The week in review: Microsoft--why RadioShack?

Microsoft grabs the headlines for the second week in a row, this time by announcing a broad e-commerce alliance with RadioShack.

7 min read
Microsoft grabbed the headlines for the second week in a row, this time by announcing a broad e-commerce alliance with RadioShack.

The duo struck a five-year agreement to promote high-speed Internet connections and other services by setting up "stores within stores" in RadioShack's 7,000 retail outlets. The tried-and-true tactic--the Tandy unit has similar agreements with Sprint and Compaq--aims to energize Microsoft's meandering Web strategy while boosting the consumer electronics chain's revenues.

Microsoft also made a $100 million investment in the newly launched RadioShack.com, which will be promoted on Microsoft's MSN Web portal.

The deal may be the clearest indication yet of the software giant's strategy to sell Web services to a mass market. It's also a sign that the company, which has so far built its success primarily through business customers, may need help selling its products to mainstream consumers.

Seen in the light of its antitrust trial--particularly in the aftermath of last Friday's sharply critical judicial finding that Microsoft holds a monopoly in computer operating systems--the move could further indicate the Redmond, Washington, company is beginning to prepare for a breakup. High-tech analysts point to a string of recent Microsoft acquisitions that, on the surface, seem to indicate aggressive expansion into new markets. But when viewed a different way, the deals appear to create the structure for two or possibly three different companies.

Right on cue, the Justice Department is considering a breakup of Microsoft as part of a range of possible remedies in the antitrust case against the world's largest software company, Assistant Attorney General Joel Klein said on Sunday. Two days earlier, Judge Thomas Penfield Jackson issued devastating findings of fact, a decisive statement that could signal the outcome of the landmark antitrust case. Chairman Bill Gates broached the idea of settlement but said any solution must respect the company's "ability to innovate."

An influential e-commerce policy-maker suggested phasing out Net taxes completely, a significant new proposal. Virginia Gov. James Gilmore, chairman of Congress's blue-ribbon Advisory Commission on Electronic Commerce, made his proposal less than a month after ACEC released guidelines outlining 18 criteria for taxation treatments of e-commerce and remote sales. It could undermine what some have taken to be a growing consensus on allowing some e-commerce levies. The next day, a coalition of anti-tax and consumer groups joined Housing Budget Committee Chairman John Kasich in recommending that the federal government make permanent its current three-year ban on new "discriminatory" e-commerce or Internet access taxes.

Toward retail?
Apple Computer appears to be inching closer to emulating Gateway by opening its own retail stores. The company confirmed the recent hiring of Allen Moyer, a former Sony executive involved in retail development projects, including the futuristic Metreon retail-entertainment complex in San Francisco. Industry observers say moves such as this one are a strong sign that the company is interested in creating retail outlets. Gateway's country stores could be a model.

Compaq, Gateway, Hewlett-Packard, and IBM each announced desktop systems that reduce size and modify traditional PC shapes, both to reduce manufacturing costs and give their products some sort of distinguishing character other than low price. Compaq's redesigned systems are intended to boost sagging business sales; Gateway's new units drop AMD as the processor. HP's system is completely sealed--not upgradeable--while IBM is experimenting with built-in, "flat panel" screens. Internal technology has become virtually identical across brands.

AMD will regain the speed crown from rival chipmaker Intel with 750-MHz Athlon chips later this year, and follow with a raft of speedier chips in 2000. The oft-troubled company also said revenues will be above $800 million, stronger than expected for the fourth quarter, on the strength of improved microprocessor and flash memory sales. Break-even for the company is $850 million, executives say.

Intel's newest Pentium III processors haven't been easy to find since their unveiling two weeks ago. Nearly all major PC manufacturers and a number of retailers claim there is a dearth, especially the top-speed 700-MHz and 733-MHz versions. Normally Intel ensures the supply pipeline has been well stocked when it releases a new product. The shortage does not appear severe enough to dent the fourth-quarter financial performance of PC makers, but the four-day Thanksgiving weekend, the official beginning of the holiday buying season, is two weeks away.

