Flashback to The MSN $400
Disaster
Microsoft As The Screwee NOT The Screwer, For A
Change
Microsoft Blunder Gave Freebie To
Customers
California and Oregon Shoppers Took Advantage of Microsoft's Rebate Goof
The Story From When It Happened
Thousands of consumers across California thronged to retailers
Thursday to take advantage of a gaping loophole in a widely advertised Microsoft
Internet-access rebate that essentially gave away $400 worth of electronics
equipment for free.
Microsoft acknowledged the error and late Thursday canceled the no-strings
rebate effective Friday morning.
"Unfortunately a few people are abusing a program designed to help people access
the Internet," company spokesman Tom Pilla said.
The rebate agreement was supposed to commit consumers to paying for several
years of Internet service, but the thousands of people who signed up for the
rebate in California and Oregon apparently can cancel Microsoft Network access
immediately without penalty.
Word of the slip-up leaked out, hit the San Jose Mercury News this week and then
Web chat rooms with a vengeance Thursday, spurring a four-hour-long line at the
Best Buy store in West Los Angeles.
It also sparked a debate about whether it was appropriate to take advantage of
the Microsoft mistake.
"It doesn't feel immoral,'' said Jenny Ives, a 20-year-old California Institute
of Technology student waiting with 70 others in a line at the Best Buy store in
Pasadena.
Ives, who spent her in-store credit on a bread maker and combination
television/VCR, added, "It works, and Microsoft isn't gunning after anyone."
Ives said she intended to cancel the MSN access.
Like CompuServe and Prodigy, Microsoft has offered rebates across United States,
with the terms varying by retailer.
The $400 rebates were among the most tempting shopping deals of the Christmas
shopping season. At Best Buy and Office Depot, consumers can take the $400 off
what they buy on the spot, as long as they agree to pay approximately $21.95 a
month for Internet access for three years. If they cancel, they have to refund
the $400.
But in California and Oregon, Microsoft changed the terms of its rebate because
of the way it interpreted an obscure law regulating consumer lenders. So in
those states a consumer can walk in, spend $8 on $408 worth of electronics,
agree to the Internet deal and cancel the next day without having to return the
rebate money.
"As a law-abiding company, we took what we believe were prudent steps," said
Pilla, who declined to estimate the number of immediate service cancellations.
On Web sites and in stores, consumers debated the morality of using the
loophole.
"I pondered the moral implications," one Internet chat-room denizen wrote. "But
perhaps it boils down to Bill Gates paying for my 27-inch Sony TV. And I don't
mind letting Billy subsidize me."
Wrote another: "Gates has proved that he does not have the best lawyers his
money can buy."
The rebate snafu begins with a single sentence in California's financial code,
Section 22311.
That rule says businesses regulated by that section of the law can't make a
consumer buy something as a condition of getting a loan. It was aimed at car
dealers and mortgage lenders who insisted that consumers buy credit life
insurance in order to get financing.
Because of the law, "a mortgage lender or a car dealer can't require you to buy
insurance from them,'' said Julie Stewart, assistant commissioner of the
California Department of Corporations.
The sentence, however, does not mention insurance, and Microsoft was taking no
chances. It reasoned that the rebate of $400 (or less, for one- or two-year
deals) could be construed as a loan.
On Wednesday, state officials double-checked and decided they had no authority
over Microsoft under any interpretation of the law even if it wanted to.
Prodigy and America Online's CompuServe read the law the same way as state
officials, and they penalize consumers who cancel early in all 50 states.
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