorilla in Internet exchange transactions today."
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The growing emphasis on business-to-business transactions by traditionally consumer-oriented e-commerce companies comes as investors have moved into e-business stocks. While online retail leader Amazon.com is down 40 percent from its December high, business e-commerce stalwarts Ariba and Commerce One are both up more than 2,000 percent since their initial public offerings last June.
And while e-tailers such as Pets.com and HomeGrocer have struggled to stay above their IPO prices after recent offerings, e-business player FairMarket nearly tripled in its first day of trading yesterday.
"Last fall, everyone had to have a broadbrand strategy, regardless of whether it was necessary for their business model," Gomez Advisors e-commerce analyst Martin DeBono said. "Now they all have to play in the B2B space."
Part of the draw is the sheer size of the market. While Forrester Research projects that online retailing will grow from $38.8 billion this year to $184.5 billion in 2004, analysts estimate that business-to-business transactions will reach $2.7 trillion to $7.3 trillion by 2004 from about $131 billion in 1999.
eBay has been in the sector before. Last fall, Sun Microsystems began selling some of its servers and workstations on the auction site. Other businesses have used eBay to auction commercial Web domains and even forklifts.
Companies such as eBay or Priceline could do well in the business-to-business area, analysts say. Not only do they have established brands, but their business models, which pair buyers and sellers through dynamic pricing, fit well with the concept of matching businesses and their suppliers.
For eBay, Priceline and similar companies, emphasizing their e-business strategies could mean not only a boost in their stock prices but in their revenues as well, analysts say.
"If a company can mesh their core competency and vision into a B2B offering, then why not? It makes sense," Gartner Group e-commerce analyst Rob Labatt said.
But increasing numbers of consumer companies are laying claim to the business-to-business title.
Part of what's happening involves the cloudiness of the term "B2B." To some, it means setting up a market to pair buyers and sellers, such as what eBay or AutoExchange does. For others, it means selling the software and services behind those markets or helping other businesses set up shop online; FairMarket and Ariba are business e-commerce companies under that definition.
Still others such as Beyond.com consider themselves to be in the business-to-business market because they sell products directly to businesses in much the same way that they sell products to consumers.
"The definition has become such that everything is business-to-business," DeBono said. Business software company SAP today said it plans to form a subsidiary focused solely on the company's projects for the business-to-business sector.
The new company, called SAPMarkets, will build online marketplaces to facilitate transactions between businesses and their partners or suppliers over the Internet. Interest in e-commerce marketplaces has grown tremendously, as companies turn to the Web to cut purchasing costs and speed transactions.
Initially, SAP plans to invest about $484.3 million in the new firm, which will be based in the technology hotbed of Silicon Valley in California. SAP chief executive Hasso Plattner will head the company until a permanent CEO is announced.
Slated to focus on business both in the United States and abroad, SAPMarkets will open its doors in May. SAP, which employs more than 20,000 workers worldwide, said it has already hired 200 employees to staff the subsidiary and anticipates that number will grow to 400 by next year.
The German software giant's move comes at a time when enterprise resource planning (ERP) software makers, including Oracle, J.D. Edwards and PeopleSoft, have been stepping up their efforts to gain a share of the lucrative business-to-business e-commerce market. Analysts predict the value of the market will surpass the trillion-dollar mark by 2003.
Byron Miller, an industry analyst at Giga Information Group, said SAP's decision to create a separate company focused on creating online marketplaces is a smart one, but could be a risky move as well.
"It certainly has potential for the company to better compete in this space with standalone companies (such as Ariba and CommerceOne)," said Miller. "But, there have been very few commercially successful dot-com strategies so far. A lot of them have been very good in raising awareness for companies and creating a lot of excitement but not very good in creating return."
SAP plans to run its new marketplace independently or in partnerships with companies involved. For the most part, SAP said its using a transaction-based revenues model, meaning it will collect fees per transaction conducted in the marketplace.
Historically, ERP companies made their fortunes selling back office software, such as human resources, supply-chain management and financial applications, to big businesses. Those companies are tackling the transformation to e-commerce as sales of ERP software slow.
Yesterday, J.D. Edwards said it is forming its own business unit focused on building online trading exchanges. Oracle and SAP have been noisier, inking a number of deals to build online marketplaces that serve the automotive, chemical, gas, health and pharmaceutical industries.
PeopleSoft last year formed an online apparel marketplace with clothing designer Guess and software partner Commerce One.
SAPMarkets will be responsible for all of SAP's new and existing online marketplaces. SAP has already inked an alliance with crude oil supplier Statoil to build an online marketplace for the natural fuel industry. Separately, the firm cut a deal with Neoforma.com to create a global exchange for the health care industry.
SAP announced similar plans last year for the chemical and pharmaceutical industries with companies including BASF and health care equipment manufacturer Siemens.
Intel agreed to buy telecommunications chip company Giga A/S of Denmark for about $1.25 billion in cash to add more semiconductors for data and phone networks.
Intel is buying the company from NKT Holding A/S, a Danish industrial and electronics company. Copenhagen-based Giga's chips are used for high-speed Internet transmissions. Giga will be combined with Intel's Level One Communications unit, which makes networking chips.
Intel has been buying companies whose technology or products will help sell more personal computer chips or speed performance of PCs and the Internet. The company has snapped up 14 companies since January 1999, including the August purchase of Level One for $2.73 billion, its largest acquisition ever.
The main driver has been Intel's desire to expand its products in a part of the semiconductor industry that's growing more quickly than its traditional processor market. The company is especially hot on the booming networking sector, which it believes will require wholly different chips than its standard microprocessors.
The development of the Internet, especially, "will take networks that are much more intelligent. There will be processing in the wire," Intel vice president Mark Christensen said in a conference call following the announcement.
