Silicon Spin 4-13-01

Adam Lashinsky hosts a tech panel discussing Yahoo removing adult listings (2% revenue), Amazon's Borders deal, Napster's filtering challenges, dot-com collapses like Cosmo.com and Webvan, and Cisco's 5,000-person layoff amid market contraction.
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This week in tech, public image trumps profits as Yahoo yanks its X-rated content. Napster gets blasted for its liberal filters, and Cosmo.com delivers pink slips to every employee. Hello and welcome to Silicon Spin. Hey, how you doing? Hello, and welcome to Silicon Spin, the show that tackles high-tech issues. I'm your host, Adam Lashinsky of TheStreet.com, sitting in for John C. Dvorak. Today's guests: Janet Rae Dupree, senior editor for U.S. News and World Report; David Benjamin, attorney for Benjamin Weil and Mazur; and Kevin Surace, CEO of Perfect Commerce. What a week for Yahoo! The internet giant barely beat drastically reduced earnings estimates, And disclosed plans to send more than 400 employees packing. Then the portal's PR machine kicked into high gear. Yahoo verified a Los Angeles Times claim that it was selling porn, but after public pressure and a boycott threat, the company announced it would remove sex-related wares from the site. Analysts say a company like Yahoo just can't wade into such risqué waters.
I mean, like a Disney, it has to be acceptable to everyone. They can't Foray out into these areas where there may be some revenue opportunity. Porn is a huge business online, but if you risk offending your mainstream, again, like an AT&T brand or a Procter Gamble, you just want to say, we don't want to mess with it.
Janet, did this porn flap really hurt Yahoo, and can they succeed without porn?
I don't think it hurt Yahoo, and they certainly can succeed without porn. I think it's kind of a shame that they had to get out of the porn industry simply because that makes so much money for dot-com companies of all different types. I mean, look at eBay. I'm certain there are pornographic materials being sold on eBay every day, and people aren't jumping all over eBay. A lot of the new technologies come into the dot-com industry via the porn industry.
You know, this has happened in the regular retail market where for places— I think it was 7-Eleven about 5 or 7 years ago— there was a big flood of people who were complaining about having pornographic things. They took it off and their sales and revenues went up as a result of it.
Wait, wait, wait, wait, wait, wait, wait. Say that one more time. Their sales went up after they took the porn off?
Right, because there were so many people who were picketing at that point. There were so many mothers that were mad because there were kids that were going to these places.
Maybe don't blame it just on the mothers.
Blame it on the You know, conservative Christian fathers. But Yahoo has had this capability for a couple of years. It's been separately protected by adult passwords, and it's really not them selling product. It's actually their marketplace and their auctions having this available. It's been available. It's just that one of the newspapers picked it up, made a big deal out of it. They said, yeah, yeah, we have it, it's fine. And then it was not worth it, so Jeff Mallett shut it down.
Janet, you're not suggesting that a big institution can get by selling porn and not get its— wrist slapped, are you?
Well, so far eBay's gotten away with it. eBay's pretty darn big, and I don't see their wrists being slapped.
Right. Disney, Gannett, 7-Eleven, that sort of thing.
Well, okay, now Disney, Gannett, I mean, they're intended to be public market media, mass appeal sorts of places. And Disney has, you know, Disney created the original G-rated programming.
When people start to look at the web as real markets, as public markets, that's when they're going to have to be more responsive to the overall citizenship. And that is what I think is happening. That's why I don't think it's necessarily a bad thing. People are looking at it like a real business.
Yahoo has been responsible. Yahoo has done the right thing.
Yahoo looked at this and said, this is 2% of our revenue, the heck with it. It's not even stuff they sell. They just allow their marketplace to sell it.
I think they do get a little advertising from it, but, you know, the conventional wisdom has always been that there's only 2 killer apps on the web, right? Sex and email, which— and the second one isn't a big revenue generator.
That's true.
So, you know, what happens after this? What happens after this for Yahoo?
I mean, they just continue on forward with what they've been doing. And now they can market themselves as saying, we're responsive. We pay attention when people tell us we need to censor what people can buy on the web, which I don't think we ought to be doing, but that's another issue.
If you ask me, they showed that just like other big companies, they cave when they have to. Our next topic, just when you thought big was big enough, Amazon.com absorbs the entire Borders library. Amazon will manage all of Borders' inventory and fulfillment and create a new co-branded site. Kevin, is this good for Amazon?
Good for Borders?
Both.
