Too big to succeed?

National | U.S. and state governments continue to threaten Microsoft, online grocer burns through $830 million, and companies monitor their workers online

Issue: "More than a warlord," July 21, 2001

Uncle Sam and Baby Bills
Did Microsoft beat the rap? Maybe, maybe not. When a federal appeals court overturned a federal judge's order to split up the company for antitrust violations, the issues surrounding the software superpower became much more complex. At first legal experts predicted a quick deal would end the mess, but Microsoft ruled out any settlement that would change its structure, including any breakup plans. That means that the company faces a fight with the Justice Department and the 19 states that filed the suit. Last year, U.S. District Judge Thomas Penfield Jackson ruled that competitors were illegally disadvantaged when Microsoft folded the Internet Explorer browser into the Windows operating system. Concluding that the company "proved untrustworthy in the past," he ordered it split into two spin-offs nicknamed the "Baby Bills" by the tech industry. The appeals court claimed that Mr. Jackson's criticisms of Microsoft outside the courtroom "seriously tainted" the case. But it agreed that the Redmond-based company operated as an illegal monopoly. Now a new judge will determine the proper penalty. Attorney General John Ashcroft, who inherited the Microsoft case from Janet Reno, called the appellate decision a victory, but left open doors to future plans. Mr. Gates himself remains publicly unfazed. "Every company must have the ability to innovate and improve its products," he said after the ruling. Other possible resolutions exist that do not include breakup, but they may not be acceptable to those who want Microsoft punished. The governments may force the company to change how it conducts business deals or publish the source code of its software products. Virtual grocer
One of the most radical dot-com business concepts appears almost dead as Webvan's online grocery chain shut down after burning through $830 million. Its promoters tried to revolutionize retail by taking orders on its site and delivering them through local warehouses and delivery trucks. "We do believe we had a brilliant concept," said Webvan spokesman Bud Grebe. "We were just ahead of our time." The company had a loyal following in the seven markets it served: San Francisco, Los Angeles, San Diego, Seattle, Chicago, Portland, and Orange County, Calif. Yet it could not turn that into profitability. Webvan once boasted that it would be a New Economy leader, helping to bring e-commerce into the average living room. Then-CEO George Shaheen told Forbes magazine in late 1999 that the company would "set the rules for the largest consumer sector in the economy." It planned to serve 26 cities by the end of next year. Mr. Shaheen resigned in April and is now collecting a $31,250 monthly paycheck for the rest of his life as part of a clause in his contract. Analysts expect him to become one of Webvan's unsecured creditors once the company files for Chapter 11 bankruptcy. The lone major survivor in the online grocery business is Peapod, which survives due to a cash infusion from Dutch grocer Royal Ahold. It does not expect to be profitable until at least late 2003. Somebody's watching
Ever feel like you're being watched? Maybe you are. A new study found that about 14 million people have employers tracking their Internet activities at work. That's one third of the total work force with online access. The Privacy Foundation's report says such surveillance is cheap and easy these days, costing an average of $5.25 per person per year. Hundreds of employees have lost their jobs due to Internet abuse: Dow Chemical fired 50 workers and disciplined another 200 last year for e-mailing pornography and violent images. Xerox Corp. canned 40 workers for surfing up porn and shopping sites on company time. Managers have a strong case for monitoring their employees. They own the computers, after all, and they pay employees to work, not to goof off. They run the risk of scandal or lawsuit if people dig up obscene or objectionable material from their desks. If a boss can install security cameras and log phone calls, Internet monitoring should be acceptable. Yet some complain that such actions can be counterproductive if taken to an extreme. Andrew Schulman, the study's chief researcher, said companies may have the legal right to monitor, but they can go too far. "The bathrooms belong to them, too," he said. Surveillance software makers say the need to worry isn't great. John Carrington, CEO of San Diego-based Websense Inc., said a big part of employer oversight is filtering, blocking out porn, gambling, and other potential problems. He said companies are often more interested in the overall trend of how people use the Net rather than the actions of individuals.

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