From the Editor's Desk...

Justice May Bring New Microsoft Charges

Justice Department investigators believe they have enough evidence to bring a new antitrust case against Microsoft before the end of the month, The Wall Street Journal reported today. The new case, if it went forward, would allege "illegal maintenance and extension" of Microsoft's control of personal - computer operating software, in violation of the Sherman Antitrust Act, the Journal said, citing unnamed people close to the probe.

It also would repeat an existing charge that Microsoft violated a 1995 antitrust settlement by "bundling" Internet software with Windows, extending to Windows 98 a 1997 charge that Microsoft used Windows as a weapon against business rivals, the newspaper said. The investigators were taking final depositions from senior Microsoft officials and issued new civil subpoenas last week to major personal computer makers, including Compaq Computer, company spokesmen told the newspaper.

They were racing to complete their work before Microsoft's planned May 15 release to computer makers of Windows 98, the next version of its PC operating software, the Journal said. If the case moved forward, prosecutors were expected to ask a federal court for immediate temporary restrictions on Microsoft's practices plus unspecified permanent sanctions, the newspaper said.

The temporary restrictions are likely to include a requirement that Microsoft give PC makers a choice of whether to install Windows 98 with or without Microsoft's Internet software, as well as relief from alleged exclusionary contract terms imposed on PC makers and companies that provide Internet services, the Journal said. Antitrust chief Joel Klein was weighing legal tactics and had not decided whether to file a new case, the paper newspaper said. Klein is expected to give Microsoft's lawyers a final opportunity to head off new charges against the company in a face-to-face meeting late next week.

Antitrust Chief To Meet With Microsoft Friday

The Justice Department's top antitrust official and his staff will meet with Microsoft representatives Friday to discuss a possible new antitrust case against the software giant, a person familiar with the case said. Some in the Justice Department believe there is now enough evidence to bring a new case against Microsoft under the nation's antitrust laws, according to the source.

In such instances, the assistant attorney general -- currently Joel Klein -- traditionally has met with representatives of the company or companies involved so they may offer their views. At the same meeting, the antitrust chief listens to the opinions of his staff, which may be divided. Justice Department officials who favor bringing the case would like to do so as soon as possible, before the release of Windows 98, an update to Windows 95 that integrates the operating system and Internet capabilities more tightly than ever.

Microsoft is expected to release so-called "gold code" of the operating system to manufacturers by mid-May or early June to meet a targeted June 25 retail availability date. A Microsoft spokesman said the Redmond, Wash.-based company remains confident Windows 98 will launch as scheduled June 25. "We don't believe there's any scenario that would delay the release of Windows 98 with all of its Internet capabilities included," said the spokesman, Mark Murray.

However, in an apparent signal that the company has softened its hard-line approach, Murray said Microsoft would be willing to negotiate with the Justice Department over any problems the agency has with Windows 98. "We would like to see these issues resolved and put them behind us," Murray said. The Justice Department's Klein said last month he wants to carefully define any major case before he brings it to prevent litigation from dragging on for years. A federal lawsuit against computer giant IBM lasted for years before it was finally dropped.

So far the Justice Department has not given Microsoft any indication of its view on Windows 98, Murray said. In December, the antitrust regulators won a court order that forced Microsoft to offer computer makers a version of Windows 95 without any easy methods of access to its Internet Explorer browser. Murray said it was not clear whether the Justice Department would seek a similar option for Windows 98.

Justice Department officials sent out civil subpoenas -- known as civil investigative demands – to some PC makers last week. "Justice hadn't spoken to the OEMs (original equipment manufacturers) in four or five months and they wanted to get fresh information," the person familiar with the case said.

Computer Execs Propose Limits On Microsoft

Computer-industry executives have approached the Justice Department with 10 proposals they believe would help rein in the monopoly power of Microsoft, the New York Times reported today. The proposals, contained in a document circulating among industry executives, include forcing Microsoft to divest its applications businesses from its operating-system business and establishing a monitoring system to track Microsoft's business practices, the Times said, citing unnamed industry executives and the document.

The Justice Department was not considering breaking up Microsoft, one industry executive told the Times, but it was looking at a range of other possibilities. Microsoft officials dismissed the proposals, saying that they had responded to many of the points previously. This is a wish list from Microsoft competitors with no basis in the facts of this industry or the laws of this country, " Microsoft spokesman Mark Murray told the paper.

The industry's proposals were put forward this month after informal conversations between Joel Klein, the head of the Justice Department's antitrust division, and computer-industry trade associations that have expressed concerned about Microsoft's economic power, the Times said. The paper said other proposals offered in the industry document include:

Forcing Microsoft to be more open in describing parts of the operating system to which programmers have access.

Prohibiting Microsoft from tying new products to the Windows operating system.

Divesting Microsoft's software compatibility laboratories, which offer a Windows 95-approved logo to certain products.

"A dominant operating system should not be used to favor Internet content that is owned, offered by or preferentially licensed to the operating-system vendor," the document said. Separately, the Justice Department now believes that it has enough evidence to bring a new antitrust case, a source has told Reuters. The department's top antitrust attorney and his staff will meet with Microsoft officials on Friday, the source said Monday.

States To Probe Microsoft, Credit Cards

Several U.S. states are preparing to take their own antitrust action against Microsoft and have opened a new investigation of alleged antitrust abuses in the credit-card industry as well, the Wall Street Journal reported Thursday. About a dozen state attorneys general are actively involved in each effort, pooling their resources and often working in parallel with federal antitrust officials, the Journal said, citing state and industry officials.

In the Microsoft investigation, however, officials told the paper they plan to take action with or without the Justice Department. A draft complaint is circulating among 11 states and could be filed by the end of the month before U.S. District Judge Thomas Penfield Jackson, who handled the Justice Department's suit against the Redmond, Wash., software giant last year, the paper said.

In the credit-card inquiry, the states have asked Visa U.S.A. and MasterCard International to talk with investigators next week, industry lawyers and executives told the Journal. The move comes as the Justice Department prepares to wrap up an 18-month investigation of the two leading credit-card associations and decide how to act on its findings, the lawyers and executives said.

