Under state loophole customers could spend $400 rebates yet cancel contracts

January 07, 2000: 4:06 p.m. ET

LOS ANGELES (AP) - Microsoft Corp. abruptly suspended a $400 rebate for consumers in California and Oregon for the purchase of Internet access contracts after company officials found thousands were signing up, spending the rebate and canceling the contracts the next day.

"This is just a shame, because this simply offered consumers an inexpensive way to get wired to the Internet," said Microsoft spokesman Tom Pilla at Microsoft's Redmond, Wash., headquarters. Pilla said the program was suspended in California and Oregon, effective today, but he stressed it was a temporary measure. The company is reviewing the program now in order to close the loophole and continue its rebates. Microsoft (MSFT) offered the rebate nationwide.

In most states, anyone who canceled the service in less than three years had to return the rebate, but company officials said loopholes in state laws prevented them from adopting that provision in California and Oregon.

On Thursday, people waited in line as long as four hours at some Southern California stores to order Microsoft's Internet service for three years and use the $400 rebates to purchase merchandise.

Many said they planned to cancel the service the next day.

"It doesn't feel immoral," said Jenny Ives, a 20-year-old California Institute of Technology student who used her rebate at a Best Buy store to buy a bread maker and a combination television-videocassette recorder.

Some who discussed the rebate in Internet chat rooms said they were delighted to take advantage of a company run by the country's richest man. Pilla would not comment on how many people took advantage of the offer, how many people canceled or how much money Microsoft lost.

NEW YORK (NYT) -- The Dow Jones industrial average dropped 1,266 points today after Amazon.com announced that it had inadvertently made a profit.

After years of having persuaded investors that its business model called for it to consistently lose money until it had built up its market share, Amazon stunned Wall Street by announcing earnings of 1 cent per share this quarter on sales of $1.1 trillion, or 10 percent of U.S. G.D.P.

The reason these earnings rattled Wall Street was that investors began to realize that no matter how big Amazon's market share became its profit margins were going to remain razor thin because it is now competing with everyone -- not just booksellers. And therefore its market capitalization -- the company is valued at more than Fort Knox -- was simply not sustainable.

"Pie in the sky is always great as long as the pie remains in the sky," said one Wall Street broker, "but when the pie actually comes down to earth and you get to see what a real slice looks like -- well, you have a problem. Amazon's whole strategy was to keep the pie in the sky. But now they've blown it by accidentally making a profit."

The Seattle-based Internet retailer issued a statement following its quarterly earnings report, saying: "The Amazon board wants to apologize to shareholders for completely missing its quarterly loss target and inadvertently making a profit. The board has been assured by management that this problem will be rectified in the coming quarter. Amazon intends to increase both its advertising budget and the number of books it will sell at a loss to insure that it returns to unprofitability by the next quarter. Our shareholders can rest assured that our primary goal remains market share and our business motto remains: 'Amazon.com: We took the 'E' out of P/E.' "

Said one Wall Street Internet analyst: "Look, I believe the Internet changes everything. I've taken the Kool-Aid. But I think the question of whether Jeff Bezos [Amazon's founder] will ever make the massive profits that his stock price implies is really uncertain."

It will depend on at least three things, the analyst said. The first is, Are Amazon's competitors dead or are they just behind? Has Mr. Bezos killed Wal-Mart, Barnes & Noble, Best Buy, Borders, Toys "R" Us and Circuit City -- all of which he is now competing against? Or, has he just showed them the power of the Internet as a retailing tool and all these brick-and-mortar companies will now become clicks and bricks?

"If that is the case," the analyst said, "all Amazon will have done is to build market share for the day when its rivals catch up. If it hasn't made money up to now, with its huge head start on the Internet, how is it going to make big money when the others catch up? The cost of switching from Amazon to another retailer is zero on the Internet. It's just one click. Wal-Mart hasn't even come into cyberspace in any serious way yet -- and those guys are meaner than junk-yard dogs. You think they're going to let Amazon just put them out of business? No way."