"We are very much focused on different aspects of the marketplace...we're involved in all levels," Christensen said. "We're investing heavily to make sure we are a leader here."
"Intel would rather snatch them up than let anyone else get them," said analyst Charlie Glavin of CS First Boston, who rates Intel shares a "strong buy." "It's a little higher price tag than I thought."
Intel gained $4.56 to $122.44 in midday trading. The shares have more than doubled in the past year.
Intel's processors are found in about 85 percent of the world's PCs.
Giga makes chips for fiber-optic switches that are used by phone companies and equipment makers. As computer users seek faster connections to the Internet, communications companies are looking to add speedier lines to homes and offices.
Companies that make chips for communications networks have been growing much faster than Intel. Broadcom, which makes chips for digital cable set-top boxes, saw sales more than double last year, and PMC-Sierra, which makes chips for networking equipment, reported a 62 percent rise in sales in 1999.
Intel, by contrast, gets about 86 percent of its sales and almost all of its operating profit from microprocessors. The company's sales rose just 12 percent last year.
Giga's products are used by companies including No. 1 networking equipment maker Cisco Systems, Lucent Technologies and Nortel Networks, Intel said.
"This gives Intel key new products and expertise to address the rapidly growing demand for high-bandwidth communications," Christensen said in a statement.
In July, Intel bought telecommunications software maker Dialogic for $780 million, and in November, the company completed its $1.6 billion acquisition of DSP Communications, which makes chips for connecting wireless devices to the Internet.
NKT will have a gain of 4.6 billion Danish kroner ($599 million) from the sale. NKT shares rose 240 kroner to 1130 in Copenhagen.
News.com's Michael Kanellos contributed to this report.
Copyright 2000, Bloomberg L.P. All rights reserved. The leader of the Linux movement is speeding to get the delayed next version of the core of the operating system into shape.
Linus Torvalds, who started the Linux operating system project in 1991 and is still in charge, said Friday that he's initiating the preliminary versions of the kernel intended for serious "production" use instead of just development of new features.
The preliminary production version of the Linux kernel is arriving a little late. Torvalds said at a Linux conference in February that he would start the production kernel process. In addition, he earlier hoped the new kernel would arrive in late 1999, whereas he now expects it in the summer of 2000.
The new kernel includes a smorgasbord of new features. Among the most significant are better performance on servers with multiple processors and support for a multitude of universal serial bus (USB) devices including Zip drives, scanners, digital cameras and modems.
Delays of operating systems, among the most complex software that runs on a computer, are nothing new. Windows 2000, for example, was delayed several times, and the latest version of Sun Microsystems' Solaris shipped March 13 when Sun had hoped for the end of February.
Linux competes with Windows as well as with Unix, the operating system on which Linux is based. It has made its way into the product lines of the biggest computer manufacturers and increasingly is developed by corporate programmers as well as the traditional host of volunteers. This is possible, because anyone can see the original programming instructions by virtue of the "open-source" nature of Linux.
Because Linux isn't controlled by a company, schedules are more difficult to set and keep. On the other hand, open-source fans argue, it also means there's less pressure to prematurely release bug-ridden software.
Torvalds has acknowledged that open-source programmers are more interested in adding new features than in doing the "boring" work of debugging, but said that the corporate involvement in Linux development is addressing that weakness.
Companies such as Red Hat sell Linux along with technical support and other help. And companies such as VA Linux Systems sell Linux-specific hardware.
VA Linux Systems has begun selling a new rack-mountable server that pushes ahead of most major competitors.
The new 1000 series from VA crams two Intel processors into a server 1.75 inches thick. The actual machine is manufactured by Network Engines. Of the major server companies only IBM has a similar product--its "Intimidator" computer, also licensed from Network Engines.
These slim servers are in demand from Internet service providers (ISPs) and so-called application service providers (ASPs), companies that house Web sites and complex software for their customers. The types of jobs that run at these outfits typically require many moderately powerful computers and a few very powerful machines.
The operative word for these customers is "density." Because Linux is relatively reliable and can be obtained more cheaply than competing operating systems, analysts and manufacturers view Linux as a good fit for the market segment.
VA, while generally regarded as the leading company focused on Linux computers, faces a long-term challenge as the major computer manufacturers begin placing more emphasis on their Linux models. VA argues that it will prosper because it offers expertise that the traditional computer makers can't match. VA is a notch ahead of most competitors in offering a system that can fit two processors in a server 1.75 inches thick, a measurement known as "1U" among those who bolt servers to racks by the dozens.
Compaq is preparing a 1.75-inch, two-processor server called "Photon" due in May or June. For high density, Hewlett-Packard offers its 3.5-inch, two processor Netserver LPr, and Dell sells a similarly sized PowerEdge 2450 model.
Among Linux-specific companies, Penguin Computing offers 1.75-inch servers with one processor, and Atipa offers a 3.5-inch, two-processor server. Network Engines, though not purely a Linux company, sells its two-processor, 1.75-inch server as well as providing the design to IBM.
Not everyone likes servers this thin. It limits many high-availability features, such as the ability to swap out bad power supplies without taking the machine offline, and it makes it impossible to fit in more than a few expansion cards. Dell in particular argues that the customers building data centers with hundreds or thousands of these slim servers are going to be the very customers who need high-availability features.
It can be difficult to swap out malfunctioning power supplies or cooling fans on slim servers because of the limited real estate on the front panel, already cluttered with blinking lights and other displays, a CD-ROM and floppy drives and air intake vents. The front panel is useful for parts swapping because the back panel often is hidden behind power and network cables.
Low-end configurations of the VA 1000 server cost less than $3,000. It supports Pentium III chips, up to 1 GB of error-correcting memory and two hard disks. Ethernet is built onto the motherboard.
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