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Copyright 2000 John Zipperer. 

From Internet World:

AmEx tries plug a sieve with online credit effort 
By John Zipperer 

(9/13/00) Maybe your grandparents knew what they were doing when they stuffed their money into a mattress. As long as they didn't smoke at night or wet the bed, they had a certain security in knowing exactly where their money was. When American Express announced recently its service to offer consumers disposable credit card numbers for online purchases, the company had a receptive audience in millions of consumers who can sleep in peace largely because they don't pay a lot of attention to credit card fraud in the first place.

AmEx's Private Payments service, to debut this month, allows cardholders to use one-time, disposable card numbers when performing online transactions. This is in response to fears -- felt more than actually realized -- about online companies misusing credit card information or having that information stolen from the databanks of the online firms. The customer simply goes to the American Express site, downloads software that will be recognized by online merchants that accept the American Express card, and is given a temporary number that is good for one transaction only and then expires.

No more online credit worries, right?

"I would put American Express' move in the public relations category," said James Van Dyke, a senior analyst with Jupiter Communications. "I don't think it's a move that will be itself create any substantive increase in consumer confidence."

Van Dyke didn't downplay the importance of efforts to deal with online security and privacy, but he suggested that consumers have a fuzzy idea of online security anyway, and they react by being cautious in getting into online purchasing. He noted that the controlling factor in determining whether or not online users shop online isn't income level or age or any other, it's the amount of time they have been online. They go through a fairly predictable path, first getting online, experimenting with e-mail, surfing the Web, maybe instant messaging. Then they get into shopping, starting with well-known sites like Amazon.com, in which they have a certain amount of trust because of its reputation, and then they may move on to experimenting with purchasing from a site with which they're not familiar.

The credit card industry is an imperfect messenger for security promises. It already lives with billions in credit card fraud, and still it pushes out new card offerings to teenagers and millionaires and credit addicts with all of the discretion of a schoolyard drug seller.

So is the AmEx move the first serious attempt to address online credit card security or is it yet another attempt to patch up what's a bad foundation in the first place?

It would appear to be the latter, if one takes seriously the consumer's laissez faire attitude toward credit card security. After all, the issue of risk has been removed from consumers, who can only be held responsible for $50 of fraud on their cards. So all of the online and (mostly) offline credit card fraud that goes on has little effect on the people who want to sleepwalk through life and let others do all the worrying.

Then there are the worriers, who hope AmEx has more on the way. They may be emboldened by a somewhat-similar move by Mailshell.com, a Truste member site that offers what in essence are disposable e-mail accounts so you don't have to give your real e-mail account to every site simply because you want to join a chat or register to use the service.

I'm rooting for the worriers over the sleepwalking masses or even our grandparents and their lumpy beds. The worriers want the online shopping system to work and they want to use it, so they're our best hope of finding the faults in the system so they can be fixed. Then we can all sleep at night.

Alta Vista UK managing director exits stage left 
By John Zipperer 

(8/30/00) To swap a phrase from the British monarch, A.D. 2000 has been annus horribilis for AltaVista UK. In what would be funny if it were happening to someone else, the UK operation of the vener
able U.S. search engine has faced blistering criticism in the British press for a debacle over unmetered Internet access that culminated Wednesday with the resignation of Andy Mitchell, AltaVista UK's managing director.

Come to think of it, it is happening to someone else, and it is funny. In March, the company announced its intention to offer unmetered flat-fee Web access. This was a welcome development in a country where metered Net-access rates are higher than U.S. rates, and tens of thousands of people signed up, but nothing seemed to be happening. AltaVista UK said it was conducting what it called a controlled rollout, as if to explain the slowness of growth. But British media outlets ran contests to try to find a user of AltaVista's unmetered service, and they could find none.

On August 23, AltaVista UK admitted that, well, the unmetered service had never launched. Mitchell pointed the finger at British Telecom, claiming that his company was a victim of the telecom giant's reluctance to let competitors offer unmetered access over its lines. And then it got messier, with BT calling Mitchell's claims bunk, and the British telecommunications watchdog telling BBC Radio that he had been duped by AltaVista's promises.

The company's site now notifies users that the unmetered access service is "postponed. We still have plans to launch this service when it is possible to do so, and will continue to campaign for cheaper Internet access in the UK." It then directs customers to its two existing access services, one of which has the customer paying local phone rates and another that provides 20 hours off-peak Net calls each month.

So on Wednesday, Mitchell bade farewell to AltaVista UK. In his place, Stephanie Himoff was appointed acting managing director. Himoff, formerly the company's head of business development, promised to focus on her company's core business of Net searches.

AltaVista UK executives were unavailable for comment. In a written statement, AltaVista Europe president Pierre Paperon said, "The mistakes in our planned Internet access service -- which we do acknowledge -- probably made Andy's departure inevitable."

There's that droll British sense of humor.

