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Google spokesman Adam Kovacevich moderates a chat about the Internet economy with (from left) Robert Atkinson of the Information Technology and Innovation Foundation, Edwin Garrubbo of the Electronic Retailing Association, Michael Avon of Columbia Capital, and Google chief economist Hal Varian at the company's D.C. headquarters Friday.

(Credit: Anne Broache/CNET News.com)

WASHINGTON--The U.S. economy as a whole may not have the sunniest prognosis lately, but Google's chief economist and other industry watchers on Friday diagnosed the Internet sector as relatively healthy.

During a panel discussion at Google's D.C. headquarters, professor-turned-in-house-economist Hal Varian argued that an analysis of search queries at his company's site mirrors deeper economic trends. Job-related searches are up as a share of total searches, for instance, and real-estate and luxury goods searches are down--exactly what you'd expect in a "recessionary environment," Varian said.

But overall, the total number of searches on any topic continues to grow "very dramatically" from year to year, and e-commerce sales also continue to climb, Varian said.

"The lesson you learn from looking at query patterns on Google is, yes, we're seeing an economic slowdown, but no, that's not an Internet slowdown," said Varian, who admitted that his day job focuses on a more microeconomic task: the economics of Google's advertising auctions. "The Internet is still looking pretty strong, compared to most of these other sectors."

According to the latest U.S. Census Bureau figures, e-commerce sales have experienced a steady uptick since the turn of the century, estimated at $136.4 billion in 2007--an increase of 19.0 percent over 2006.

Other panelists were similarly optimistic. Edwin Garrubbo, chairman of the Electronic Retailing Association, which represents direct marketers, cited Forrester Research statistics estimating that e-commerce sales will surpass $200 billion this year and hit $300 billion by 2011, with double-digit growth each year in between.

To be sure, online sales still account for only a fraction of total retail sales--about 3.4 percent in 2007, up from 2.6 percent in 2006, according to the Census Bureau. Saks Fifth Avenue, for instance, currently does the largest volume of its sales at its flagship Manhattan store, but its online counterpart ranks second by that metric, and Garrubbo predicted that "it's only a matter of time before the potential for that online business is going to far exceed New York's"--and eventually that of "all of its other stores combined."

In the venture capital world, investing is down about 10 percent overall from last year, and the number of early-stage companies has dropped more significantly, but that's not necessarily a sign of trouble, suggested Michael Avon, a principal investor at Columbia Capital. After all, last year's investment numbers were the highest since 2002 or 2003, he said.

"Anecdotally, in the Internet, I think we're seeing more good opportunities now than six months ago," said Avon, whose portfolio includes Internet, digital media, and enterprise software firms.

In the firms he manages, "we haven't seen significant pullback yet in ad spending or in consumer spending on digital goods," though he acknowledged seeing some of the "froth" being skimmed off of deals.

His statements seem consistent with a recent report by Dow Jones VentureSource and Ernst & Young, which found that while venture capital dollars are scarcer overall, companies focusing on communications, electronics, information services, semiconductors, and software actually took in a total of $3.88 billion in the first quarter of 2008, marking a 20 percent gain year over year.

Even so, it's clear that at least some smaller companies at the Web 2.0 summit in San Francisco this week are opting to proceed cautiously, as CNET News.com reported Friday.

Avon, for his part, said he advises start-up firms to be "incredibly careful with cash," since many a promising company has failed for misjudging its cash needs, and to try to experiment with multiple sources of revenue--not banking entirely on advertising, for instance.

Robert Atkinson, president of a think tank called the Information Technology and Innovation Foundation, argued that information technology is such a major economic driver that, since 1995, it has enabled the U.S. economy to be $2 trillion larger than it would be, absent technology.

"There's absolutely no evidence that somehow, we're at the end of the IT revolution," Atkinson said, adding, "I think we've got a minimum of 10 or 15 years, maybe a lot longer."

Updated at 3:20 p.m. PST with more background, analyst comment.

Meg Whitman is stepping down as chief executive of eBay after a decade, allowing a trusted insider to respond to slowed growth at the online auction pioneer.

Whitman has long said that every CEO should step down after 10 years to seek new professional challenges and make room for fresh leadership. Following her own edict, she will step down March 31 while remaining on the board.

