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The week's news: Still in e-commerce stocks?

E-commerce is red-hot but still undergoing growing pains. E-caveat emptor.

Jeff Pelline Staff Writer, CNET News.com
Jeff Pelline is editor of CNET News.com. Jeff promises to buy a Toyota Prius once hybrid cars are allowed in the carpool lane with solo drivers.
Jeff Pelline
7 min read
E-commerce may be red-hot, but a host of leading companies stumbled this week, reminding consumers and stockholders the new economy is still undergoing growing pains.

Most dramatically, eBay disclosed late Friday that it is under federal investigation for possibly illegal transactions on its Web site. The auctioneer said the inquiry includes "an examination of the company's practices with respect to such transactions," and said it is complying fully with the investigation.

E-caveat emptor
An eBay spokesman said he could not give any more details on the type of transactions involved, which agency had contacted the company, or why the statement had been delayed almost a month. The company did say the inquiry is unrelated to Microsoft's stepping up its scrutiny of pirated software trading on the service.

eBay also also made the news for temporarily blocking an ad from EarthLink that it didn't think complied with the rules of personal online trading. By week's end, Earthlink agreed to play by the rules and its offer was restored.

Elsewhere, Compaq temporarily suspended

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sales agreements with as many as ten companies, including Buy.com, Cyberian Outpost, and even its own Shopping.com. Analysts said Compaq is worried about losing control of the distribution channel. Microsoft too wrestled with the problem of managing resellers in relaunching its online store.

For some, the challenge is simply keeping the Web site up and running. Charles Schwab's site for online investors crashed for about an hour an one half on Wednesday, a glitch the brokerage firm blamed on a "mainframe problem." Schwab is not the first e-trader to suffer during a boom in online trading.

Undaunted, the highly anticipated Drugstore.com launched this week, and e-commerce giant Amazon.com--also backed by venture capitalist Kleiner Perkins--said it would buy a major stake. Both companies face stiff competition, both from e-tailers and brick-and-morter providers. Home Depot also said it expected to get into the online business later this year.

Though e-commerce stocks are down between a third to one-half of the 52-week highs reached late last year, some analysts discern buying opportunities. One reason: the e-tailers are seen as acquisition targets.

Marketing headaches
Intel launched its long-awaited Pentium III chip, but continued to encounter marketing headaches caused by an ID feature meant to facilitate, of all things, e-commerce. Privacy advocates worry it could used for nefarious purposes. IBM, Dell, and Gateway said they will ship computers with a secure method of turning the feature off.

At a developer's conference, Intel claimed a speed record for desktop processors in demonstrating a chip that reached 1002 Mhz. But much of the conference was devoted to plans for notebooks, including the company's "Geyserville" technology, which allows portables to operate at a lower power state when running on batteries.

Advanced Micro Devices countered by unveiling its 400-Mhz K6-III, and announced K6-2 and K6-III design wins with IBM, Compaq, and Gateway, the latter for the first time. The K6-III costs significantly less than the Pentium III.

Palm Computing launched its newest handheld devices, the Palm IIIx and the Palm V, at a critical juncture for the company--even though Palm is the established leader in the handheld space. Systems based on Microsoft's Windows CE operating system, which feature color displays, are expected to make serious gains in the near future.

Be chief executive Jean-Louis Gassee said he would offer PC makers the company's operating system software for free, providing they configured the machine so that the BeOS is an initial interface choice a user sees when he or she fires up the computer.

Phone home
The Federal Communications Commission ruled that a call to an Internet service provider should be treated as long distance, but promised it won't impact the flat-rate charges users now pay for dial-up access. The ruling applies only to contracts between individual phone companies.

The FTC's case against Intel will boil down to motive, FTC director William Baer said in an interview. At a hearing set to start on March 9, the agency will try to prove that Intel unfairly withheld products and product plans from customers in good standing to force them to give up intellectual property claims against the chipmaker.

