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Date: Friday, September 15, 2000, 4:09 PM -0400
From: Faulkner Information Services <mailserver@faulknerinfo.com>
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Subject: Faulkner's Cyberscape Digest 09/15/00


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CyberScape Digest

CyberScape Digest is a weekly roundup of top internet stories. This issue
covers events from Monday 09/11/00 through Friday 09/15/00.


  

Mergers and Acquisitions
This week's major acquisition deals involved Internet infrastructure and
portal firms, as well as Web-based booksellers. Inktomi, a software
provider whose search technology powers major portals such as America
Online and Yahoo!, struck a deal to acquire FastForward Networks in a stock
transaction valued at $1.3 billion. Inktomi plans to leverage FastForward's
Web broadcasting platform to add live Internet broadcasting capabilities to
its media infrastructure offerings for service providers and content
delivery networks, thereby positioning itself to target the burgeoning Net
broadcast market. Elsewhere, Sohu.com, one of the biggest portal groups in
the mainland Chinese market, expects to increase its customer base to more
than 7.8 million registered members as a result of its planned acquisition
of youth community portal ChinaRen.com. Goldman Sachs, Joho Capital, and
KKR are among the financial and consulting backers of ChinaRen.com.
Finally, as the flip side of the dot-com shakeout is trend toward survival
via merger with rival firms, book e-tailer Barnesandnoble.com agreed to
purchase professional and technical online bookseller Fatbrain.com in a
transaction valued at $64 million. Barnesandnoble.com will exchange $4.25
per share for all outstanding Fatbrain.com shares. As a result of the deal,
Fatbrain would become a wholly owned subsidiary of Barnesandnoble.com,
which would increase its stake in former Fatbrain subsidiary, digital
content provider MightyWords.com, to 50 percent.

   

  

Amazon Grapples with Pricing, Privacy Policy Issues
Recent moves by books and music e-tailer Amazon.com have left customers
bemused and Net privacy advocates up in arms. In a price test that the
company conducted last week, some customers purchasing DVDs from Amazon
were assigned random prices that ranged as high as $15 more than prices
charged to other customers. Initially, Amazon expected customers to fork
over whatever amount was assigned to their particular purchase. In response
to customer outcry over the situation, however, the Amazon changed its
policy, agreeing to reimburse the difference between the price paid and the
lowest retail price to those adversely affected. Amazon also ruffled
feathers with another policy shift, this one concerning privacy of customer
data. Privacy advocacy groups Electronic Privacy Information Center (EPIC)
and Junkbusters Wednesday reported termination of their respective
memberships in Amazon's affiliate program. Participants in the program
display a link to Amazon at their Web sites and are paid a fee by Amazon
for each purchase made via the link. Earlier this month, Amazon notified
its customers that it views customer information as a corporate asset,
which could be sold if the company were to cease operations. Amazon also
ended its policy of allowing customers to prevent Amazon from sharing their
personal data with its partners. EPIC and Junkbusters, along with other
privacy advocates, have protested Amazon's new privacy standards, claiming
them to be contrary to those originally posted at the company's Web site.
Both bodies cite opposition to Amazon's new policies as the basis for
cutting ties to its affiliate program. Amazon maintained that privacy
advocates had misrepresented its current and previous privacy policies and
that its new policy merely served to tighten the terms of its earlier
policy for future consideration. 

  

  

Napster Litigation Drags On 
Responding to last minute briefs filed by a score of music, film, sports,
publishing, and software organizations, as well as the White House, in
support of the Recording Industry of America's request that the US Court of
Appeals for the Ninth Circuit in San Francisco uphold a shutdown ruling
against its music file swapping service, Napster Wednesday filed a brief
arguing that its services are protected under the Audio Home Recording Act.
The 1992 act created a royalty pool, financed via a two percent surcharge
assessed upon sales of selected types of recording equipment, to compensate
music publishers and artists for bootleg losses. Final oral arguments in
the case are slated to begin on October 2. 