Seven months after buying Fore Systems, Britain's Marconi laid out its strategy to tackle the North American communications equipment market. France's Alcatel, Sweden's Ericsson, and Germany's Siemens too have shown great interest in the red-hot U.S. networking market and have the knowledge and the cash to enter the fray. But analysts wonder if they can build "converged" equipment that combines voice and data transmissions on a single Internet-based network--much development work takes place Stateside.

Nortel Networks cut hardware prices by 50 percent and will license its network software to third parties such as Intel and Microsoft. The network equipment maker appears to have little to lose, given rival Cisco Systems' dominant stake in Internet routing devices.

For its part, Cisco reported quarterly earnings that squelched rumors of slowing growth and surpassed chipmaking giant Intel as Silicon Valley's most valuable company, based on market capitalization.

Sun and Sony expanded their partnership for developing software that will connect home networks to the Internet. The consumer electronics giant is hedging its bets: It also has an agreement to provide Cablevision with $1 million worth of set-top boxes and is counting on its PlayStation 2 game console to make a mark as well. Home networks are expected to be a huge business, though so far the concept is cluttered with dozens of technologies and competitors and has yet to expand much beyond connecting PCs and printers.

Bugs and spam
A prominent computer "bug hunter" has found a vulnerability that allows a malicious programmer to launch an email attack which bypasses some of the precautions built into Microsoft's Outlook software. The vulnerability smoothes the way for a new type of email-borne virus, also called a Trojan horse, and other malicious software. Microsoft Outlook is one of the most popular email programs in use.

Microsoft's free Hotmail service began filtering all email coming from servers known to be used by senders of unsolicited commercial email--"spammers." Hotmail aims to reduce the amount of junk email its users receive, but the filter, which does not distinguish between spam and other messages, will block legitimate email that happens to be routed through the blacklisted servers.

RealNetworks was hit with a second class-action lawsuit that accuses the company of violating the privacy of millions of Net music listeners. Last month Real admitted to assigning globally unique identification numbers to its popular music listening software, potentially useable for tracking its users without their knowledge.

Privacy program Truste, which certifies RealNetworks' compliance with the data-collection policy on its Web site, said it is not revoking RealNetworks' seal. Privacy advocates and consumers had complained that RealNetworks hadn't previously disclosed the existence of the ID to the public. Meanwhile, the Federal Trade Commission examined "online profiling," a growing trend in which firms piece together Net users' personal information and surfing habits to target them with advertising and new services.

On the bright side, Real relaunched its Web site as a hub for audio and video content and released a new version of its software.

Up and away
Expedia, an online travel site that's the first company Microsoft has spun off from its operations, saw its shares jump 280 percent to 53.44 on its first day of trading, giving the company a market value of about $2 billion. But the lucrative segment is crowded: Also this week United Airlines, Northwest Airlines, Continental Airlines, and Delta Airlines said they plan to launch a joint travel site in the first half of next year. Last month, Travelocity and Preview Travel--Expedia's top two rivals--disclosed they are merging to form the market's No. 1 site in terms of customers and sales.

Shares of Liberate Technologies, a provider of software for interactive television services, shot up more than 50 percent Wednesday on news that its software is being deployed in the United Kingdom in two-way interactive television services such as email and online shopping for consumers. Besides validating the potential for TV set-tops, the climb can be viewed as a partial vindication for Oracle and its chief executive Larry Ellison. Formerly known as Network Computing Incorporated, the company initially existed to promote Ellison's vision of network computers supplanting PCs in the corporate environment.

SAP America filed a lawsuit against Siebel Systems, alleging the latter unfairly hired 27 key SAP employees in an attempt to "injure SAP's business." The suit is the latest in a long line of similar litigation over the past several years, sparked by top executives or technical talent leaving for rivals.

Also of note
Taking a cue from the airlines, Internet companies such as Amazon and AltaVista are offering their customers "affinity" credit cards to entice them to spend online ? Web sites run by campaign volunteers don't have to be reported by candidates as contributions, the Federal Election Commission said ? Microsoft announced that application service providers such as Digex and Micron Electronics will be permitted to rent or lease Microsoft's business software to customers ?. The number of adults using the Internet in the United States surpassed the 100 million mark.