As its federal antitrust trial recessed, Microsoft appeared down after a week in which manager Dan Rosen's testimony about a key meeting with Netscape was badly undermined and his assertions that the Microsoft didn't view Netscape as a threat were contradicted by email. Additionally, the judge hearing the case challenged senior vice president Joachim Kempin's assertion that consumers aren't likely to use the browser that comes with their personal computers, preferring instead to seek out another one.

Nearly two years after would-be Internet registrar PGMedia accused Network Solutions of violating antitrust laws, the suit appears stalled over weighty legal issues and procedural hurdles raised by the government's recent attempts to privatize Internet administration. Bogging down the case is whether the government-appointed monopoly registrar for the most popular forms of Internet addresses can even be sued.

Extending reach
America Online unveiled the latest test version of ICQ, a popular software client that allows users to chat and send instant messages to each other. AOL has set out to establish the client as a key property in its multibranded portal strategy.

Viacom revealed a major online push involving two projects: one aimed at music fans and another at children. The online music "destination" site, which bears the working title the "Buggles Project" and is scheduled to launch in June, involves the acquisition of Imagine Radio. The children's site, with the working title "Project Nozzle," comes out of Viacom's Nickelodeon unit and is expected to launch in September. The company will provide the new sites with at least $250 million in marketing support, executives said.

Cisco Systems inked a number of deals and partnerships in the wireless and telecommunications arena, trying to promote data-based technology as a means to implement converged voice, video, and data services across a single network. The company announced an expanded partnership with Bosch Telecom, a new alliance with telecom software provider Illuminet, and new deals for equipment from WIC Connexus and France Telecom.

Bell Atlantic said it has opened up its high-speed Internet services to many in the Macintosh community, but some Apple Computer users say they still can't sign up. Until earlier this month, the company's Infospeed DSL service had supported most PC-compatible computers, but only the colorful iMacs from among Apple's lineup.

IBM Global Services has begun piloting new financial applications with database giant Oracle and German software giant SAP, testing outsourced SAP R/3 applications for the auto industry in Brazil and Oracle financials applications with companies in Denmark. The company currently works with two main partners--J.D. Edwards and Great Plains Software--to provide financial applications hosting to small to mid-sized customers with 1,000 seats or less. Tackling financial troubles, a tarnished reputation, and the possibility of yet another round of layoffs, the Dutch business software firm has cancelled its BaanWorld annual user meetings, which had been planned for this May in Nashville and later this year in Europe. Baan also was a no-show at this week's key Microsoft manufacturing industry press conference, according to attendees. Going live
The Internet2 and Abilene projects went live, promising to enhance and speed up Web surfing through the fruits of academic and corporate research conducted over the private network.

The Nuremberg Files, an anti-abortion site that gained notoriety during a federal lawsuit, was once again shut down by its service provider.

Lawmakers in Virginia adopted a bill that would make it a crime to spam. The legislation, which Gov. James Gilmore has promised to sign, makes illegal spamming a misdemeanor punishable by fines of up to $500. "Malicious" spamming, defined as causing more than $2,500 in losses for the victim, could be prosecuted as a felony.

Sony joined the swelling ranks of companies offering technologies designed to deliver music securely online, saying it is developing copyright-management software for secure download to portable devices and PC hard drives. The company will propose its technologies to the Secure Digital Music Initiative, an industry undertaking.

Also of note
EDS named James Daley, a veteran Price Waterhouse board member, as its new executive vice president and chief financial officer ... The New York Times Company will invest $15 million in cash and services for a minority stake in TheStreet.com ... So many AOL subscribers are trying to use the online giant's Web page publishing system that service has slowed to a crawl or, in some cases, a complete halt ... AMD's K6 family of desktop processors outsold all Intel-based desktop PCs in the U.S. retail market for the first time, according to PC Data's January Retail Hardware Report ... Free-PC says it hopes to ship 1 million free personal computers within a year, having already received 1.2 million applications ... Gateway bought a 20 percent stake in NECX, a closely held online seller of computers and other electronic products, and said it will begin offering a year's free online access with its PCs.