The Motley Fool Take on Tuesday, Feb. 26, 2002
eBay Exits Japan

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For the first time in three months, the Conference Board's consumer confidence index declined in February, falling to 94.1 from 97.8 in January. Deflated by the news, the major market indices sputtered early on in the day until The Motley Fool 50 index stood up and said, "Look, can't we all just be a little more confident?"

With that, the markets got back to just about even at the closing bell.

In today's Motley Fool Take:

eBay Exits Japan

The "network effect" is too tough to overcome, even for eBay (Nasdaq: EBAY), the very company that used it to build an empire. The online auction giant announced today that it is, "for now," pulling out of the Japanese market, unable to overcome the lead built up by Yahoo! (Nasdaq: YHOO).

The concept of the network effect is quite simple: Consumers interested in purchasing products naturally gravitate to the site that has the best selection (and, therefore, the most sellers). Sellers, on the other hand, even more naturally gravitate to the site with the most buyers. The effect feeds on itself, and once a certain critical mass of buyers and sellers has been achieved, it's almost impossible for competitors to overcome. For that reason, eBay will likely never be challenged in the U.S. and the other countries it dominates: Germany, the United Kingdom, France, Australia, Canada, and elsewhere.

But while it pulls away from one Asian market, eBay is forging into another with the purchase of NeoCom Technology, the leading operator of auction sites in Taiwan. The acquisition will cost eBay about $9.5 million in cash, and will knock a penny off its second-quarter earnings per share estimate of $0.17. NeoCom is not expected to add significant revenue in 2002.

Many of us wondered why Meg Whitman decided to throw significant resources at Japan when Yahoo! had such a large lead -- 95% of the market by some estimates. Perhaps she was hoping Yahoo! would slip up, distracted by the downturn in its main business and a crashing stock price. But in online auction land the network effect is as sure as the law of gravity, and now eBay's only chance in Japan is to buy the business from its rival... and the selling price won't be cheap.

Microsoft Moves on Siebel, SAP

Microsoft (Nasdaq: MSFT) announced that its next move into the customer relations management (CRM) software market will be a new product introduced in Q4 from its Great Plains Software division. This was only a matter of time, following Microsoft's  purchase last year of the Fargo, North Dakota enterprise resource planning (ERP) software maker for $1 billion.

CRM software helps companies manage activities such as sales force automation, call centers, and online purchasing systems. The current market leader is Siebel Systems (Nasdaq: SEBL), which sells to mid-size companies through Great Plains. Moving in fast is Germany-based SAP (NYSE: SAP), which partners with Microsoft in many business areas.. Those companies' CRM products use Microsoft's Windows platform.

Microsoft will sell the CRM software in both a Web-based format based on its .NET platform and as conventional software. A company spokesperson told The Wall Street Journal that Siebel and SAP target large customers, while Microsoft "doesn't have a direct sales force. We don't have the capability to walk into these large enterprises."

Microsoft can soft-pedal all it wants, but this is a move onto Siebel and SAP's turfs.Jupiter Media Metrix (Nasdaq: JMXI) estimates that the CRM component of small to medium size business software will be $651 million by 2006, measly to a company with $26.8 billionsin trailing-12-month sales. The smart money says that a massive Redmond, Washington camel just put its nose under the tent. Humps to follow.

Long-Distance Rates Dial Up

Fear you're over-paying for your long-distance phone service? Get ready to shell out even more to call Aunt Minnie in Ohio. The nation's largest long-distance providers -- like AT&T, MCI Worldcom, and Sprint -- are hiking basic long-distance rates in the coming weeks.

According to ConsumersUnion.org, basic long-distance rates will rise to as much as 35 cents a minute during the day from about 26 cents a minute in 2000. Evening rates are going up from about 16 cents a minute to as much as 30 cents, and weekend rates from about 12 cents to as much as 19 cents.

We may be talking pennies here. But consumers with a halfway decent memory may wonder why they are paying more -- not less -- for long distance. The 1996 Telecommunications Act was supposed to increase competition among carriers and provide customers with better, cheaper service. Sure, per-minute rates have dropped 14% in the six years since the Act became law. But carriers have been making up the difference in costs by increasing their monthly fees. According to Consumers Union, the most popular calling plans that charge just pennies per long-distant minute also carry monthly service charges, and fees.

