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*Site Blackouts, ISP Closings Mar E-Holiday Shopping

While consumers are shopping online in record numbers this holiday season, the increasing traffic has caused slowdowns and shutdowns at some major sites.

Amazon.com has had three outages since late November, one lasting 40 minutes. The heavy traffic — Amazon was the most visited site over the Thanksgiving weekend — can be attributed partly to its Toysrus.com affiliation, said Pam Stubing, analyst at Ernst & Young.

Walmart.com also collapsed several times during the week after Thanksgiving, only a month after the retailer overhauled its site. A Wal-Mart spokesperson said blackouts, ranging from an hour to 90 minutes, stem from upgrades and improvements to the site.

In addition to the nation's largest e-tailer and retailer, respectively, smaller e-tailers also were not prepared for holiday traffic. Payless ShoeSource's Payless.com shut down for an hour Dec. 4. StarWars.com's Marketplace, which retails books, T-shirts and other merchandise from the movie series, was not accessible for about a week in early December due to “technology upgrades.”

And then there is run-of-the-mill congestion.

Rumors of Sony PlayStation 2 consoles in stock caused a stampede to BestBuy.com, resulting in a major slowdown at the specialty electronics retailer's site.

“We had one volume spike at our site the day after Thanksgiving, due to rumors that we would have [Sony] PlayStations on the site,” Donna Beadle, spokeswoman for Best Buy Co. Inc., Minneapolis. “We've never sold PlayStations on the site, so I'm not sure where those rumors came from. That caused a slowdown in response times and with functions such as our search engine, but we weren't down.”

Consumers' perception of online holiday shopping could be further impaired after three free Internet service providers quickly exited the business. AltaVista ended its service for about 1 million members Dec. 10, and Internet holding company CMGI is “winding down” its free 1stUp while it seeks a buyer. ZipLink, a wholesale interconnectivity provider, closed its doors in mid-November.

“They have basically disenfranchised several million consumers right before the holidays. They can't get online to buy goods and services through e-commerce,” said Keven Wilder, owner of Wilder and Associates, a retail and e-tail consulting firm in Chicago.

Spinway, a free ISP co-branding with e-tailers including Barnes & Noble, Costco and BlueLight.com, would also have left millions of consumers in the dark when it shut its doors in early December if BlueLight had not stepped in and purchased Spinway's core assets.

“We feel it is in our best interest, and in the best interest of all our subscribers during these tough times for pure-play, dot-com companies, to make sure it continues,” said Mark Goldstein, CEO of BlueLight.

Although Amazon officials downplayed the e-tailer's service interruptions, analysts say outages at Amazon and other sites could hamper the growth of e-commerce. Many people are shopping online for the first time this holiday season, and bad experiences could delay their adoption of e-commerce, according to Peter Mackey, president of Digital Idea, Westport, CT.

“In an online environment, where expectations still outpace reality, all it takes is one bad experience to drive someone away,” Mackey said. “If I'd just spent a half hour selecting the product, then the site crashes on me, I doubt I'd return.”

In addition, Mackey believes that, despite Amazon executives' public nonchalance about the shutdowns, executives are “scrambling behind the scenes” to find out what went wrong.

However, Mackey and others do not believe the outages will erode Amazon's customer base.

“Amazon can probably get away with it, because they have some equity: Feelings from consumers are more positive,” Mackey said. “They have built-in permission to make mistakes and recover from it, versus companies that don't. Wal-Mart and Kmart have not built their businesses around the expectations of the Internet yet.”

Lauren Freedman, president of the e-tailing group inc. in Chicago, said, “Amazon has really loyal shoppers: Their repeat [buy] percentage rate is very high.”

Stubing, the Ernst & Young analyst, predicts that despite the financial losses of other pure-play companies such as eToys, Amazon will be around for the long term.

In addition, the problems have not affected consumer spending. Online shoppers spent $1.3 billion during Thanksgiving week, according to a new Goldman Sachs/PC Data survey, an increase of 140 percent over the same week last year.

And a recent Ernst & Young survey of 1,400 consumers found that shoppers expect to spend about 29 percent of their total holiday purchases online, compared with just 16 percent a year ago. Twenty percent of online shoppers plan to conduct at least 50 percent of their shopping online, up from 9 percent in 1999.

Ernst & Young, Atlanta, predicts $11 billion in sales for the holiday season.

In addition, Freedman said, it is too soon to determine how site slowdowns might affect holiday sales. “Every year, the biggest shopping week is the week before Christmas,” she said.

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