The long-running credit-card probe by the Justice Department is headed for a showdown early next month, the paper said. The staff has recommended that antitrust charges be brought against Visa and MasterCard over their joint control by the same big banks and bylaws that prevent member banks from issuing competing cards.

MS Deal With Schools Runs Into a Buzzsaw

Microsoft Corp. is learning -- the hard way -- that dealing with colleges and universities can be as dicey a proposition as dealing with Janet Reno. The company, which last week signed a four-year $6 million contract to supply Indiana University with software, is poised to strike similar deals with dozens of universities across the country. Proponents have applauded the agreement, saying it would serve as a model for cash-conscious universities looking to give their students a technological edge. Aleisa Spain, Microsoft's director of higher education marketing, said her office has received calls from about a dozen colleges looking for similar deals. Thousands of students lined up for the products on Tuesday, according to the university's paper. The newspaper also posted a poll showing that supporters of the plan outnumber detractors by a two-to-one margin.

But campus protests against educational institutions getting into bed with a big powerful vendor like Microsoft are escalating. Critics say that agreements like the one signed with Indiana University effectively lock campuses into using Microsoft software. The Cal State University System -- the largest conglomeration of four-year colleges in the country -- is also considering a public-private partnership that would flood campuses with software from the Redmond, Wash., company. The proposed California Education Technology Initiative, or CETI, would form a corporation -- that would include Microsoft Corp., GTE Corp., Hughes Electronics, and Fujitsu – to spend $300 million on technology at CSU schools during the next four years.

College officials insist the deals do not preclude students and faculty from using non-Microsoft software. But they also note that students using applications sold by other vendors might find their programs are incompatible with the campus-wide computer system. Some people also fear Microsoft is dumping software onto campuses with the intention of raising prices later-an accusation also leveled against the company in the corporate market by critics such as the U.S. Department of Justice and Nathan Newman, program director of Microsoft watchdog group NetAction.

"Will they hike the price later? The question is, what happens to Indiana, and campuses like it, five years down the line?" Newman said, pointing attention to Microsoft's recent change in licensing agreements. The company now charges customers by the total number of software users. Before the change, Microsoft charged customers only by the amount of people using the software at one time, usually a lower number because not everybody uses their software 24-hours per day.

Has Microsoft met its match? But campus protests are becoming an obstacle to Microsoft's push into higher education. The company is in negotiations with colleges to develop an education-specific licensing agreement after campus administrators said the revised agreement was too expensive. "They railed on us, and we listened," said Rebecca Needham of Microsoft's higher education group. "It was a healthy debate." The new licensing plan-set to be unveiled within two weeks-will be similar to Indiana's, requiring an up-front fee and taking into account the large amount of mobile users on campus, Microsoft said.

Protests also have stalled the CSU deal. Accusations of behind-the-door dealings have drawn the ire of state lawmakers, who have insisted on more public hearings on the issue. A revamped plan -- scheduled to be released Wednesday -- already has been delayed, and there are rumors that several companies are considering pulling out of the deal. Jim Smith, a spokesman for the California Faculty Association, said faculty and student opposition drew attention to the plan.

"We raised questions there weren't answers for. That raised other questions that made people uncomfortable with the agreement," Smith said. John Santoro, director of education marketing at Apple Computer Inc. – which traditionally has claimed the education market as its own -- said Microsoft may have met its match in the college environment. "Students are fundamentally opposed to something that locks them in. They're not lulled into the promises of up-front money," Santoro said. "Anything that restricts choices is against the university spirit."

Outlook 98 Filter Goes Too Far, Some Say

Microsoft's efforts to protect you from spam may be going too far, blocking e-mail from friends, families and news groups, according to analysts and free-speech advocates. In an attempt to block unwanted e-mail, an automatic function on the company's new Outlook 98 messaging software filters messages based on a preset list of words and punctuation. The feature blocks messages that have an exclamation point and question mark in the subject line, as well as such words or phrases as "for free!" and "removal instructions" in the body.

The filter is intended to block annoying mass e-mailings that often contain promises of free trips and get-rich-quick schemes, but it also may filter out other messages. For example, a message with "Hey! Guess What?" in the subject and "I'm getting tickets to tonight's Giants baseball game for free!" could be blocked if a person chooses Outlook's automatic filter. The company came up with the phrases by studying more than 2 million pieces of spam, Microsoft Outlook Product Manager George Meng said.

"It's not an exact science yet," said Meng, adding that the company is working with third parties to develop more advanced filters. A free version of Outlook 98 is available on the company's Web site, with a final version set to ship in the first half of this year. People who don't want to use the automatic filter can build a customized blocking program, choosing specific words and domain names to block. But the automatic filter cannot be adjusted. The program also has a feature that turns spam a different color on a user's screen instead of just deleting it.

But some analysts say users of the automatic filter aren't warned of the text-based feature. "A lot of people put question marks and exclamation points in their messages," Peter Ghosh, senior consultant with Philadelphia systems integrator JVC Technologies Inc. "The other problem is there's nothing that allows you to edit it."

Stanton McCandlish, program director for free-speech group Electronic Frontier Foundation, said Microsoft's list may be going too far. "It sounds like they've not really thought through what the key words are," said McCandlish, who himself filters out messages with multiple, consecutive exclamation points.

But Microsoft isn't the only company grappling with new ways to intelligently filter unwanted e-mail. Spammers are increasingly finding ways to get around the popular domain name-based filters, forcing messaging software to develop more creative ways to deal with the problem, such as Microsoft's text-based approach. Ron Rassner, a consultant with Palo Alto, Calif.-based consulting firm Creative Networks, expects more companies to come out with text-based filtering systems in the coming months. But he said people should always customize their blocking features instead of just relying on automatic filters. "Of course the spammers will just respond by figuring a way around it," Rassner said.

Top Democrats Ask Clinton To Junk Encryption Plan

A dozen leading Democrats in the House of Representatives, including minority leader Richard Gephardt, asked President Bill Clinton to abandon strict U.S. exports limits on encryption. "The administration can hardly control the proliferation or direction of technology in the digital age," the 12 Democrats wrote in a letter dated April 2. In recent weeks, the administration has revived negotiations with the high tech industry over encryption policy.