Absolutely both win. This is a little bit like the Toys R Us thing where ToysRUs.com said, you know what, we're going to partnership with Amazon, let Amazon handle the distribution and fulfillment. If you look at what Amazon is actually doing well, while they've got some marketing, they've got some brand recognition, their fulfillment, their warehouses, the ability to take that stuff back and credit customers, they've built one of the best, arguably, you know, catalog fulfillment houses in the country right now. So Borders also has a branding. They're still going to have people come to their website, but why should they be in the one-off fulfillment business? They're not in that business, they're in the store business. Borders should not be in the web business.
Borders is rolling over and saying, we cannot be as successful at selling books and videos online as Amazon has been. Therefore, we're going to go ahead and let Amazon take that part of our business, if you will, but they're still going to get a cut of that action.
Borders will probably make more money than they had on the bottom line because Amazon will produce the site, Amazon will ship the goods, Amazon will take them back. They'll probably do better overall.
I think the big thing is—
Because people actually go to the Amazon site to buy books.
I think the big thing is, is this is a trend of consolidation which everybody has been talking about from an overall point of view. The web is consolidating like all other businesses are consolidating, and this is an example. And it's always a question of who's going to be the last ones standing.
It's economies of scale, and Amazon has tried to practice on that economies of scale the entire time.
My big concern for them at this point is that everything else they've tried hasn't worked. You know, they made a— we made a big deal when they started to sell sponsorships on the site, when they made investment in other lousy internet companies. Is this—
you all see this— Yeah, go ahead. That's working very well. Very, very well.
This is ToysRUs.com too, is that what you're saying?
Absolutely.
It's not only ToysRUs.com, it's also an expansion of their book business, which has always been their most successful business. If they're going to make money— yeah, they've made money on their book business in the past, and I think they'll continue to do so. And now that they're being able to consolidate some of their book competitors into Amazon itself, I think that's going to make a big difference.
I can chime in quickly there.
Well, I think it's basically— it could be a good plan, but it's a wait and see. We do not know if Amazon's going to survive. I still am not convinced it's going— the book thing is good because you can return it to the publishers. If they don't sell, it's a great thing because it's one of the few things you can return to the publishers. So you can make money off of that, but it is dangerous. I think Amazon could be way overextended, as usual. Now, they've done well overextending themselves, but this could be another example of it.
That's a whole other topic.
Thank you.
We'd like to know your take on the top news in technology, so take part in our viewer poll. Just log on to siliconspin.com. Today's question: Should Yahoo have stopped selling porn? Up next, the latest battle cries over Napster reached threatening tones. Has the ruling judge done enough? Stay with us.
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Get ready for the ultimate pregame show.
This week on a very special edition of Extended Play, we go to Japan for the Tokyo Game Show. We'll show you this year's crop of imports, including previews of Gran Turismo 3: A-Spec, Shinji Mikami's latest horror adventure, Devil May Cry, and a sneak peek at Final Fantasy X.
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Welcome back to Silicon Spin's Tech Week in Review. A U.S. judge scolds Napster and threatens to take away its toys. Judge Marilyn Hall Patel called the company disgraceful for failing to filter copyrighted music. She ordered Napster to block copyrighted songs in March, but many titles are still up for grabs. Patel offered one solution: shutting Napster down. The company hopes to launch a paid subscription service this summer. Uh, David, what do you think? Is this quits for Napster at this point?
Oh, Napster's in big trouble. You're always in trouble when you get a big order. One of the things you do in litigation always is try and get an order against the other guy so that when they are trying to fulfill it, the judge will get mad and say, you're in trouble, you haven't done it, you haven't done it. They say they spent $1 million, judge says, too bad, not enough. They're trying to filter out these songs just based on the title, and then you just alter the title a little bit and they can find the song somewhere else.
Talk for a second, let's talk for one second about the litigation issue here. She's starting to sound a little bit like the fella in the Microsoft trial, right? She seems to be upset.
Oh, she's upset.
Is this good or bad for anybody?
Oh, it's terrible for Napster.
Explain.
Oh, she— I mean, she is mad. She basically made an order and she does not think it's being fulfilled. She is— she can shut them down, and she might, because she is mad. And she has basically said, I don't care what you do, but you are violating these copyright rights, and I have made an order, fix it. Now, what they're trying to do is hang on for dear life until their subscription program starts out, and then they're going to have a whole bunch of free people who are using this and they can keep their customers.