  

  


Internet Companies Doing the Deals to Capture Customers
Compaq and Nokia agreed that wireless is the way to go; the two companies
said they will work together to jointly provide wireless Internet products
combining Nokia's WAP server software with Compaq'a ProLiant servers
running Windows NT. The offering will target businesses. eBay and Andale
agreed that auctioneers like to know how many times their online auction
has been viewed, so the latter let the former add Andale's auction counting
software to its site. The counter will be an option available to eBay
sellers by clicking on a check box on the form used to post their auctions.
IBM and BroadVision agreed that e-commerce is A Good Thing, so BroadVision
will now provide electronic business products for IBM's
servers--specifically, BroadVision One-to-One Enterprise eCRM platform and
One-To-One e-business suite will be integrated onto IBM's RS/6000 servers
with copper technology. Intel, Excalibur, and the National Basketball
Association agreed that basketball and the Internet should mix, so the
three formed a joint venture, Convera. The new company will offer
interactive NBA content to basketball fans. Ideally, a fan watching a live
game will be able to pick his own camera angles to view it from, and check
out an NBA player's record from an online archive. Prodigy and Neon
Technology agreed that TV and DSL make a good combination. When Neon's
SurfReady TV set-top box begins shipping later this year, Prodigy
subscribers who sign up for three years of Prodigy will be able move up to
the SurfReady DSL unit for just a little bit more money. The deal also
makes Prodigy the exclusive retail ISP on Neon's SurfReady devices.
Finally, Warner Music and RealNetworks agreed that, under certain
circumstances, distributing music over the Internet is A Good Thing (or at
least A Money-Making Opportunity). Starting in November, the two companies
will offer current singles as well as songs available only via the Internet
through Amazon and other Web retailing sites. Artists will include Paul
Simon, Barenaked Ladies, and others. The deal puts Warner Music in line
with the other four record labels making plans to digitally distribute
their music--however, the company will start with a much larger offering
than the other music distributors, about 1000 tracks. 

  

  

AOL Contends with Merger Woes, Open Access Demands, Aimster
Its been a long week for America Online. Entanglements such as AOL's joint
promotion, distribution, and sales agreement with Germany's Bertelsmann and
Time Warner's music unit merger deal with EMI have become a bit of a sticky
wicket among members of the European Union. AOL and Time Warner have
reportedly offered unspecified compromises in hopes of allaying
anti-competitive fears of European Commission (EC) regulators, who are
poised to decide upon whether to allow their proposed $125 billion merger
to proceed by the end of October. EMI, however, was late in offering to
make similar concessions, and reports now indicate that the EC will likely
block the planned merger between EMI Music Publishing and Time Warner
Music. EMI senior management has been embroiled in a mad scramble of last
minute EC wooing, and late reports forecast that both merger deals may
indeed squeak by amidst the chaos. Meanwhile, back at the ranch, US firms
such as Disney are demanding that competitors be granted access to AOLTV
before the merger receives regulatory approval. The spectre of the merged
company's favoring its own content over that of competitors is giving
Disney nightmares. AOL faces friction on another front from Aimster,
provider of a software add-on designed to enable users of AOL's Instant
Messenger program to (legally) swap music, text, and video files with
people on their AIM buddy lists. Aimster's switching technology is designed
to intercept and reroute messages while bypassing AOL's servers. Reportedly
approached by AOL to do a deal, Aimster has been coy about signing on the
dotted line, surmising that the software may have even greater value for
its potential to generate cash via possible file referral incentives. AOL,
however, was able to strike a deal with SmartBargains.com, the Web arm of
liquidator Gordon Brothers Retail Partners LLC , whereby SmartBargains will
manage a bargain basement for discount shopping on AOL's Shop+AOL service.  

  

  

Watch This Space: Hewlett-Packard, PricewaterhouseCoopers in Talks
Even if a deal is still at the talking stage, numbers in the double-digit
billions make one stand up and take notice. So it came as no surprise when
many heads turned at word of talks between Hewlett-Packard and
PricewaterhouseCoopers; the computer maker hopes to buy PwC's global
management and information technology consulting arm for $17 billion to $18
billion in cash and stock. The purchase "would complement HP's offerings by
further strengthening the linkage between business process transformation
and technology implementation," according to HP's press release.
Translation: it would improve HP's capacity to offer professional services
to its customers. While there are no guarantees that the purchase will
actually go forward, of course, HP did address one problem.
PriceWaterhouseCoopers serves as HP's independent accounting company; if
the deal goes forward, the PC maker expects to terminate that relationship
because of auditor independence requirements. 