In their letter, the lawmakers said the talks would succeed "only if the administration commits itself in these discussions to a major overhaul of its current export policies and to policies that do not mandate or compel domestic controls on encryption." Encryption products, which scramble information and render it unreadable without a password or software "key," have become an increasingly vital means of securing electronic communications and commerce over the Internet.

But the Clinton administration, fearing encryption will be used by criminals to thwart law enforcement surveillance, strictly limits the export of powerful products. The administration opposes legislation pending in the House that would dramatically ease the export limits and prohibit domestic restrictions. A leading sponsor of the bill, California Democrat Zoe Lofgren, was among the signers of the April 2 letter.

Earlier this week, the Economic Strategy Institute, a non-partisan think tank, issued a report estimating losses to the U. S. economy due to the encryption export restrictions at between $37 billion and $96 billion over the next five years.

California Spam Bill Going Through "Meat Grinder"

A bill that would give California Internet service providers the power to sue unauthorized spammers began oozing its way through the legislative meat grinder this week, winning unanimous backing in a California Assembly committee. Assembly Bill 1629 would allow California companies affected by spam to sue spammers for $50 per message, up to a maximum of $15,000 per day in which the spamming takes place.

The bill by Republican Gary Miller received an ironic boost two weeks ago when unprecedented spamming led to disruptions of email service to thousands of Pacific Bell Internet Services customers. At the time, an aide to Miller cited the law as a potential weapon Pac Bell could use to fight back against spammers, and the advocacy group Coalition Against Unsolicited Commercial E-mail speculated the incident might "bring on board some of the constituencies that have been vehemently opposed to anti-spam legislation in the past, and could negate the rabid anti-free speech activist camp."

Miller's bill, which would also make it a crime to use another person's Internet address without their permission, passed the Consumer Protection Committee by a 9-0 vote. It now moves onto the Assembly Judiciary Committee.

Hackers Hit Their Mark With Electronic Spit Balls

Teen-agers have always pulled pranks but in the '90s they are hurling electronic spitballs that have crippled an airport, shut off phone service to an entire town and punctured the Pentagon's computer system. Israeli National Police placed Ehud Tenebaum under house arrest last month after the U.S. Justice Department notified them the 18-year-old had broken into computers at the Pentagon and hundreds of commercial and educational institutions.

The same month, the U.S. Attorney for Massachusetts announced the arrest of a 14-year-old boy who pleaded guilty to hacking into a phone system's switching facility, where he shut down vital systems at Worcester Regional Airport and cut off all phone service to a nearby town for six hours. "This wasn't just a case of Aunt Susie not being able to call her friend," explained one official. "This was a case of Aunt Susie not being able to call the fire department or an ambulance or the police."

Despite warnings from parents and educators and arrests by law enforcement officials, hacking appears to be just too tempting for some teen-agers to ignore. "Kids have always wanted to have fun, from putting tacks on the teacher's chair to breaking windows and painting windows, letting the air out of tires. It may be malicious but in some sense it is fun," sociologist James Teele said.

Hacking presents "a challenge. They're smart and they're proving it to themselves and to others. It must give them quite a high," the Boston University professor said. Kate Delhagen, a senior analyst at technology consultants Forrester Research, said these "lords of the files" frighten adults who are shocked at their fluency with computers. "These are teen-agers who have grown up with computers. Teen-age boys are comfortable with the technology. They get it. They want the power," she said, adding that hacking is also "one of the new things that kids do to get attention."

At the same time, Delhagen said, most hackers break in "to just prove they can do it ... there's the thrill factor. Sort of like kids who shoplift versus the kid who actually goes in and does an armed robbery." Computer programming professor Azer Bestavros, at Boston University, said he has "noticed the level of sophistication among freshmen classes going up significantly from one year to the next."

"You would expect them to know how to load a program or write a program for a spreadsheet application," Bestavros said. "But now they're getting into programming their modems and doing funky things with their answering machines. They're getting into operating systems and getting into networks." He said there are networks of hackers who exchange tips on how to break into computer systems. "It's sort of like a game and it's much more interesting than playing with your Nintendo. It's a real-life Nintendo.

The Boston University professor also said one of the first challenges teen-agers will overcome are efforts parents make to censor their Internet access. "The first thing a teen-ager will do is figure a way around it," he said. But Jeff Schiller, who is in charge of the computer network system and security at the Massachusetts Institute of Technology, does not blame just the hackers. Indeed, he notes, they are providing a service by pointing out security flaws in computer systems. "The truth of the matter is these systems are wide open, and developers of these systems don't want to make them secure if its going to add 10 or 20 percent tothe product or delay the product getting out the door. And the end users don't ask for security," he said.

"Mostly they don't ask for it because they think they already have it. They think since they don't know or can't remember their passwords, it must be secure. But that's a Wizard of Oz attitude. Any 14-year-old can break into your computer these days if it's attached to a phone," he warned. But Bestravos, who calls these young hackers the cyber generation, believes that as they grow up "and assume positions of power, and they have systems to protect, they will do it in a better way than we do now. The technology will get more secure as they mature."

April Fools' Hoaxes

April Fools' Day never fails to bring out hucksters and their hi-jinks. And this year, more shysters than ever are practicing their craft on the Internet. Anti-virus experts say April 1 is a favorite among pranksters, who pass along virus hoaxes to alarm their friends and colleagues, taking sick pleasure in watching the phenomenon spread. "We're trying to get the word out that most of these viruses are urban legends, like alligators in the sewer," said Anne Beitel, vice president of marketing for Burlington, Mass.-based Dr. Solomon's Software (SOLLY), a maker of anti-virus products.

Alex Haddox, director of Symantec Corp.'s AntiVirus Research Center, said hoaxes spread because they're passed along by friends, and people don't want to admit they've been tricked. "Once someone's been duped by a virus hoax, they're very reluctant to let people know it's a hoax," Haddox said. "People are afraid of looking foolish." To quell fears about viruses, Symantec publishes a Web site devoted to viruses and hoaxes, featuring about 14,000 documented viruses and only 15 to 20 hoaxes. Haddox said most virus hoaxes surfacing today are some mutation of an existing one.