"It's time for eBay, and this community, to have a new leadership team, a new perspective, and a new vision," she wrote on the company blog. A report that she would step down appeared Tuesday in The Wall Street Journal.

Meg Whitman

(Credit: eBay)

Replacing her is John Donahoe, head of eBay Marketplaces, whom Whitman recruited in 2005. Donahoe is well-respected by investors and board members, analysts said.

Whitman joined eBay in March 1998 and successfully navigated it through the dot-com boom and bust and on to near cult-like popularity with what was known as the "eBay economy." Through eBay, anyone with an Internet connection could find obscure collectibles or turn their dusty garage treasures into cash.

Now, the company faces growing competition from Amazon.com along with what one analyst calls "buyer fatigue" following years of revenue leaps.

"Whitman wasn't as innovative as her counterparts at Amazon and elsewhere...They definitely need a bit of a change of direction," said Aaron Kessler, an analyst at Piper Jaffray. "The biggest challenge is buyer activity. There's been buyer fatigue in the last year or so, with fewer people coming to the site and coming less often."

Sales are still growing, just not at the pace they once were. The company reported Wednesday that fourth-quarter profits rose 53 percent from a year earlier to $531 million, and revenue increased 27 percent to $2.18 billion.

However, the stock dropped about 6 percent in after-hours trading to $27.15 after eBay warned that revenue in the current quarter and for the full year would be below analyst estimates.

While auctions represent the majority of eBay's revenue, growth was led by other units, including PayPal, online ticketing site StubHub, Internet phone company Skype, classifieds, and advertising.

In an attempt to reverse the slowed growth, eBay has redesigned its auction site and cut some fees for listing items. Executives have hinted at further, more drastic changes to the company's listing and selling fees.

eBay took a write-down last year for its purchase of Skype, forcing it and others to reassess the value of the start-up.

Despite the concerns, the impact of Whitman's tenure should not to be overlooked, said Scott Devitt, an analyst at Stifel Nicolaus & Co.

"Meg Whitman was a phenomenal success running eBay for a decade," Devitt said. "She has overseen an 88-times increase in revenue and a more than 1300 percent return in stock since the IPO...What's happened is purely maturity and not necessarily bad business."

Updated at 2:30 p.m. PT with more detailed timing information and a Yahoo apology.

I feel bad for the thousands of small merchants who rely on Yahoo for their e-commerce services. They totally missed the anticipated sales spike on Cyber Monday, so dubbed because it is the first big day of online sales after Thanksgiving, which heralds in the holiday shopping season.

The problem with error messages coming up during checkout transactions, cutting off the checkout process, was first reported by Yahoo to its Merchant Solutions customers.

The problems started around 6 a.m. PT Monday with outages in Yahoo's systems that power the merchant stores, according to Yahoo's Yodel Anecdotal blog. The issues lasted until about 1 p.m. PT when transactions began going through at a much higher rate, albeit much slower. By 6 p.m. PT things were back to normal, the blog entry said.

That's at least seven hours with no service, and then another five hours with slow service, on what is believed to be a huge online-shopping day.

"We deeply regret the inconvenience this caused to both our merchants and their shoppers. Our customers' expectations were not met, nor were our own. And we are moving mountains inside Yahoo to find out why and how this happened, and to take steps to try to ensure it doesn't happen again," Rich Riley, senior vice president of Yahoo's online channel division, wrote in the entry, which also includes the words "mea culpa" in a purple box. "As for the future, rest assured that we are taking the necessary steps to prepare for the peak holiday selling season. We have technical and customer relations staff mobilized and ready to support our partners."

I don't think that will do much to pacify Yahoo customers who were livid and threatening to cancel their accounts.

"Absolute disaster for us...We were having a record weekend and now this...What a disgrace for Yahoo to have issues on one of the most important days of the year," a Webmaster with the alias "jwrunner" wrote in WebMasterWorld discussion group.

"Yeah, this is really unacceptable. Overall, Yahoo's servers are pretty slow, and this is just the nail in the coffin," someone named "gzlatin" wrote. "What is Yahoo going to give us back in exchange for losing thousands of dollars in sales? A free month? We had better at least see a VERY large PPC credit with Yahoo to try and make up for this."