  

  

Microsoft Has Busy Week
Software giant Microsoft experienced a bit of a roller coaster ride this
week. To much fanfare, the company released its consumer-targeted operating
system, Windows Millennium (Windows Me). Among other things, the OS
features enhanced TV software--which is the culprit behind the first report
of a bug in the system. According to bug hunter Andrew Griffiths, the
software contains a weakness that allows a malicious hacker to crash or
reboot a Windows Me PC running the TV software package by sending
information formatted with Uniform Datagram Protocol (UDP), a networking
standard. The attacker must know the computer's IP address to launch the
attack, and the PC must be actually running the TV software package at the
time of the attack. Bugs aside, Windows Me also features a music player,
tools for editing home movies, support for home networking, and system
restore. It will be the last operating system from Microsoft based on DOS
technology. That DOS technology isn't the only thing retiring from
Microsoft. Paul Maritz, a 14-year veteran of the company and vice president
of Microsoft's platform strategy and development group, became the latest
in a string of high-level executives to leave the software giant. Maritz
had been assigned to help Microsoft's .NET initiative to move forward. The
initiative continued to move forward anyway, thanks in part to a deal with
India-based Infosys Technologies. Microsoft said that it will work with
Infosys to develop, promote, and deliver Infosys e-business products and
services built on Microsoft's .NET Enterprise Server platform. Applications
will include CRM, e-commerce and financial services software, and insurance
and retail programs. Speaking of India, Microsoft also went live with the
Indian version of its Internet portal, and invested another $50 million in
its Indian software center in Hyderabad. Finally, a case of no news being
good news: the Supreme Court took no action on Microsoft's appeal, and did
not include the Justice Department's antitrust case against the company on
its list of cases it would consider this term. Microsoft had hoped to have
its case heard by the Court of Appeals in Washington, which has been
sympathetic to its point of view in past cases. The Supreme Court could
still decide to hear the case, which Judge Thomas Penfield Jackson sent to
the highest court in the land at the request of the DoJ in accordance with
a law permitting major antitrust cases to follow a fast track for appeals. 

  

  

Breaking News of Joint Ventures, B2Bs, and Online Marketplaces
Those who start business-to-business marketplaces talk about the
convenience, the efficiency, improving the supply chain, and other
factors--and when it comes right down to it, it all reduces to money. This
stark fact serves as an appropriate introduction to TheMarkets.com, a joint
venture of seven major investment banks. This start-up, so new that it's
still hunting for a CEO, will provide access to financial research, data,
and news to institutional clients of Goldman Sachs, Morgan Stanley Dean
Witter, Merrill Lynch, Citigroup, Salomon Smith Barney, and three other
financial institutions. The firms tapped Multex.com for the site's
technology. The big three US auto makers got the go-ahead from the Federal
Trade Commission for Covisint, their own piece of the information
superhighway which will serve as an online B2B exchange for auto parts. The
ruling concludes an investigation begun in March to determine whether the
exchange violates antitrust laws. Covisint links more than a dozen
participants, and could carry transactions amounting to more than $240
billion annually. Derk Sauer, CEO of Independent Media, is bringing B2B to
Russia by launching Business.ru. The online B2B company will allow
businesses that subscribe to the site to carry out e-commerce transactions.
Sadly, Sauer's project faces at least two hurdles: the relatively low
number of Russian companies using high technology, and the culture of
secrecy surrounding Russian business. Unlike the Russian B2B, Sabre's
online B2B marketplace should have no trouble getting off the ground.
Following up on the partnership it reported with Ariba in March, it opened
Sabre Marketplace to supply travel agencies with products and services.
Companies selling on the Web site include StaplesLink.com, Office Depot,
Barnesandnoble.com, and Flowers Online. Finally, Swift, the Society for
Worldwide Interbank Financial Telecommunication, prepared to go live with
an online B2B payment service. Teaming with Identrus, the service will
grant firms a legally binding "signature" to let them make deals over the
Internet. This will allow companies to make secure, near-instantaneous
international payments. Swift is owned by 3000 banks; while the banks are
not obliged to use the new system, a spokesperson for Swift expected strong
interest because of the system's speed and security.  