Okay, but this is being unfair, because from a technology standpoint, there is no way you can stop the users from using Pig Latin, as you said, and different You know, acronyms around the words and still getting the song. Oh, yes, you can. There's no way to do this.
You can if you— you know what, if you spend half a billion dollars, you could easily. If you spend a quarter of a billion dollars—
But there isn't a quarter of a billion.
And you know what, that's what judges look at. You get an order and they say, I don't care how it takes— what it takes, I want you to stop. And there's a lot of times where very onerous things are required of—
That's true, but I think the judge is not being fair.
Judges don't work— judges don't look at the real world. They don't look at how this actually would function. Onerous is too much.
What Napster is doing is wrong.
But the real world— the real world is that They're stealing, right? Yes, from the owners.
And she says, I want it stopped. And you— and she— you know what? She could have shut them down. She should have— could have just said, stop, you're over, business is over.
Janet, then we'll give Kevin a chance. Go ahead.
Basically, I'm just trying to figure out how they're supposed to resolve a situation that technologically is extremely difficult to resolve.
There's a lot of companies that are just shut down.
They're put out of business because what they're doing is illegal, is what you're arguing.
She made a determination, you're violating the law. Now they've appealed it. The 9th Circuit has upheld her, issued the injunction, said— told her to issue the injunction. They've asked for a rehearing to the panel en banc, which is the entire group of the 9th Circuit.
En banc, no Latin on this show, please. Go ahead.
En banc means the whole group, the whole group of the 9th Circuit.
I'm just kidding.
They're asking for a rehearing. And so it's possible that the whole group of the 9th Circuit, which is right below the U.S. Supreme Court, could disagree. Unlikely.
Then it could go up to the Supreme Court. The Napster lover wants to get in there. Go ahead. Absolutely.
I have used Napster for a while. I'm sure a lot of viewers do. And I'll tell you, In the last two months since then, and since they've begun to filter, you can't find anything. I don't know if you guys have tried. You really, really got to get start. You've got to get creative. They have worked hard to stop this thing now.
Wait a second, wait a second, Kevin. Everything I read in the media—I'm not an App Store user—but everything I've read says that it's all there. You can get it. No problem.
It's there, but it's not no problem. You're going to work really hard to try to find it.
Here's one thing: you have to figure out what somebody might be talking about.
And then once you do, they stop that one, and you got to figure out a different one. They tell they're working hard.
Here's one thing that just happened. Judge Patel has issued a. has instructed a man who is a high technology expert to go and try and figure out how to resolve this. She is asking him, a man named Nichols, and he has been hired by the court and said, go figure out how to make this work. She doesn't want to shut Napster down. She's trying to get a high technology guy to figure out how to—
Oh, I don't know. It looks like she would like to shut it down. She wants to be seen as being fair in doing that. You seem to suggest that there is no way to technologically do this. When you say spend a quarter of a billion dollars, what good would that do?
Well, I think there are filters that can be put on so that, that the files themselves will not be available.
I don't understand what you mean because—
Ladies, ladies first and then we'll get you in. Go ahead.
I don't understand what you mean because the files, the users are the ones constantly creating new files. It's not like you can, you know, put in the tune Unchained Melody and expect that all versions of Unchained Melody are going to disappear.
Right now what they have it set up is if you ask for Over the Rainbow and start it with a Z, Zover the Rainbow, that file will come up.
But then they block it. Then they find that, they block it. Now you have to use Vover the Rainbow.
And then you end up with over, say, the rainbow.
To a judge who says, you are violating the law, I want this fixed. You have— and she has ordered that.
As you know, 70, 80% of Napster users have already moved to things like LimeWire, and you can find everything.
What's LimeWire?
It's a Nutella-based technology that is very hard to stop because it's true peer-to-peer. There's no servers in the middle. Works great.
Very quickly from each of you, how long does Napster last from here on out? 3 months. Janet? 6. 6 months? Kevin?
Move to LimeWire. Who cares? Tomorrow then.
All right. You're supposed to be the supporter.
When we come back, chilling news for lazy urbanites. Cosmo.com has delivered its last pint of ice cream. More of this when we come back.
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Coming up next on Tech TV: Tech TV News, followed by Extended Play.
Welcome back. Once it was a glorious fleet of urban couriers, but now it's just another dot-com casualty. Cosmo.com shut down Wednesday, laying off more than 1,000 workers and liquidating its assets. The company delivered videos, snacks, and sundries in 9 cities. It was the brainchild of 2 20-something-year-olds, and some say its business model never made sense. They weren't targeting the right customers. Delivering Milk Duds to college kids in libraries is not a very good business plan.