Suits by Freelancers May Rewrite Online Reprint Rules 
By John Zipperer 

(8/16/00) Many content providers long ago got hip to a basic rule in the online world: When buying an article from a writer, include in the contract full Internet rights, because one never knows when the opportunity to repurpose print content for the Net will arise. But a new lawsuit suggests that these agreements are not enough for publishers that want to resell articles, and it may encourage many of them to grab the whole ball of wax at once and get total copyright over new articles they acquire.

On Monday, a group of freelance writers -- represented by Brobeck, Phleger & Harrison and Hosie Frost Large & MacArthur -- filed a class-action lawsuit seeking back payment for works that they say have been resold online without their consent. The suit charges the defendants with "systematic and intentional violation of the Copyright Act," for displaying, copying, selling, and distributing the copyrighted works without authorization from the copyright holders. Also, the plaintiffs are seeking an injunction barring the defendants from continuing unauthorized use of the writers' works.

The suit seeks class action status on behalf of freelance writers whose
works have been disseminated by online companies using large databases. Named in the suit as defendants are Bell & Howell Information & Learning Co., Gale Group, Northern Light Technology Corp., Thomson Business Information, and Thomson Corp.

For example, when someone uses the Northern Light search engine, the search results will include various "special collection" articles, which the user must pay to read. Though many of these same articles are available elsewhere on the Web at no cost -- often from the same publishers who sold them to the databases -- users pay $1 to $4 an article if they find it through Northern Light. Call it the cost of convenience, but the writers are calling it theft.

"It's kind of like Napster, except the sites are profiting from this, whereas Napster makes nothing," said Tom Orewyler, communications manager for Brobeck, Phleger & Harrison. Online music site Napster has been in a life-and-death struggle with the music-recording industry over the use of its site by millions of consumers to search for and trade copyrighted music files without compensating the artists or the recording industry.

This is not the only case that has been fought over online reuse of content, and in the past, the online publishers have had to settle with the writers. One recent case, which may yet end up at the Supreme Court, is Tasini et. al. v. The New York Times et. al., in which freelancers sued the Times, Newsday, and other media giants. Though the freelancers' publication agreements didn't cover the Net, they claimed that their rights were infringed on by the republication of their articles in Internet media, said David Carlin, a lawyer with Loeb and Loeb, which represents Internet-media clients. Though the first federal court to hear the case ruled in favor of the publishers, this decision was reversed on appeal.

But the big media corporations don't pay all those lobbyists to do nothing. "The bottom line of all this is that the publications may get the copyright law changed for the future," Carlin said. Though any savvy publisher today includes the transfer of Internet rights in a publication agreement, the big problem may be the huge backlist of articles the publishers would like to sell online.

While publishers and writers await resolution of these cases, they would do well to take a look at their publication agreements to see if they include full Internet rights. "It doesn't have to be complicated; it can be simple," Carlin said. "You have a simple agreement that says that the freelancer transfers copyright of the article; specifically mention the copyright and republishing." Oh, and run it past your lawyer.

Amazon, Toysrus to Launch Cobranded Toy Store 
By John Zipperer

(8/17/00) Battered and bloodied in recent weeks by newly impatient analysts, Amazon.com's latest move seems designed to address concerns that it burns through money with no thought to slowing down. The online retailer Thursday announced a partnership with toy giant Toysrus.com to create a cobranded site to sell toys and video games, with a baby products site to follow. 

The toys-and-games site, to debut this fall, will be developed by Amazon.com, which will also handle fulfillment, customer service, and the housing of the inventory in its U.S. distribution centers. Toysrus.com will select, buy, and manage the inventory. Users will be able to reach the site by going to www.toysrus.com or by clicking on Amazon's "Toys" tab.

The 10-year agreement provides for Amazon to be compensated through a mixture of fixed payments, per-unit payments, and a single-digit percentage of revenue. Amazon.com will also get warrants allowing it to acquire up to 5 percent of Toysrus.com. 

The split in responsibilities suits each partner well, said one analyst. After Toyrus.com had well-publicized problems dealing with its crush of online orders last Christmas, it needed to team up with someone who had established online customer service. And Amazon isn't known for its toys and games offerings, said Kevin Silverman, an analyst with ABN AMRO. "It sounds like Amazon wants credibility in toys now, and you partner with Toysrus and bango, you have credibility in toys." 

Though Amazon CEO Jeff Bezos stressed the ability of the partnership to provide a more diverse selection of toys, the deal points to a recognition by Amazon that to get credibility, it needs the knowledge and experience with the product line, as well as the relationships with the toy manufacturers, that a company such as Toyrus.com already has. 

"Toy merchandising is not for kids; you need smart, experienced people," Silverman said, "and Toysrus has those kinds of folks." Each company will market the cobranded site to its own customers. 

With better positioning against online toy rivals such as eToys, Amazon will remain a big player in that market without having to take the entire investment hit on its own, and that's likely to sit well with investors and analysts tiring of profits always glinting in the far-distant future. 