Hackers Wipe Out an ISP During Hacking Contest

A small ISP and its 5,000 customers were innocent casualties of a hacker wargame last Thursday and part of Friday. For almost 36 hours Rt66 Internet and its customers were off-line, courtesy of a hack attack that erased the ISP's operating system. It all began when Carolyn Meinel, creator of a hacker wargame, challenged the Net community to "Hack this Site" two weeks ago. Since then, it's been under almost constant attack, receiving an average of 1,000 hack attempts a day.

The ISP, Rt66 Internet, fought off almost all the attacks, which were primarily IP-spoofing attacks that hide the identity of the attackers. But last week, one hacker was able to gain root access at the server level and erase a substantial amount of information, including the operating system itself. The barrage of attacks is in response to the mid-March launch of Meinel's "King of the Hill" Web site, which encourages participants to hack into a "designated" system, then defend it from future intruders. Attacks not unexpectedRt66 expected hackers to go after it -- and not just Meinel's Web site -- and has devoted two people full time to maintaining its service. It actually thought hosting the contest would help identify any weaknesses in its own system.

"We went into this project with our eyes open," said Mark Schmitz, vice president of Engineering International and co-founder of Rt66, based in Albuquerque, N.M. "Since we didn't have anywhere near as many attacks before the game, I have to assume (the uptick's cause) is the hosting of Carolyn's site." Schmitz said that Rt66 backs up an entire year's worth of information, and as such, downtime was the only damage.

"Nothing replaces good backup," he advised. "That's your number one safeguard against attacks." How the attacks workedMeinel said the attacks on her site were initially "denial of service" or "teardrop" attacks which, if successful, could have the effect of simply shutting down the system. Meinel characterized those attacks as "amateurish," "pitiful" and "laughable."

But after a few days, the "big boys came in," Meinel said. "Instead of attacking the Web site, they went upstream and tried to take out the ISP." Meinel taunted the successful hacker, saying, "Someone is up for a felony now. If I were responsible for causing the loss, I would be wanting to get an identity transplant." Why the hack attacks? Such strong opinions, and Meinel's self-promotion, have probably increased the frenzy of the attackers. They also make her the target of considerable criticism -- much of which predates the King of the Hill contest.

"People don't like her because she ... tries to appeal to the media as some all-knowing hacker," claimed one hacker using the handle "fh" in an e-mail sent to ZDTV's CyberCrime. A number of other hackers have sent highly anti-Meinel e-mails to CyberCrime. An anti-Meinel Web site. There's also at least one anti-Meinel Web site , which includes archives of many of her publications along with point-by-point criticisms.

The site claims, among other criticisms, that Meinel "does not have the required skill set to adequately teach hacking." "I'm not just inventing this stuff -- this stuff is all common knowledge," Meinel said. "I am a research engineer. The majority of books are not filled with 100 percent original stuff." As for her contest, she said "to my knowledge, this is the first actual hacker wargame open to the public that includes instructions, and allows the contestants to practice defensive skills as well as break-in skills."

A vote for Meinel Rt66's Schmitz doesn't consider Meinel's wargame, her e-zines, or book illegitimate. "I've never seen anyone take the time and organize this information and frame it like this book," he said. He added that he considers her credible. In the meantime, Rt66 continues to monitor activity 24 hours a day.

Global Village To Sell Modem Business To Boca Research

Global Village Communication, giving in to competition in the modem industry, said it agreed to sell its modem business to rival Boca Research for $10 million in cash and notes. Global Village, which specializes in making communications gear for Apple Computer's Macintosh computers, also said it will rename itself later this year and focus on a new business, making networking equipment for small and medium businesses.

"Since Global Village doesn't have the financial resources to become a modem industry consolidator, we believe finding an appropriate partner was the best path to accomplish the strategic objectives for our modem business," said Chief Executive Officer Neil Selvin. Under terms of the acquisition, Boca Research, a modem maker based in Boca Raton, Fla., will receive Global Village's brand name, modem technology, distribution agreements and about 60 employees, the companies said. Global Village's modem business accounted for almost all of its $90.2 million in revenue for the fiscal year ended March 31, 1997.

Boca Research also will receive a warrant to purchase up to 425,000 shares of Global Village's common stock. Global Village said it expects to fire about 25 employees in the restructuring and expects to take a $400,000 charge to cover the costs. The acquisition is expected to be completed by June, the companies said.

Global Village, based in Sunnyvale, Calif., will concentrate on its One World communication servers, a line of products that let small offices set up small computer networks for e-mail and Internet access. The company said it will use the money from the transaction to fund development of similar product lines. The new products and a sales strategy will be introduced later this year, Selvin said.

Global Village had reported erratic financial results and two big annual losses in the past five years, mostly due to the sharp decline in Macintosh sales. Because of its small size, it also could not compete effectively in recent quarters with much bigger rivals, such as 3Com. In a conference call with investors, Selvin said the acquisition was the best deal to boost shareholder value. Boca Research said the acquisition will increase its manufacturing capacity, lower its costs, increase its market share and help the company enter the "solid" Macintosh market.

Lycos Signs Deals Worth $30 Million

Lycos said today it closed on six new electronic commerce, advertising and sponsorship agreements totaling more than $30 million in fees. The company, which operates a World Wide Web guide service and electronic community, said the deals, with CDnow, E-Loan, GetSmart, HomeShark, Preview Travel and Realtor.com, cover commerce in travel, music, real estate and personal finance. Lycos posted total revenues of about $12.6 million in the quarter ended January 31, 1998.

Microsoft, Sony To Collaborate

Microsoft and Sony announced plans today to collaborate and cross license technology to create a home networking environment that links personal computer and consumer electronics products. Sony will license Microsoft's Windows CE operating system for consumer electronics products and hand-held computers, the companies said in a joint statement. Microsoft, meanwhile, will license Sony's Home Networking Module for use with certain versions of Windows CE. Sony's Home Networking Module supports home networking standards currently being proposed.

"The time has come for the personal computer industry and the audio-visual industry to shake hands," said Sony President Nobuyuki Idei. "Sony supports ... the seamless integration of PC and AV products. The cooperation between Microsoft and Sony will play a key role in making this happen."