The Yahoo representative did not immediately respond to an e-mail asking whether the Yahoo customers would be compensated for their lost sales. Yahoo also has declined to say exactly how many of its 40,000 Merchant Solutions customers were affected.

At least one Yahoo customer mentioned the "G" word.

"This is the perfect time for Google to introduce a merchant platform--we could then accept Google Checkout as well," wrote "Montpelerin." "...are you reading this Google (and Yahoo)?"

Which would you choose during the holiday shopping season: a long line at the local Costco warehouse store or an average download wait of 115 seconds per page on Costco's e-commerce site?

During Black Friday and Cyber Monday, a third of the 30 Web sites that Keynote Competitive Research monitors during the holiday season showed a significant drop in speed. Online shoppers, despite using high-speed connections, faced up to 2 minutes to process their e-commerce transactions, compared with the 1- to 2-second blip most are accustomed to, according to Keynote, which released its report Tuesday.

Traditional brick-and-mortar retailers that recently beefed up their e-commerce site were the group largely affected with traffic slowdowns, according to the report. And the research firm noted that product searches and check-out transactions were the two areas on sites that were affected the most with sluggish performance.

In Costco's case, for example, its site slowed by as much as 500 percent between 7 a.m. PT and 1 p.m. on Cyber Monday to log on, add items to a shopping cart, and check out, according to the report.

Toys "R" Us suffered as much as a 300 percent slowdown in downloading pages between 10 a.m. PT and 2 p.m. on Cyber Monday, translating to an average wait of 30 seconds to 60 seconds per page. J.Crew experienced a similar slowdown, with the average wait increasing more than 400 percent, according to Keynote. Black Friday and Cyber Monday typically result in a 5 percent to 10 percent increase in site sluggishness, Keynote said.

As you debate the merits of venturing out to hit the local retail stores this holiday season, verses spending a little more time processing transactions online, consider this: which situation affords you more time to eat another Christmas cookie and drink more eggnog?

Updated at 4:50 p.m. Monday, November 26 to include more info from Yahoo.

It's "Cyber Monday" and you want to get some online bargains. Well, beware of sites powered by Yahoo Merchant Solutions, at least for now.

Apparently, "many" of the 40,000 merchants in the program are reporting that shoppers are receiving error messages saying "system unavailable" during the checkout process, Yahoo spokeswoman Kristen Wareham said in an e-mail.

"Due to heavy holiday traffic on Yahoo-powered merchant stores, some consumers have not been able to complete online transactions. We are aware of the issues and are working towards a solution as quickly as possible," Wareham said.

"Yahoo makes every effort to prevent outages and has a better-than-average record with this issue," she said. "We continue to put strategies in place that will minimize the impact that extremely heavy traffic periods have on our merchants."

McAfee announced plans on Tuesday to acquire ScanAlert in deal worth approximately $51 million in cash.

And what is McAfee looking to get for its money? For starters, it'll snap up ScanAlert's Hacker Safe Web site security certification service, bolster its own SiteAdvisor security-rating system, and become the keeper of ScanAlert's proverbial "good housekeeping" seal for sites seeking to reassure customers that they are conducting safe online transactions.

The acquisition, expected to close in the first quarter, calls for integrating ScanAlert's e-commerce security certification service into McAfee's SiteAdvisor system. McAfee last year acquired SiteAdvisor, which informs users about the safety of their returned search results, estimating the likelihood that a site could potentially infect their computer with spyware, spam, or a browser attack.

ScanAlert issues a Hacker Safe certification to Web sites that have undergone its scanning service for vulnerabilities, as well as demonstrating that they have been fixed. The sites also need to undergo daily scans by ScanAlert, in order to maintain their Hacker Safe stamp of approval.

The Hacker Safe certification will be visible through SiteAdvisor, once the acquisition is completed, and the technologies are integrated.

Security fears have resulted in consumers delaying their online-shopping decisions and transactions by more than half a day, according to ScanAlert's own research.

Those concerns are nothing new. Two years ago, a fourth of online shoppers reduced their purchases, as fear over identity theft soared, according to a report by RSA Security.