The second thing Amazon's future depends on, said this analyst, is what inning we are in. If we are still in the first inning as far as Internet retailing is concerned, maybe Amazon, or another Amazon soon to be born, will come up with yet another innovation for using the Internet to sell things at a profit. But if we are already in, say, the fifth inning, if the basic Internet revolution in retailing is now in place and the rest is just execution, then the Wal-Marts will eventually learn to execute. Amazon might still be a winner -- it is a phenomenal marketer -- but not a winner-take-all.

The third unknown, the analyst said, is whether Amazon can use its high stock price to buy one or more already profitable brick-and-mortar retailer in order to go head to head with Wal-Mart. At first people thought all business was moving to the Net; now they see that the Net is moving into business. The next big merger wave will be between virtual companies and real ones.

"I swear, I thought Bezos' actual plan was to skip making a profit and go directly from being an I.P.O. to being an N.G.O. for distributing books cheaply," said another analyst. "I don't know what Amazon's future is as a company -- but as a charity, wow! What a write-off machine! It could have been called 'Unicef.com.' Really, who's given away more kids' books at cost than Amazon? Bezos had a chance to be Andrew Carnegie -- without ever making a dime. Now he's blown it by making a profit and forcing everyone to look at Amazon like, well, a real company. I mean, who needs that?"

This is a true story from the WordPerfect helpline. Needless to say the help desk employee was fired; however, the person is currently suing the WordPerfect organization for "termination without cause".

This is from the taped conversation leading up to dismissal:

"WordPerfect Technical Desk, may I help you?"
"Yes, well, I'm having trouble with WordPerfect."

"What sort of trouble?"
"Well, I was just typing along, and all of a sudden the words went away."

"Went away?"
"They disappeared."

"Hmm. So what does your screen look like now?"
"Nothing."

"Nothing?"
"It's blank; it won't accept anything when I type."

"Are you still in WordPerfect, or did you get out?"
"How do I tell?"

"Can you see the C: prompt on the screen?"
"What's a sea-prompt?"

"Never mind. Can you move the cursor around on the screen?"
"There isn't any cursor: I told you, it won't accept anything I type!"

"Does your monitor have a power indicator?"
"What's a monitor?"

"It's the thing with the screen on it that looks like a TV. Does it have little light that tells you when it's on?"
"I don't know."

"Well, then look on the back of the monitor and find where the power cord goes into it. Can you see that?"
"Yes, I think so."

"Great. Follow the cord to the plug, and tell me if it's plugged into the wall."
".......Yes, it is."

"When you were behind the monitor, did you notice that there were two cables plugged into the back of it, not just one?"
"No."

"Well, there are. I need you to look back there again and find the other cable."
"....... Okay, here it is."

"Follow it for me, and tell me if it's plugged securely into the back of your computer."
"I can't reach."

"Uh huh. Well, can you see if it is?"
"No."

"Even if you maybe put your knee on something and lean way over?"
"Oh, it's not because I don't have the right angle - it's because it's dark."

"Dark?"
"Yes -the office light is off, and the only light I have is coming in from the window."

"Well, turn on the office light then."
"I can't."

"No? Why not?"
"Because there's a power outage."

"A power... A power outage? Aha, Okay, we've got it licked now. Do you still have the boxes and manuals and packing stuff your computer came in?"
"Well, yes, I keep them in the closet."

"Good. Go get them, and unplug your system and pack it up just like it was when you got it. Then take it back to the store you bought it from."
"Really? Is it that bad?"

"Yes, I'm afraid it is."
"Well, all right then, I suppose. What do I tell them?"

"Tell them you're too fucking stupid to own a computer."

A Hong Kong woman who thought the "millennium bug" meant an upset stomach has been conned out of HK$120,000 ($15,440 US) by men who sold her pills to cure it, according to news reports.

The 43-year-old woman, who apparently did not know if the millennium bug was a computer problem or a physical ailment, handed over the money for 430 pills after the con men convinced her she could make handsome profits by reselling them.

But after half an hour of hawking the pills outside a betting shop, the 43-year-old, identified only by her surname Chan, became suspicious and called police. Experts later found the pills were for a stomach ache. A spokesperson for the local police department said: "It looks like she didn't know what the millennium bug was."

Another Hong Kong woman recently handed over HK$40,000 ($5,150 US) to buy electrical components from three con men, believing they could be resold for astronomical Y2K profits to fix the computer Y2K bug.