As part of the pact the two companies will endorse various digital television standards including the support of 1080 interlaced as the preferred format for high definition television and ATSC transmission formats. "We hope our combined efforts will give birth to even more exciting products and applications in both the computer and audio visual entertainment arenas," said Microsoft Chief Executive Bill Gates.

Spyglass Joins Microsoft Windows CE Program

Spyglass says it has become a systems integrator for Microsoft's Windows CE operating system. Spyglass, based in Naperville, Illinois, said it is already involved in a number of projects that use Windows CE. "We're finding the demand for Microsoft's Windows CE operating system to be growing tremendously and joining its systems integrator program will be a valuable asset for our customers using Windows CE-based devices," Wayne Yurtin, director of business development for Spyglass, said in a statement received here. Spyglass provides technology and services to make everyday devices work on the World Wide Web.

Mobile Pentium II Due to Debut

Notebook makers are gearing up for Thursday's formal launch of a mobile version of Intel Corp.'s Pentium II processor, code-named Tillamook. Among companies readying announcements are Gateway 2000 Inc., Compaq Computer Corp., Dell Computer Corp., Digital Equipment Corp., Hewlett-Packard Co., Toshiba America Information Systems Inc. and Acer America Corp. The new processor reportedly gives notebooks a 30 to 35 percent speed boost, compared to the Pentium with MMX systems. The speed increase comes at the expense of power consumption, however, with mobile Pentium II processors using about 8 watts of power, compared to 5.3 watts for a 266MHz Pentium-MMX processor.

Toshiba's Tecra 780DVD, with a 266MHz processor, 13.3-inch XGA resolution display, 64MB of RAM, 8.1GB hard drive and DVD-ROM drive, will be priced at about $5,500. Toshiba will also offer a system without the DVD drive. Digital's HiNote VP 765, which will cost below $4,000, features a 266MHz processor, 13.3-inch XGA-resolution thin-film transistor display, 32MB of RAM, 4GB hard drive and a 24-speed CD-ROM drive, sources said.

Gateway is offering systems with 266MHz and 233MHz versions of the processor. A Solo 9100XL with 266MHz processor, 64MB SDRAM, 14.1-inch TFT XGA display, 5GB hard disk and DVD drive will be priced at $4,699. On the low end, a Solo 5100SE with 233MHz processor, 32MB SDRAM, 14.1-inch TFT XGA display, 2GB hard disk and 8X/20X CD-ROM drive will be priced at $2,899. Dell is planning to launch a Pentium II system in both its Latitude CP and Inspiron lines.

A Bidder to Buy Apple's Newton?

A small Texas developer is making a bid to acquire the rights to the Newton from Apple Computer Inc. The company, Austin-based Planet Computing, says it made an offer for the Newton operating system and associated technologies three weeks ago. Company CEO Mark Collins declined to say how much Planet Computing offered to pay for the Newton, adding that Apple's response was to "ask for the moon." So far, he said, Apple has not replied with a written counteroffer.

Apple declined to discuss the matter in detail and would not confirm offers for the Newton. However, a spokeswoman said the company -- which has not actively sought out a buyer – would consider doing so "if an attractive value is presented." At the end of February, Apple cut off further development of Newton-based products, putting a coda on a ballyhooed project that began in 1993. The 60 or so people working on the Newton have been since transferred to other parts of Apple.

Analysts have variously estimated the number of people using the Newton between 100,000 and 200,000. The Newton, which enjoyed popularity among a fiercely loyal user base, ultimately lost its lead in the PDA (personal digital assistant) market to U.S. Robotics' PalmPilot, which was introduced in 1996. Collins said he decided to go public with his offer after the news leaked and began spreading over the Internet. "The next thing you know, there were rumors everywhere," Collins said, adding that Newton-based products could yet have a bright future in the educational market.

"It's funny -- you have a technology that was finally going mainstream and gets good press, and then they kill it," said Collins. In particular, he cited the popularity of the Newton with educators. "Apple's decision to discontinue Newton products has left its Newton customers and developers high and dry. If Apple doesn't want to continue Newton, so be it. Just sell it to us and we'll keep it going." Privately held Planet Computing makes work-flow software for handheld devices.

New Windows to Open in Homes and Cars

Microsoft Corp. plans to use Windows CE as a vehicle to expand into your home and car. At its third annual Windows CE Developers Conference here, the company said it hopes to dispel the myth that its mini-OS is only for handheld computers. "We are not a handheld-PC-only platform, although that was our first device," Frank Fite, director of Microsoft's Windows CE products unit, told the conference's 2,000 attendees.

Now Microsoft hopes to leverage its dominance in the desktop software market into a wider array of PC-synchronized portable devices and machines connected to servers. The company said CE 2.1 -- which is scheduled to ship this summer -- would contain support for real-time processing, better security and Japanese handwriting recognition. "This will allow us to go into multiple areas people don't think Windows CE can go today," said Harel Kodesh, general manager of the company's consumer appliance group.

Microsoft's enhancement of CE pits it against companies such as Sun Microsystems Inc., which hopes to make Java the dominant platform for portable and non-PC devices. At stake is a high-growth market. According to Microsoft, the number of handheld PC sales is growing at a quarterly rate of 34 percent, and new types of devices are sprouting up every week. Also, the company expects such machines eventually to outnumber desktop PCs, as users buy them for their office, car and home.

The company also spent much of its time touting CE as a platform to drive autoPCs, which are machines inside cars that deliver information such as weather, traffic, e-mail and navigation instructions to drivers. Microsoft is in talks with such high-end car makers as BMW and Infinity to install the devices. "We believe the autoPC will change the experience of driving in a car," Kodesh said. "It hasn't changed a lot over the past 20 years." To that end, Microsoft released a software developers kit for programmers who want to write applications for autoPCs.

The company also plans to release a version of its Internet Explorer 4.0 browser for CE in the coming year. In addition to IE, future versions of CE will contain better graphics and games support, paging capability, and the ability to run on an expanded variety of processors. Companies such as Sybase Inc. and Oracle Corp. also are developing mini-databases for CE, which will allow mobile users to take certain chunks of information -- such as addresses or schedules -- on the road, and then replicate them with their computers upon return.