  

  

House Subcommittee Approves E-Privacy Bill
In legislative activity that targets e-mail but has broader implications
for telephone records, the House Judiciary Committee's Constitution
Subcommittee unanimously passed the Electronic Communications Privacy Act
of 2000 Thursday. The bill, introduced by Subcommittee Chairman Charles
Canady, R-Fla., is an upshot of the controversy surrounding the FBI's
Carnivore e-mail tracking system; it would regulate electronic monitoring
by US law enforcement officials by requiring them to show evidence that a
crime "has been, is being, or will be committed, "and that data likely to
be obtained via retrieval of e-mail and phone records is "relevant to an
ongoing investigation" prior to accessing records under the Pen Register
Act. The legislation would also require law enforcement agencies to
regularly report to the government on the nature and amount of court orders
they request under the Pen Register Act. In addition, the bill would outlaw
the use of illegally retrieved electronic messages as evidence by
prosecutors trying criminal cases. An amendment tacked onto the bill by
Rep. Bob Barr, R-Ga., would elevate the evidentiary standard law
enforcement officials must satisfy to monitor a criminal suspect's location
via cell phone communications tracing. The legislation will now go before
the full House Judiciary Committee for consideration. 

  

  

Dramatic and Not-so-Dramatic Developments in DSL
Broadband had been catching on in a big way, to judge from all the activity
among Internet companies. Covad Communications went international this
week, spending $50 million for a majority stake in Loop Telecom, a Spanish
broadband provider for small and medium businesses. Loop possesses its own
backbone in Spain. Looking eastward, Internet Initiative Japan went live
with a digital subscriber line service--in the US. IIJ America joined up
with Rhythms NetConnections to offer the broadband service to businesses.
Juno also began expanding its DSL service, entering 39 more markets
throughout the US. The company's high-speed Internet access service, dubbed
Juno Express, will be available in Sacramento, Las Vegas, San Antonio,
Memphis, Milwaukee, and other areas. The expansion will make Juno Express
available in more than 60 US markets. The Federal Communications Commission
gave the nod to SBC's expansion plans. The $6 billion Project Pronto will
grant access to high-speed DSL service to 80 percent of SBC's customers by
December 2002. SBC agreed to open its lines to competing DSL providers in
order to gain the FCC's approval. Finally, coming full circle (so to
speak), SBC and Covad signed a $600 million deal in which Covad will
provide SBC with DSL for six years. SBC agreed to invest $150 million to
purchase a stake in Covad as part of the deal. The transaction awaits
antitrust and regulatory approval. 

  

  

Spotlight on Net Security 
Net surfers skeptical of security and privacy provisions at Web sites will
derive little comfort from developments reported this week. In a computer
security evaluation of the 24 federal departments and agencies covered by
the Chief Financial Officers Act, the General Accounting Office assigned
grades of "F" to seven of the government bodies, including the Interior,
Justice, Health and Human Services, Labor, and Agriculture departments. The
security report cards were based upon 50 GAO and agency reports, including
inspector general reports issued from July 1999 through August 2000. The
area where weaknesses were most often identified was access controls, but
numerous problems were also identified in the area of entity wide security
program planning and management. Meanwhile, in Michigan, Attorney General
Jennifer Granholm sent notices Wednesday to E*Trade, itsmybody.com,
esurance.com, eve.com, flooz.com, headhunter.com, sephora.com, and
webmedia.com, requesting them to clearly explain to customers that,
following visits to their company home pages, subsequent URLs the customers
visit are made available to third-party firms through cookies. Granholm
based her action upon concern that data derived via cookies could be used
by third-party companies to deny insurance coverage or take other adverse
actions against consumers. The sites contacted were selected as
representative of sites commonly visited by the public. One of the
aforementioned sites, Internet beauty products e-tailer eve.com, was forced
to temporarily shut down its Web site Wednesday following discovery of a
security glitch, in which change of a number in the URL enabled access to
customer order data for thousands of transactions that occurred over the
past year.
  

   