E-commerce site operators, as a result, have been particularly interested in trying various techniques to boost the security of their sites.

As part of the McAfee deal, ScanAlert may see its overall acquisition price jump by another $24 million, should it hit certain performance targets.

The company has 8,000 customers, who represent more than 75,000 Web sites. Those customers include Toshiba, Warner Bros., and the American Red Cross.

Summers are famous for slow news cycles so I had some time recently to shop online at KlearGear.com.

A competitor to better-known ThinkGeek, KlearGear sells nerd-themed apparel, gadgets, toys and computer accessories. I learned about the e-commerce site at a new favorite gadget blog, ChipChick.com.

During my visit, a single thought flashed in my mind: "Devil stay behind me. I could drop plenty in this Web store."

Who wouldn't want to rain some rubber-band hurt on cubicle mates with a rapid fire rubber-band gun? Repel unwanted co-workers with a computer-controlled, foam-missile launcher.

I laughed out loud when I saw the Relativity Watch. The numbers on the face rotate with each passing second.

I can't wait to get my hands on the tiny TV Keychain Remote Control. KlearGear asserts that the $4.99 gadget can control any television. Next time I'm in a bar and the patrons drink themselves deaf, I'll covertly crank down the TV.

As for jazzing up my cubicle, I think the $89 Floating Ideas Levitating desk globe is just what my work station needs. The sphere is suspended in air by an electromagnetic field. Cool.

When it comes to decorating, I'll admit I have schlock taste. That's probably why I tarried too long on the wastebasket emblazoned with the skull and crossbones--an obvious nod to the file-sharing crowd--and the Star Trek voice operated light dimmer, the one that responds to commands in the voice of the Federated computer.

KlearGear even sells nerd ties. If ties ever make a comeback in Silicon Valley, you might try a print of a computer circuit board. In tech circles, such a garment could pass as haute couture.

The legality of a Maine state law designed to prevent minors from buying cigarettes online is slated to get another look from the U.S. Supreme Court.

Right now, the 2003 law is on ice, after successful legal challenges from trade associations representing air and motor carriers in Vermont, Massachusetts and New Hampshire. But the high court agreed on Monday to accept a petition from Maine State Attorney General G. Steven Rowe to review the earlier decisions.

Federal district and appeals courts in recent years have largely agreed that the state law conflicts with a federal law known as the Federal Aviation Administration Authorization Act of 1994. It dictates that states may not enact laws "related to a price, route, or service of any motor carrier...with respect to the transportation of property."

Maine's law prohibits tobacco retailers from shipping their products directly to customers in the state unless they use carriers that deliver the package directly to the purchaser, require a signature from the purchaser, and check the recipient's ID if he or she is younger than 27 years old. Retailers face penalties if they use carriers that don't provide such services.

State officials, for their part, have insisted that the federal law is intended to preempt only economic-related laws, not those aimed at protecting the public welfare. Because Internet and telephone sales of tobacco have become a "serious problem," the appeals court's decision poses "far-reaching and devastating effects on the states' ability to exercise their historic health-related police powers," they wrote in their petition to the Supreme Court (PDF).

Besides, Maine has regulated the delivery of various substances, ranging from fireworks and explosives to liquor, drugs and handguns in the past, the petition said.

The Bush Administration had urged the Supreme Court in a brief not to accept the case, saying the appeals court was correct in finding that the federal law trumped Maine's state statute.

A Massachusetts Democrat said Tuesday that he plans to revive an earlier effort to force broader sales tax collection by Internet retailers.

At a hearing focused on what to do about a soon-to-expire ban on Internet access taxes, Rep. Bill Delahunt (D-Mass.) said he remains concerned that states are being deprived of billions of dollars in would-be sales tax revenue because of the massive growth of e-commerce over the years.

"I will be filing legislation come July that hopefully will deal with the issue," he said.

At the moment, if you order something from a company that's located entirely out of state, you're typically not charged sales tax, although technically, most states require you to pay up in the form of a "use tax."

But in recent years, there has been a push by some members of Congress to change that.

An aide wasn't immediately able to provide details on what shape Delahunt's legislation will take. He was among the sponsors of a 2003 proposal designed to get more companies to collect sales taxes from customers in states where they don't have a physical presence.