Steve Jobs in Las Vegas to push QuickTime 3.0

Fighting off a new advance by Microsoft Corp., Apple Computer Inc.'s "interim" CEO, Steve Jobs, told broadcasters Monday that QuickTime is the best technology to bring video and other multimedia to the Internet. Jobs was here in Vegas to extol the virtues of Apple's recently released QuickTime 3.0 to broadcast executives at the National Association of Broadcasters convention.

Apple's high-profile push into the broadcast market follows an announcement by Microsoft and eight other companies, who are developing their own digital video standard. On Friday, the Microsoft-led consortium unveiled the formation of the Multimedia Task Force and its digital video standard called the Advanced Authoring Format. The Microsoft software specification is aimed at delivering a unified way of producing video audio and other multimedia on the Net.

That kind of technology rings a bell here as broadcasters, cable services and digital satellite companies all wrestle with the difficulty of converting video and audio into digital Internet and DVD content. Jobs said that while Microsoft is just announcing a specification for a technology, QuickTime has been tested in the market and been improved significantly with the latest version. And he took a swipe at Microsoft, which in the past has been perceived by broadcasters as trying to bully the television industry into accepting its technology.

"We think we might have a solution, but we would like to work with you to make sure it's right," said Jobs. Jobs also showed a QuickTime testimonial video featuring two of Microsoft's archrivals: Sun Microsystems Inc. (SUNW) CEO Scott McNealy, and Oracle Corp.'s (ORCL) top executive, Larry Ellison. "We know a little about digital and we're trying to work with you," said Jobs. With the motto at this year's NAB show being "The Power of Digital," Jobs' message most likely will be listened to closely.

Intel Sees Low Prices For Pentium II Notebook PCs

Intel expects aggressive pricing by manufacturers of notebook personal computers using its new Pentium II mobile computing processor, officials of the chip maker's Japan unit said today. John Antone, general manager at Intel KK, said he expected notebook PCs with the Pentium II chip to be priced as low as $3, 000 in the United States and 350,000 yen in Japan. He added that by September of this year prices could slide further to as low as $2,000 and 250,000 yen.

Intel on Thursday unveiled a version of its Pentium II processor for the mobile computer market. The new processor, available in speeds of 233 megahertz and 266 megahertz, is substantially smaller, lighter and consumes less power than versions now used in desktop models. Antone said Intel also expected to launch a 300 megahertz version of the mobile computing Pentium II later this year.

Postmaster Licks First Electronic Stamp

With mouse in hand, Postmaster General Marvin Runyon Tuesday created the first electronic stamp and proclaimed, "This is the future. Postage directly from a personal computer." The ceremony at the National Postal Museum in Washington, DC, was held to unveil the US Postal Service's move toward electronic postage, 78 years after postage meters were approved and 151 years after the United States issued its first postage stamp.

The SmartStamp system developed by E-Stamp of Palo Alto, California, was approved for testing last year and may one day let businesses and individuals print their own postage using PCs and the Internet. The electronic stamps will include the postage amount, name and ZIP code of the local post office, date the postage was printed, and rate category, such as "first class." The system also produces an electronic bar coding of the same information as well as the ID number of the printing device, and a digital pattern that will make each envelope unique and hard to counterfeit.

Installed on a Windows PC, E-Stamp's envelope-printing software allows a user to send postage stamps as though they were printing jobs. In this case, the network connection not only queues a printing request, it also debits an account set up with E-Stamp along the way. The E-Stamp Postal Security Device - a peripheral that uses a chip to hold information for a user's postage account - deducts the amount of postage and tracks a user's running tally of postage. The device is connected to the network, between PCs and the printer. The PSD is also what generates the electronic postage - 32-cent stamps and other amounts, depending upon the weight of a package or envelope.

When the PSD runs out of postage, users can use secure credit-card forms and other electronic payment to purchase more from the E-Stamp Web site. The E-Stamp software notifies the PSD of the purchase. E-Stamp said the system is likely to support an e-cash scheme eventually, but only when such systems reach mainstream status. The USPS said security was the main concern in e-stamp development since the ability to print stamps is equivalent to printing money.

DirecPC to Get Direct Competition

DirecPC, until now the sole choice for satellite Internet access, is about to get some competition. A startup called Internet Satellite Systems Inc. on May 1 will unveil its service to the continental United States. ISS is a hot topic these days in the DirecPC Usenet group. Unlike DirecPC, which offers various speeds and access times for various prices, ISS is promising 400K-bps download speeds for all customers for $25 per month. For $40 per month customers can receive Web site storage space and multiple e-mail addresses, according to officials at the Dallas company.

ISS customers can lease or rent a satellite dish, connector card and other necessary equipment for $25 to $30 a month or buy it for $699 to $1,299, officials said. The company plans to start with 5,000 customers on one 6M-bps channel, officials said. DirecPC officials said they're not too concerned about the threat of ISS, if only because the company is based in a Howard Johnson's Express motel. A more powerful contender may be an upcoming service from Loral Space and Communications Ltd. called Cyberstar, which the New York company will unveil at the National Association of Broadcasters show in Las Vegas next week.

Loral's plans for Cyberstar include multicasting, content streaming, electronic commerce, two-way communications and, of course, Internet access. Initial Cyberstar service, including multicasting and Internet access offerings of 200K bps to 400K bps, will be available in September, officials said. For frustrated users of DirecPC, which is run by Hughes Networks Systems, the competition comes not a moment too soon. As reported last week by PC Week Online, DirecPC is hastening to improve its customer service center, which draws numerous complaints from customers.

National Semiconductor Intros "PC on a Chip"

National Semiconductor today plans to announce a way to combine most of the chips used in personal computers into a single chip, which could bring PC prices under $500 and lead to a host of new computing devices. National, the country's fourth-largest chip maker, said its new chip will replace a dozen or more separate chips typically found in PCs and combine technologies that it has developed and purchased in recent years.