Internet Companies Offer New Products and Services
Ask Jeeves learned to speak Japanese this week, thanks to a joint venture
with Japanese investment company Transcosmos. Ask Jeeves Japan will be
equally owned by both companies, and will target Japan's more than 28
million Internet users. Its service will also be available for sale to
Japanese businesses. FleetBoston Financial gave its Visa card a
"brain"--rather, a microprocessor. The addition lets users buy online by
swiping their card through a plug-in reader on their PC and entering a PIN
number. The chip can also carry merchant-loyalty programs and coupons.
Dubbed Fusion, FleetBoston Financial will also offer the card through other
banks such as First USA and Providian Financial. Speaking of devices usable
on the Internet, Nokia introduced Media Terminal, an Internet device. The
Linux-based device lets the user access the Internet through any home
display device, such as a TV set, and will be available by the end of June
next year. The Media Terminal will include a host of features, such as TV
program recording on an integrated hard disk, the storage and playing of
MP3 files, and the ability to connect printers, digital cameras, and other
devices. (Your humble reporter is still not quite clear about why someone
would want to connect a digital camera or a printer to a TV set, but
perhaps it's no stranger than connecting one's refrigerator to the
Internet).  Netscape offered a service aimed squarely at helping businesses
get online. Appropriately named Netbusiness, it will assist small
businesses with everything from creating an online presence to transacting
business with suppliers and customers. The free service will be available
from several AOL brands and include some of AOL's services; it will also be
part of AOL's next browser, Netscape 6.0, due out later this year. Features
include integration of the business' information into AOL's Yellow Pages;
an instant message feature specifically built for businesses; My Life,
which provides information on lifestyle issues; and My Industry, where
small business owners can turn for customized market news and research
reports. Finally, the Walt Disney Internet Group rebuilt its Go.com search
service. Rather than offering general searches like most of its rivals,
Go.com will cater to Web surfers searching for information on leisure and
lifestyle topics. 

  

  

Exit, Stage Left...Strangely, if Possible
The dot-com death throes continued this week. Music Web site Atomic Pop
joined the rush to the exit, laying off most of its 25-person staff. In a
statement, the company said that it was restructuring, and planned "to
continue operations with a significantly reduced overhead." The site first
attracted news by offering artist 50 percent of gross profits and letting
them retain the rights to their music, unheard of deals in the music
industry. Reporters have sometimes been warned not to identify too much
with what they cover; one notable Web site faces that misfortune. After
covering dot-coms going out of business with a self-confessed "kick'em
while they're down" attitude, Dotcomfailures has itself become a dot-com
failure. Its home page bluntly states that, after three months and burning
through the awesome sum of $140,.Dotcomfailures is closed. Strangely, the
company didn't put its own on its "The Dead List." Rival misfortune
relisher F*****Company.com (sorry, Marty) experienced an even stranger
week. The company's head writer, publisher, and CEO put it up for auction
on a lark on eBay, but took it down after only a few days. Once the bidding
reached $3 million, he decided to continue the negotiations more privately.


  

  

Outage Ticker: Fiber Cuts and Annoying Hacks
Global Crossing reportedly experienced a fiber cut in California on
September 8 which affected not only its own network, but several other
networks as well, due at least in part to congestion (no doubt from
redirection). Affected ISPs included UUNET, EarthLink, and Abovenet; Exodus
was also affected in that its connection with AT&T went down. The fiber cut
apparently occurred between San Jose and San Francisco. In the category of
deliberately-caused outages, a hacker broke into the OPEC Web site and left
a message for the oil cartel telling it to lower its prices. OPEC's Web
site was taken down after the vandalism, but was working fine as of
Thursday morning. Western Union, meanwhile, put its Web site back up after
taking it down for five days following a security breach. A bad combination
of human error and a well-timed online break-in allowed a hacker to grab
debit and credit card information belonging to more than 15,000 customers
from the site. Western Union had shut down their site as soon as they
learned of the breach, and contacted its customers warning them of the
problem; it also worked with Visa and MasterCard to prevent credit card
fraud. The company says that it is now secure. 

  

  

Cyberscape Delight: Maybe We Can Find This One on Napster...
Hollywood has been having a rough time of late in keeping the lid on a
binary computer code that the Motion Picture Association of America, in
recent litigation, has sought to ban as a piracy tool for hacking its DVD
encryption scheme. Last month, a new York federal judge supported the
MPAA's view, barring online hacker magazine 2600.com from publishing or
linking online to the code, dubbed DeCSS. The code's most recent appearance
was in the form of a song, DeCSS.MP3 sung by Joseph Wecker, which music
site MP3.com banned from its service Thursday, citing as legal precedent
the 2600.com ruling. The code's authors claim that DeCSS is protected by
free speech provisions of the First Amendment and is designed to enable
computers running the Linux operating system to play legally purchased film
DVDs. The code song was an attempt by Wecker to focus attention on the
issue. No word yet on whether Metallica plans a cover version. 

  


*** Terri Wells and Adrienne Edwards, Faulkner Information Services *** 

  

  


CyberScape Digest, Copyright 2000, Faulkner Information Services. All
rights reserved. 

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