Next, they had no order minimum, so you could order a box of Milk Duds and have it delivered without A delivery charge for the longest time. They most recently started to add delivery charges, but it was really too little too late.
Other web delivery services such as Webvan are still struggling. Janet, he was being a little unfair. Consumers love these sorts of services, and not one of them is working financially. What's the story?
Consumers may love them, and consumers may be lazy, but they're not rich. And they had to have prices that were competitive with what you could get at the corner grocery store, and they couldn't do it. They couldn't make— I mean, 1,000 people have been laid off from Cosmo. You got to pay those people somehow off of What earnings? If you're selling things for the same thing that the local grocery store is selling it for, but you're delivering it generally in very small quantities, you're just asking for financial trouble. It's not surprising at all.
One of the things that happened was they were going to another round of funding, and one of their investors all of a sudden just precipitously said, $6 million, we had promised it, sorry, we're not going to come up with it.
This was after how much already? Do you know off the top of your head?
I think it was something like $15 million. Absolutely not.
Tens of millions.
Maybe even the last round was a $20 million round.
I'm under the impression that overall The company has lost very nearly $50 million.
It might even be more than that. I think at their peak they were burning almost $1 million a day.
Okay, Kevin, at one time though they were— they seriously wanted to go public, and I think people believed that they would.
Yeah, you know, the, the problem is, uh, it gets right back to, to what you said. People love the service, but if you had to really pay for that service, which meant I'll deliver anything to you but you got to pay me $15 to do so, right? I mean, FedEx knows this business well, okay? That's a nationwide But if you had to pay me $15, all of a sudden the business would dry up.
Right.
Because you'd say, oh, I'll go to the store and get it.
Right.
Now, even Webvan, as we know, is having a heck of a time doing this, and they're delivering on average $100, $150 lots, not $5 lots. But at $5 and $10 lots, you know, you can't make money.
Where do we go from here, David? Webvan CEO George Shaheen called it quits today. Do they go out of business next?
It's abs— in my opinion, yes. I mean, I'm not an I'm not an investment analyst, but I think it has been a terrible plan. They hire college graduates to drive their trucks. They double park in the city, and they—
This is who?
Webvan. I mean, it's just— it's a crazy program. Have you used Webvan? Yes, my wife uses Webvan a lot. And the truth is, it's just as cheap as going to the store. It works great, but it's a lousy investment. They are not making money. It's a great consumer product. You know what? Stupid ideas are not limited to—
So there's news today that Webvan actually actually potentially broke even at the Foster City, just the local one, San Francisco Bay Area. First place that they've actually broke even over the course of a month. Now we'll see how long that lasts, but if you get the volume high enough, right, and you can in fact automate it the way the Borders guy said you could, theoretically you can make money at that business if they're $100, $150, $200 lots.
They picked the lowest margin business possible. I mean, that's the problem. They're not in an ideal situation. They're doing groceries.
Okay, quickly though, would you pay a premium? In other words, would you pay even a healthy premium for the convenience? Yes or no?
My wife would, definitely.
She has done it And I think a number of consumers would.
I think you're right. Next topic. Cisco Systems has fallen victim to the internet flu. It announced this week that its 5,000 laid-off employees would get 6 months' severance. That's great for them, but the stock is still hurting. Kevin, what's in store for this once seemingly impervious company? Do you agree with my assertion?
I hear you. Uh, you know, I, I literally saw John Chambers just 2 nights ago, and he talked I talked at great length about this.
Where was that?
That was actually in Berkeley. He was, he was actually taping a show for another network, as they say. But, right, but John is a world-class guy. That is a world-class management team. However, you know, all of the dot-com customers are essentially gone. They're putting their stuff up for sale on eBay. There's 3,000 or 4,000 Cisco items for sale on eBay at any one time right now. The customers are not? Yeah, yeah, the customers are.
Cisco's not using eBay?
No, no, no, Cisco's— no, hasn't gotten that bad. So the fact of the matter is they had to make a tough decision, pull back. Their P/E ratio right now, if you look at the past 12 months earnings, is something like 40 or 50. It's still very high. Now we got used to, you know, stock prices of 60, 70, 80 for them. We all thought this was going to grow and continue to grow, but it's, but it slowed down. They're slowing down with the economy. Will that company see a, you know, $30 share price, $40 share price? Yes, but it's going to take some time.