"Everything we have been doing is putting all the pieces together," National's Chief Executive Brian Halla said in an interview. National, based in Santa Clara, Calif., completed a $500 million merger with Cyrix, a maker of Intel. compatible clone chips, in November, giving it an arsenal of products to create a PC with one chip, excluding system memory. Other key moves included its purchase of Mediamatics in March 1997 for its graphics and television encoding technology and Pico Power in August 1996 for system logic.

National said its new chip will lead to even lower cost PCs and other low-cost "information appliances." Halla predicted PC prices could fall to $400 to $500 with National's new chips. "The pricing is up to the PC suppliers, but what we are trying to do is ... put more functionality on the chip by putting more and more intelligence on the chip," he said. Halla will discuss plans for the new chip at a semiconductor industry conference in Phoenix, Ariz., Monday. He said National will have the first working version of its chip by year-end and it could be in volume production by June 1999.

Analysts said the new chips were significant and could lead to development of other computing gadgets. "I view it as a progress report. It's not just back of the envelope stuff anymore," said Nathan Brookwood, an analyst at Dataquest Inc., a market research firm in San Jose, Calif. "It requires a lot of chip work but also a lot of software work." "This sub-$500 PC can take the forms of some very consumer friendly devices," said Richard Doherty, director of Envisioneering, a research firm in Seaford, N.Y. "It's the whole PC, not a PC in four packages. That was a very smart decision (for National) to have made a few years ago."

National's Cyrix already makes processors that power PCs that sell for less than $1,000. When Compaq Computer launched its first sub-$1,000 PC in February 1997, a Cyrix processor was inside. Since then, sub-$1,000 PCs have become one of the fastest growing segments of the PC market, using lower-cost Intel clone chips from its rivals National and Advanced Micro Devices. Intel, under pressure because of its lack of a product for that market, is expected to introduce its entry, a family called Celeron, in the next week or so.

"I think we are about a year and a half ahead of them," Halla said of Intel, whose chips dominate the PC industry. "I think we have a good plan to stay ahead of them." "You will be surrounded by PCs," Halla said of machines that could use National's new chips. "You will get into your car and say e-mail please, you will have a flat panel display on the wall above your bedroom. It could be impossible to predict what will happen by the year 2000."

Is Yahoo!'s Bubble About to Burst?

When it comes to Yahoo!'s true believers, Newton's law of gravity does not apply: What goes up will continue to climb. End of discussion. And for the better part of the last year, Yahoo!'s investors have had a field day, reaping the reward as the company's stock has soared. But with profits in only half the last eight quarters, naysayers contend that Yahoo! is drastically overpriced and heading for a big fall. Of course, that's exactly what some of the shorts were saying late last year -- only to be proved dead wrong.

But just one day before the company releases first-quarter earnings, Yahoo!'s (YHOO) shares got trounced Tuesday -- along with other Internet stocks -- dropping more than 5 points to $93.25. "These stocks were almost going vertical. There wasn't much in the way of analytics going on, it was almost pure emotion," Piper Jaffray technical analyst Ed Nicoski said. When such powerful rallies enter correction phases, even briefly, he said, the move "is almost always just as dramatic on the way down."

A rising - or bursting - bubble? But despite the pullback, many analysts don't view Tuesday's stock gyrations as a harbinger that Yahoo!'s bubble is about to burst. Yahoo! reached $103.87 on April 2, a full 50 percent higher than the stock's $69.25 closing price on Dec. 31. For Web-based services such as Yahoo!, the name of the game is visibility. Investors are valuing a company with just $67 million as if it had revenues of about $4 billion.

A striking example of irrational exuberance?

Perhaps, but measured by the number eyeballs it is attracting, Yahoo! is a resounding success and far removed from the static definition that applies to a Web search company. 25 million monthly visitors By transforming itself from a Web directory to a full-featured Internet service, Yahoo! now reels in more than 25 million people during a typical month - easily tops on the Web, according to a recent survey by Mediamark Research.

Not only is that twice the traffic of the closest search-engine competition, it's more than the number of visits to Internet pages operated by Netscape Communications Corp. (NSCP) or America Online Inc. (AOL) For that matter, it also surpasses the circulation of National Geographic, Newsweek and Reader's Digest. Looked at another way: More people now visit Yahoo! than watch either MTV or Showtime in a given week.

Wall Street, which has rewarded the company for its street smarts, expects the company to post profits of 5 cents a share, flat with the results from December. It began as a bookmark site Yahoo!'s site began life in 1993 as an extended list of Web bookmarks, and now includes an immense database of sites from across the Internet, gathered and categorized by a staff of around 30 professional surfers.

The strategy of offering a hand-picked catalog of the best of the Web was initially enough to push Yahoo! past the ranks of search-engines Excite (XCIT), Lycos (LCOS) and Infoseek (SEEK), which use automated Web-crawling software. But Yahoo!'s directory service is now just a small part of the company's business, which includes such features as news, maps, personal Web pages, chat rooms, free e-mail, instant messaging, stock quotes and shopping. In fact, Yahoo! is now less a Web directory than an online service comparable to America Online or the Microsoft Network.

Diversification The Yahoo! crowd is also extending its brand far and wide beyond. On Tuesday, the company launched an online insurance service offering content from ''InsWeb,'' a major Internet insurance marketplace. And last month, Yahoo! held an invitation-only showing in San Francisco's tony fashion district to announce plans for its own line of designer clothing.

"It's like an airport," said Yahoo! COO Jeff Mallett. "It doesn't matter where you're going, you always start at the airport, and you always come back to the airport. (The new features are) more things to do in the airport while you're waiting for the plane." So how does Yahoo! plan to keep up the pace? More partnerships are in the works, and the service will continue to add new content. But Mallett says the company will stick with the strategy it's had from the beginning – putting a human face on the Web. "What we fundamentally do isn't going to fundamentally change," he said. "We're going to continue to be an aggregator. ... We want people to say, 'I may not know exactly where I'm going, but I know Yahoo! can get me there.'"

Internet Search Engines Inefficient, Study Finds

If you use a search engine like Lycos or HotBot to search the Internet, you may not get as much coverage as you think, computer science researchers said Thursday. Steve Lawrence and Lee Giles of the NEC Research Institute said their study found people who rely on the major search engines to find information on the Web only get a small proportion of the available documents. This means that people cannot use just one engine to get the full benefits of the World Wide Web, they said. But combining the six engines in the study covered about 3.5 times as much of the Web as one engine, they wrote.

