May 2, 2000 2:30 PM PDT

Despite legal problems, Amazon stands by e-commerce deals

In the year since its acquisition by Amazon.com, Alexa Internet has brought its new owner privacy lawsuits, a federal probe and other legal headaches. But Amazon shows no signs of buyer's remorse.

On the contrary, the Alexa deal bore fruit faster than any comparable purchase by the online giant in the past two years. Moreover, according to industry analysts, Amazon's use of Alexa's e-commerce technology has advanced the company in the all-important arena of personalization and comparison shopping, possibly forging new legal and practical ground for the industry as a whole.

"If you believe that personalization works, and I certainly do, and that's where our future lies, you have to play around with it and you have to venture out onto the edge," said Jonathan Gaw, analyst with International Data Corp. "That's certainly what Amazon is doing with Alexa. It's an investment in the future. Amazon is learning lessons that a lot of e-tailers are going to have to figure out sooner or later."

Those lessons are see story: Probes are latest headache in e-commercehardly painless. Even in the litigious atmosphere of high-tech mergers and acquisitions, Alexa's first year under Amazon's ownership has been remarkable for its legal consequences. In December, a security consultant filed a privacy complaint with the Federal Trade Commission. In January, an Amazon customer sued the company over Alexa's technology on privacy grounds. Four other litigants have followed with their own suits.

In February, Amazon acknowledged it was the subject of an FTC probe.

The five class-action suits pending against Amazon may be consolidated into a single class-action suit as early as this Thursday, when U.S. District Court Judge Marsha Peckman in Seattle will consider motions to grant class-action status to the group--a motion Amazon opposes--and to consolidate the five into one class, which Amazon supports.

Amazon and the plaintiffs are proposing a trial date for one year from now.

In addition to its legal problems in the privacy arena, some say Amazon may have acquired a potential copyright headache in the form of the nonprofit archive of the Web supported by Alexa.

Lawyers for Alexa referred calls to Amazon. Amazon referred calls to Alexa. Alexa declined to comment for this story, citing the FTC probe.

The Alexa purchase was extraordinary considering the short time in which Amazon turned around a working product.

Amazon a year ago was on a buying spree. The Alexa acquisition was one of three simultaneous acquisitions with Accept.com, launched as Emptor.com, and Exchange.com. That binge followed the acquisitions of Junglee and PlanetAll.

Although the Alexa buy quickly showed results with zBubbles, a comparison shopping and personalization service, many of Amazon's other deals have left analysts scratching their heads.

"Alexa is one of the few applications that Amazon has used after buying it," said Carrie Johnson, analyst with Forrester Research. "Yes, they got sued over it, but it demonstrates the importance of where they're going with that technology that they've implemented it so swiftly."

IDC's Gaw cited the Accept.com buy as missing in action, though Amazon later countered that its technology was implemented in September in person-to-person credit card services for the e-tailer's zShops and Auctions. Johnson said Amazon has yet to introduce anything from its acquisition of PlanetAll, a contact management system.

"It has yet to surface," Johnson said. "You can assume that's because they don't know what do to with it, or that they don't have the resources to be able to integrate it. Alexa clearly took precedence. zBubbles is functioning. You can download it."

zBubbles, available in a trial version for use with Microsoft's Internet Explorer 5.0 browser only, is a tool that lets online shoppers compare products across the Web, not just on Amazon's own pages. The tool lets shoppers post comments about products and services, much like a portable version of a new wave of sites offering consumer reviews. These include Deja.com and Epinions.com.

Tools similar to zBubbles include the DashBar by Dash, BizRate.com's eBoodle and iChoose.com.

Those companies are watching Amazon's legal tussles closely.

"The FTC could use the (zBubbles) browser bar to make an example, and then we would see trickle-down effects to anyone who does it," Johnson said. "And it's an increasingly crowded field. The ripple effect could be huge."

On the privacy radar
Before the Amazon acquisition, Alexa's technology was geared more toward Web surfers at large and less toward shoppers. Alexa aggregated and analyzed Web traffic patterns and determined from its analysis which sites were related to one another. Both Microsoft and Netscape wound up implementing Alexa's "What's Related" feature into their Web browsers.

The trouble started Security, privacy issues make Net users uneasywhen Internet security consultant Richard Smith noticed that Alexa was collecting more information from his computer than he claims it acknowledged.

"I believe that the transmission of personal data by the zBubbles plug-in is in breach of the zBubbles Privacy Policy," Smith wrote in an open letter to Amazon chief executive Jeff Bezos.

Smith pointed out that zBubbles promises to collect people's Web traffic and usage data in such a way that that data remains anonymous. He then demonstrated that zBubbles was collecting full Web addresses (URLs), including query strings that might include personal information such as names and addresses.

"Pretty clearly, no software package should ever be transmitting this kind of personal information to another party without the knowledge and consent of a user," Smith wrote.

Apparently the FTC agreed, to the extent that it launched its probe of Alexa. The FTC declined to comment for this story.

Attorneys for one class-action suit against Amazon expressed confidence that they would prevail over the e-commerce giant.

"We know that the FTC is investigating, we know that the practices have been documented, and there is clearly merit to the claim," said Alan Mansfield, a partner with law firm Milberg Weiss in San Diego. "We think that the obtaining of information from people, that the taking of that information without consent and authorization, is unlawful. Even if the information is ultimately not used by Amazon and taken without their consent, it's unlawful."

Amazon stands accused of invasion of privacy under Washington state law and of violation of the Computer Fraud and Abuse Act and the Electronic Communications Privacy Act, both federal laws.

Still, analysts shrugged off the seriousness of Alexa's privacy woes.

"The lawsuits are over not telling users what information was collected," Gaw noted. "It's not the break-in, it's the cover-up. To the extent that Amazon and the industry as a whole is learning a lesson in how to manage people's information in a way that is acceptable to customers, it's a valuable lesson."

Amazon's legal trials are not the only ones helping to set privacy precedents. Other high-profile privacy gaffes have dogged DoubleClick, RealNetworks and Microsoft.

In the future, Web companies may not be trailblazing in the privacy realm so much as following a federally mandated map. Last week, industry leaders, academics, elected officials and experts including Smith met in Washington to finalize recommendations to the FTC for Web privacy guidelines. The FTC is expected to present its own report to Congress this summer.

 

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