Let me go to you, Jan. When we worked at the San Jose Mercury News together, you were one of the people who knew about the technology in the business world of technology. What about their technology? What are the What are the risks? What are the threats?
Their technology is top-flight. I mean, it's really wonderful technology, and they continue to push the envelope out and create new technologies. But what's going to have to happen for Cisco now is they're going to have to tread water, possibly for as much as 2 to 3 years.
Years?
I'm not talking about a turnaround in a couple of quarters, because all of the dot-coms that were buying this wonderful technology from Cisco have now begun to leave the picture, and you've got that consolidation. There have been some estimates that only 10% of all existing existing dot-com companies are going to survive for the long term. Cisco's going to have to find ways to sell into a contracted marketplace. I think Cisco ultimately will, but we're going to see a Cisco going forward that is significantly smaller than what we have seen in the past.
And there's something like 12 months of inventory in the channel right now. Yes.
Okay, briefly, do anyone have anything positive to say in the near term for Cisco?
Yes. John Chambers.
All right. I mean, that's a world-class manager. Up next, The week's big stinker: a Bay Area company tried to bring scent to the web, and what do you know? It went out of business. We'll sniff out the details when Silicon Spin returns. That's right, why is that?
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TechTV News coming up next. Hi, you're watching TechTV.
Welcome back. A company called Digisense caused quite a stink in the media for trying something new, making the online experience odiferous. They called the technology iSmell, but I'll smell you later. Digisense went kaput, although they'll continue to try to license their technology. David, was this just a silly idea? Yet another silly idea?
Yeah, I think it was pretty stinky.
I mean, shame on you, Latin and a bad pun in the same show.
All right, go on. You've got to give them some credit. I mean, they— I remember when this first came out and they tried to create this box where they would would synthesize these rose smells and lemon smells, and it was a great idea. Do you know, here's a little piece of trivia, the most primitive human sense is the sense of smell. And so what they were trying to do is wrestle with the most difficult sense. It would be more interesting if you could get touch.
But I don't even understand the technology. How can you smell something at the other end of a telephone wire?
Well, no, what they have is a box like—
How can you make money smelling something? That's the problem.
Scratch and sniff on a magazine must be a big industry.
Yes, but who's going to pay for the box? But scratch and sniff on a magazine is cheap. You know, who's going to pay to hook one of those boxes up to everybody's PC? What does make more sense is the sense of touch. And that's what a little company down in San Jose called Immersion has gone into. It's a whole area called haptics. And you can— haptics. It's the sense of touch, digital touch. And so you can use— and they've licensed it to Microsoft, they've licensed it to Logitech, and you can use it to feel the road as you're driving your video race car.
And I've used it. Very cool. Seriously.
You can run your mouse along bumps and feel where they are laid.
Now that's a lot easier sense to deal with.
Well, but they can also build it into mice and other game consoles that are already there. But this whole scent thing, you had to fill it with chemicals once in a while, put things in it.
And who knows if it got even close. I mean, would you buy a perfume based on the fact that they have like 20 scents and they're trying to combine them?
No, because it goes wild and all the scents come out at once and, you know, wreck the house and it's terrible.
All right, we're giving them a hard time, but this is what the Valley's made of, right? I mean, people have to try nutty things like a computer mouse.
But it goes back to the question of just because we can do something technologically, should we? Is everybody gonna—
is anybody gonna pay for it? Someday this will happen. You know, there was a movie where they did that and you could watch the movie and get your scents and stuff. Someday this— I think it was very inventive. I think it's important for people. It's inventive.
I would like to send the skunk scent to many people.
Disney has done something similar with that new hang gliding ride at the California theme park.
They actually blow ocean Give you a sense of dread?
No, no, no, not, not a sense of dread. It's actually very positive.
But you paid $80 to get in. Different story, right?
All right, well, I, I hate to end this scintillating conversation, but I will thank our guests, Janet Rae Dupree of U.S. News and World Report, attorney David Benjamin, and Kevin Surace from Perfect Commerce. Thanks for joining us. Before we go, let's see the results of our viewer poll. We asked, should Yahoo Do you think that the porn companies should have stopped selling porn? 12% of you said yes, and the free-livers out there, 80% of you said no, they caved in too easily. That does it for today's show. I'm Adam Lashinsky in for John C. Dvorak. Join us next week for another Silicon Spin.
Thanks, everybody.