Playboy Awarded $3.74 Million in Internet Case

Playboy said Thursday a federal judge in southern California has awarded the media company what it believes to be the largest Internet-related damages award to date. The award was made against a commercial Internet service that used almost 7,500 Playboy-owned pictures on its Web site without authorization. The $3.74 million award, plus attorneys' fees and court costs, was assessed against San Diego-based Five Senses Productions and its owner, Francesco Sanfilippo, Playboy said. It said the judgment is a landmark legal victory for the company, which spends millions of dollars annually on photography and design to produce its images.

Intel, the New Utah Utes?

I would rather submit to prolonged Chinese water torture than utter the words 'paradigm shift,' but there's something happening here, and -- my apologies to Buffalo Springfield -- what it is happens to be exactly clear. Times are changing and we may soon need to dust off the 'P word' to describe the rapid fading out of the PC -- or more precisely, the PC-centric era. If you want a more concrete mental picture, think back to how the University of Utah appeared at the end of Monday night's NCAA finals. You get the idea.

Undeniably, the eleven-year period between 1985 and 1996 was a feast royale for scores of computer and chip companies. Serious fortunes were made everywhere from Palo Alto to Pensacola as customers willingly bought into the promise of 'faster, cheaper, smaller.' That was then, this is now. Just as the minicomputer and mainframe-driven market fell victim to the PC in the early 1980s, the business that grew up around the PC is giving way to a new "hot" industry which is comprised of companies developing products and services for the Internet and wireless communications.

Industry watchers believe this is one of those rare points in time when converging trends are forcing a fundamental reshaping of the high-tech terrain. Consider current events:

PC prices are falling and so is unit growth.

Microprocessors have turned into commodities.

The growth in the number of transistors per machine is 'maxing out.'

Internet stocks are going ga-ga.

In the hardware market, oversupply and weakening pricing are now the norm. That's not the case with Internet issues, where companies like Yahoo! are trading at nosebleed P/E ratios that continue to defy the laws of gravity. All this is causing hearts to flutter on Wall Street where stock pickers wonder whether a bellwether company like Intel will stay the course. Or, will it wind up wheezing and puffing as quicker competitors elbow it aside?

This is a tough one to call. Intel is one of the best managed companies in the world, but it's difficult arguing with data suggesting that the salad days are nearing their end. Even without the negative impact of ebbing demand in Asia, you can kiss the days of 15 percent annual unit growth a fond farewell. The go-go days are history. If it's lucky, the PC industry will maintain the 10 percent rate of growth logged in the first quarter (and that was half the pace of a year ago!).

Most analysts estimate that the slowdown will accelerate, a prediction which if true, spells bad news for Intel. The chipmaker's sales are expected to only grow fractionally this year and at best, somewhere in the high single digits in 1999. Newly-appointed Intel CEO Craig Barrett is going to have his hands full proving he's a worthy successor to Andy Grove. By the way, wasn't it interesting that in turning over the reins, Grove said he planned to think a lot about bandwidth, network applications, and "the delivery of network computing products and services" to small businesses.

Grove, who chooses his words carefully, knows the next big wave of growth will take place around the convergence of the Internet and communications industries. That's why Intel is pushing especially hard in the server and workstation markets where prices and profit margins are so much higher than they are for PCs. The Internet connection is obvious: Sell powerful chips for big servers that connect people and companies to the Web and voila! -- it's back to the days of wine and roses. In that light, the upcoming introduction of 350Mhz and 400Mhz Pentium II chips this year-- and next year's rollout of the 64-bit Merced -- become that much more crucial.

E-zines Migrate to Paid Subscriptions

Microsoft soothsayer and Chief Technology Officer Nathan Myhrvold predicted in Slate that Web readers wouldn't pay online subscriptions until they became both addicted to the medium and bored by their free options. "Imagine trying to sell subscriptions to HBO back in the 1950s," he wrote. "People clustered around their primitive sets to watch the damnedest things (Milton Berle for instance)."

Slate ( http://www.slate.com ) has, at various times, heeded and ignored this warning. This spring, Microsoft's e-publication tries subscriptions a second time with a price of $19.95 per year. It's not alone: nearly a dozen major Web publications, including Salon, MSNBC, Money.com, and BusinessWeekOnline, have announced plans to charge subscriptions. Although ad sales on the Web are up significantly - to $597 million last year according to Cowles/Simba Information - most dollars go to high-traffic sites like search engines, as online publications struggle to meet payroll.

The Wall Street Journal Interactive Edition is considered a model. WSJ.com boasts 100,000 readers paying $49 a month. But subscriptions are hardly a panacea. In fact, the Journal lost a third of its online readers when it began charging in 1996. So, e-zines hope to further boost their botttom lines with pay-per-view transactions and the sale of reader information. As Berle once said, "If opportunity doesn't knock, build a door."

A Digital Model for Virtual Worlds

With digital heroine Lara Croft pushing sales of Tomb Raider videogames past $3 million, you would think there'd be room for another virtual babe to pull in a big audience. So hopes HoriPro, the Japanese talent agency for the ultra-lifelike virtual star Kyoko Date. Kyoko's bubble-gum personality and songs were designed to appeal to Japanese teens. While her CDs have sold, she hasn't translated into a cybersuccess. So HoriPro set her up with a day job: spokesmodel for Oz Interactive, a San Francisco firm that creates virtual worlds for PCs.

Oz, a company with roots in dance music, plans to put a Euro-style spin on Kyoko, toughening her up for new audiences. So far, Kyoko earns her milk money as a model for Oz's 3-D streaming Web software Longer term, the company hopes to develop her into an entertainment icon, perhaps featuring her in concerts or ads. This may involve computer surgery to modify her looks. Says Oz spokesperson Daddi Gudbergsson: "Should the German Kyoko Date look the same as the Japanese? Is the American version going to be a little taller, a little thinner, maybe have bigger breasts? These are the exciting opportunities of working with a virtual star."