What should you do?

Review your calling habits: If you're what the industry calls a "low-volume user" (and half of the nation's telephone users are), you may want to avoid the "pennies per minute" plans. A "low-volume user" is defined as someone who makes no more than 50 minutes of state-to-state long-distance calls each month. Consider this example from Consumer's Union: Take a person with a seven-cents-a-minute calling plan who makes 30 minutes of long-distance calls. The plan charges a $3.95 monthly service fee, an in-state fee of $1.95, and a universal service fee of 11 percent of the monthly charges. When you add up the fees, this person pays $8.92, which is 29 cents a minute.

Don't pay for service you don't use: FCC data shows that 20% to 30% of consumers make no long-distance calls in a given month. They still have to pay subscriber line charges of more than $5 a month and fees for long-distance access that usually fall between $2.95 and $5.95 a month, essentially paying for a service they do not use. Solution: cancel and use a long-distance calling card if you need to.

Shop around:Sites like Lowermybills.com and GetConnected.com enable users to compare carriers side-by-side on features and pricing for domestic and international long-distance services. Keep in mind that these sites often limit the companies they compare to those who are members of its affiliate programs. Still, you can find some great bargains through them, and may even discover a super-cheap small carrier by spending a few moments clicking around.

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Quick Takes

The orange apron is rocking. Home improvement chain Home Depot (NYSE: HD) edged out fourth-quarter profit targets as the retailer saw sales grow by 29% and earnings climb 50% higher to $0.30 a share. Homebuilders are thriving as well, as witnessed by luxury home maker Toll Brothers (NYSE: TOL) blowing past Wall Street's numbers this morning as well.

What goes well with a healthy housing market and a climate ripe for refinancing? That's right, kitchen appliances. Lots and lots of kitchen appliances. Whirlpool (NYSE: WHR) announced that it would be topping first-quarter estimates and may have to keep hiking projections if the industry continues to strengthen. But it's not as if the world's leading home appliance brand will be resting on its tried and true laurels. The company is working on front-loading washing machines, clothes vitalizing systems, and refrigerated ovens. Yes, refrigerated ovens.

Milking the same trend, Pier 1 (NYSE: PIR) is sprucing up its own forecasts. With same store-sales in February coming in at least 10% higher than last year, the home decor retailer now sees fiscal fourth- quarter earnings coming in between $0.48 to $0.49 a share -- as high as a nickel above Wall Street's expectations. 

So, you've got the Whirlpool Polara prototype range chilling and ultimately baking your dinner for tomorrow and you're going to be serving it up on some imported ceramic Pier 1 plates. Want to play a video game while you wait? Midway Games (NYSE: MWY) reported a narrower quarterly loss as it continues to focus on the home video game market. While revenues fell sharply, that was a result of the company ditching the coin-operated video arcade game market. This year, the company expects to ship more than 40 new video games resulting in pretax and pre-charge profits of roughly $50 million.

In a caffeinated move, Starbucks (Nasdaq: SBUX) will be crossing the border to open its first coffee brewing haven in Mexico City later this year. The company also sees 20% in top line growth as it looks to open at least 1200 new stores this year. Yes, apparently there are a few corners of real estate left untouched by the java masters. Earnings for the year should come in between $0.52 and $0.53 a share. Now, if only we can get the Starbucks' barristas to don orange aprons. That way, today's Quick Take roundup would come full circle. 

As Enron Turns: Whistle-blower and Enron vice president Sherron Watkins was back testifying before Congress, as was former CEO Jeffrey Skilling. At the same time. Reuters reports the two mostly avoided making eye contact. Instead, Skilling denied Watkins' assertion that he had "duped" former chairman Ken Lay. Watkins didn't let up, however, telling the Senate subcommittee, "I believe that [former CFO] Mr. Andy Fastow would not have put his hands in the Enron candy jar without an explicit or implicit approval to do so from Mr. Skilling."

And Finally...

Today on Fool.com: Despite massive losses in recent years, most of the decade's big stock gains were in technology.... Tom Jacobs takes a close look at Amgen's $2.5 billion convertible debt issuance.... One Fool community member wonders if all companies lie about their numbers -- and if we're part of the problem as investors.... Selena Maranjian's doing the splits over stock splits.

Brian Bauer, Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Dayana Yochim

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