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Week in review: It's all free

High-tech companies continue to see promotional opportunity in "free" goods and services, although one of the trend's pioneers stumbled.

High-tech companies continued to see promotional opportunity in "free" goods and services, although one of the trend's pioneers stumbled.

Industry leaders AOL, IBM, and Microsoft announced programs that offer consumers deep hardware discounts in return for a commitment to subscribe to Internet access service for three years. But Enchilada, a start-up that began to advertise "free" and discounted PCs in April, stopped accepting orders.

Free, free, free
Leading ISP AOL began pitching a $400 rebate on IBM desktops (with monitor) and notebooks for users who sign up for CompuServe. The offer reduces the cost of a desktop to as little as $400.

Two weeks earlier, AOL struck an agreement to offer CompuServe subscribers a free eMachines system. The moves aim to increase CompuServe's estimated subscriber base of 2 million, which hasn't grown since AOL bought the business in early 1998.

Microsoft too began offering a free computer to customers who sign up for three years of its struggling MSN service.

But Enchilada ceased taking orders, suggesting the approach may have its drawbacks, particularly for smaller companies unaccustomed to large demand. Fellow start-ups DirectWeb and Microworkz have also experienced problems with backlogs.

NetZero, which provides free Internet access to consumers who agree to view advertising while they're online, will try to raise as much as $115 million through an initial stock sale.

AltaVista will soon offer a free dial-up ISP service, firing a new salvo in the Web portal wars, according to people familiar with the plans. Offered in conjunction with a start-up called 1stUp.com, the dial-up access will be supported by advertisements, using much the same model as low-cost or free computer packages. The new departure could establish free or subsidized Internet access the next must-have feature for portal competitors in the same way free email accounts became ubiquitous almost overnight.

AltaVista also announced a new e-commerce hosting service for small and midsized businesses, chiefly targeting local newspapers and media sites, and launched personalized and finance-oriented services to compete with its better-known portal rivals.

Tough times
WebTV prices have dropped as low as $50, far less than it costs to build. Microsoft is paying manufacturing partners to stay in the market, according to analysts and others, demonstrating that it lacks the same power in the set-top box market that it wields in the software business.

IDT will stop making clones of Intel products, so-called x86 architecture chips. The company intends to sell the intellectual property to its WinChip family of low-cost PC processors, unwilling to endure plunging processor prices.

Sequent lost its battle to remain independent and sold its high-end corporate server business to IBM for $810 million. The company won acclaim for its products, but after more than a decade trying, it couldn't penetrate the top tier of computer manufacturers.

Four months after the shipment of the Internet-centric 8i, Oracle customers who have received 8i as part of regular software upgrades don't seem to care about its new features, which include the ability to store and manage Web pages and built-in Java. Most say they're deploying the new database not because of any Net technology but for speed and increased performance.

The hacker group Cult of the Dead Cow released a hacker tool called Back Orifice 2000 last Saturday but this week admitted that the CDs it handed out at a conference were infected with a computer virus called CIH or Chernobyl.

Buyout
Disney purchased the remainder of Infoseek to gain total control over its joint Internet venture, Go.com, but Infoseek investors are fighting the deal. Should it go through, Disney intends to combine all its Internet assets and sell shares in the new company to the public. An executive said the new Net unit would initially lose money.

Amazon.com ended months of speculation about its next move by launching into toys and consumer electronics; hardly had the news settled when the Seattle, Washington, company announced it had taken a minority stake in discount sporting goods e-tailer Gear.com. The e-tail giant has steadily been moving away from its bookseller roots.

Backed by media giants Sony and Time Warner, music businesses CDNow and Columbia House agreed to merge to create a major entertainment, e-commerce, and direct marketing company. Under the deal, the new public company will be owned 37 percent each by Sony and Time Warner, joint owners of Columbia House. CDNow's existing stockholders will own the remaining 26 percent.

Online computer equipment retailer Egghead and erstwhile rival Onsale will merge in a deal valued at $400 million. Both companies have been struggling, especially Egghead, which only recently shut down its "brick and mortar" retail locations.

Ingram Micro, the world's biggest computer distributor, reached a preliminary agreement valued at about $10 billion to assemble and service machines that retailer CompUSA sells directly to business customers.

Microsoft and Britain's ICL agreed to extend their alliance to offer Web-based and Smart Card-based applications as well as to work together in developing e-commerce and financial services. The three-year agreement could be worth $1.6 billion to ICL, an executive said.

Earnings
Cheap PCs took their toll on Intel's second-quarter profits as the chipmaking giant reported earnings of $1.7 billion, or 51 cents a share, below the consensus estimate of 53 cents. Undaunted, the company planned to cut Pentium III prices this weekend.

The trend hit rival AMD more heavily: the company suffered dual setbacks when it announced a second-quarter net operating loss of $162 million, or $1.10 per share, and the resignation of its chief operating officer and heir apparent to CEO Jerry Sanders. While the financial loss was expected, the departure of president and COO Atiq Raza was not.

Separately, Intel finished designing Merced and said it will manufacture samples of its first 64-bit processor this quarter. The chip has been hit with delays. The Santa Clara, California, company also added to its Internet push, entering into an agreement with Cisco to develop, manufacture, and market a line of DSL modems for PCs, and created a new business unit called the Communications Products Group to focus on networking and Internet opportunities.

Apple reported its seventh straight profitable quarter on revenues of $1.56 billion, and announced a stock buyback plan, encompassing up to $500 million of its common stock. Third-quarter profits of 69 cents a share, excluding one-time gains, topped analysts' expectations by five cents. iMac sales drove overall unit growth 40 percent above the prior year's results, an amount almost double that of the forecast unit growth for the industry as a whole.

Winners and losers
Microsoft did not commit antitrust violations in its dealings with tiny Bristol Technologies, a federal jury decided. The victory is a strong psychological win for a company whose image has been tarnished by a series of lawsuits, but it is unlikely to give Microsoft much legal traction in its battle in other arenas, including its federal antitrust trial, observers said.

Cable companies lost another skirmish in the battle to limit access to their high-speed networks when a local government in Florida voted to make the high-speed lines available to Internet service providers. Commissioners in Florida's Broward County voted by a 4-3 margin to require local cable operators, led by MediaOne, to open their networks to outside ISPs such as America Online. The fight over access to cable companies' networks has quickly taken on the characteristics of a big-money political campaign--but on the cable companies' side, only AT&T is playing a visible role.

A newly appointed registrar that was approving obscene domain names with the ".com" ending reversed course and curbed the controversial practice. Network Solutions has long forbidden such registrations. Other newcomers, however, say they will allow expletives to be registered.

About 20 start-up registrars have hired a top Washington lobbying firm to approach Congress just a week before the first of two hearings called to explore controversial Internet governance issues. The registrars, aiming to counter the considerable lobbying efforts of their much more affluent opponent, Network Solutions, are spending upwards of $15,000 on the effort. Well-heeled America Online, the most prominent Net player among the new registrars, is not on board.

Also of note
Compaq cut prices across the board on its corporate line of desktop PCs, demonstrating discounts remain vital to sales ? Road Runner, the nation's No. 2 cable modem service, announced a 28 percent increase in its subscriber base and the hiring of a chief technical officer ? EarthLink will sell DSL service using MCI WorldCom's phone network, making it the first Internet provider to offer the service nationwide ? IBM announced consulting services aimed at helping businesses implement privacy policies, procedures, and technology ? A new fee Webcasters must pay record companies to play their recordings appears to be headed to arbitration, signaling that the controversial issue is likely to remain unresolved for at least another six months.

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