Amazon's shares lost 44 cents on Thursday, closing at $30.44.

Verizon Takes Stake in NorthPoint, Plans to Make DSL Respectable 
By John Zipperer 

(8/8/00) Local-service phone company Verizon announced an agreement to purchase a controlling interest in DSL provider NorthPoint Communications, one day after it announced its agreement to purchase OnePoint Communications. The latest deal is intended to blend the two companies' DSL efforts. 

Verizon will invest $800 million in NorthPoint, $350 million of which will go to NorthPoint shareholders, with the remainder going to capital expenditures and operations intended to improve its service delivery and product suite. The transaction is expected to close by summer 2001. 

Verizon claims the OnePoint acquisition will speed up high-speed Net access to multiple-tenant buildings, such as apartments or office buildings. Financial terms were not disclosed for that transaction. 

When it became clear that cable and DSL were shaping up to be major broadband players, it was the cable TV representatives that were nearly laughed off the field as people noted the horrible customer service reputation of that industry. But today, horror stories abound of delayed and incompetent DSL installation, and the formerly trustworthy phone companies are left looking like they overpromised their capabilities. 

The "new" NorthPoint could address some of those deficiencies, at least if things go as planned. The combination of the two companies' assets give the new entity the potential to "rapidly scale in an increasingly competitive broadband market," in the words of NorthPoint CEO and president Liz Fetter. She also promised that by being a better-positioned rival to cable, NorthPoint's consumers would gain, getting more innovation, choice, and improved service. 

That provides a bit of deja-vu: When the heads of America Online and Time Warner spoke before a recent Federal Communications Commission hearing on their plans for cable broadband services, they promised much the same thing (see July 27 IWN). After DSL had begun to look like a lame also-ran, its proponents look like they may yet make it a real race. The new NorthPoint estimates that it will have more than 600,000 DSL subscribers by the end of the year. 

It's been a busy week at Verizon, which is several days into a strike by about 86,000 employees. In addition, Verizon and NorthPoint both announced second-quarter results Tuesday. Excluding one-time charges, Verizon reported a profit of $1.97 billion, or 72 cents a share; analysts polled by First Call had expected 83 cents a share. NorthPoint's losses widened in the quarter, reaching $112.1 million, or 85 cents a share, compared to $37.9 million, or 44 cents a share, in the year-ago quarter. Verizon's stock fell 11 percent on Tuesday, closing at $42.38. NorthPoint lost 5 percent, closing at $14.25. 

Ad Servers Charge Microsoft Browser Patch with Discrimination 
By John Zipperer 

(8/3/00) Imagine the confusion in the Microsoft boardroom. First, the company gets into trouble with the Department of Justice's antitrust division for trying to take over the tech world. Then the company tries to be good, announcing a patch for its Internet Explorer 5.5 browser that would let users reject third-party cookies. And what does that get it? The ad-serving industry is up in arms, complaining that Microsoft is shutting it out of the ad-serving market. 

The argument of these advertising networks goes something like this: Cookies sent to a computer from a third-party ad server would be more likely to be blocked by consumers using the patch than would cookies sent to a computer from a first-party advertiser. Microsoft, which itself is a first-party ad server for its Microsoft Network of Web sites, would seem to have an advantage over those ad servers competing with MSN. 

For its part, Microsoft said it is just trying to help. "Microsoft's perspective is to give consumers notice when cookies are being placed on or read from their machine," said a Microsoft spokesperson. "And education is part of that." 

The patch was an unwelcome surprise to some in the ad-serving community, who at the time were negotiating self-regulatory data-collection policies with the Federal Trade Commission. Last week the FTC approved those policies, which were proposed by the Network Advertising Initiative, an industry association that includes ad giant DoubleClick. Under the proposal, the companies agree to safeguard the information they collect from Web users, keeping personally identifiable information separate from information that is not personally identifiable. 

Though IE competitors Opera and Netscape employ various methods of handling third-party cookies, IE is the market-share leader. In addition, it's the browser's new default handling of third-party cookies that riles the ad industry, which is concerned that it will result in users selecting to reject these cookies. The security alert dialogue box that pops up asks users if they want to allow a cookie, and if they want to make that answer ("yes" or "no") the default so they won't be prompted again. 

Before Microsoft announced the patch, the company had been in contact with ad-industry representatives and expect this discussion to continue. "We're confident we're going to get Microsoft to change this," said Jeff Connaughton, of Quinn Gillespie & Associates and an NAI spokesperson. 

Now is the time for Microsoft to show backbone. The NAI's proposed self-regulation scheme is a prime old-paradigm solution. Come up with a plan, get the authorities (the FTC) to accept it, and if the masses object, hide behind the plan's "official" status. Asked if consumers were likely to accept this "trust us" self-regulation, NAI's Connaughton replied that his group was relying on the government and its acceptance of the plan. "We'll see if consumers have confidence in it," he said.