Microsoft Goof Makes a $400 Shoppers’ Gift
Good morning, you just missed a $400 gift from Bill Gates.
Microsoft late Thursday plugged a gaping loophole in its widely advertised Internet-access rebate that essentially gave away $400 worth of electronics equipment--no strings attached--to thousands of consumers in California and Oregon.
But the fix, effective this morning, came only after thousands of consumers across California thronged to Best Buy and other retailers to take advantage of the slip-up. At the Best Buy in West Los Angeles, the result was four-hour waits with hundreds of people in lines snaking through several aisles.
The rebate agreement was supposed to commit consumers to paying for several years of Internet service, but those who have signed up for the rebate in California and Oregon apparently can cancel Microsoft Network access immediately without penalty.
“Unfortunately a few people are abusing a program designed to help people access the Internet,” said Tom Pilla, a Microsoft spokesman.
But Pilla said Microsoft will honor its agreements with customers who took the deal in the last few months and now cancel.
Word of the loophole spread quickly after a report this week in the San Jose Mercury News hit Web chat rooms with a vengeance Thursday, sparking a debate about whether it was appropriate to take advantage of Microsoft’s error.
“It doesn’t feel immoral,” said Jenny Ives, a 20-year-old Caltech student waiting with 70 others in a line at the Pasadena Best Buy.
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 began offering rebates across the country, with the terms varying by retailer.
The $400 rebates were among the most popular 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 $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 could 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.
Many were happy to take advantage of the company’s prudence.
“Normally I am totally against people exploiting loopholes at a company’s cost, but my hatred of Microsoft far outweighs that,” one Internet chat-room denizen wrote. On Web sites and in stores, consumers debated the morality of using the loophole.
“I pondered the moral implications,” another 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.”
Laura Howard, a computer company employee, visited the Best Buy in West Los Angeles to buy an iron. When other patrons told her about the Microsoft rebate she picked up a 27-inch TV and waited in line for four hours. But she remained troubled: “I think there might be negative karma involved if i don’t honor the deal. I’m going to meditate on this tonight.”
Best Buy spokesman Joy Harris said people who planned on canceling were improperly taking advantage of Microsoft, which pays Best Buy for each new subscriber, however fleeting.
The rebate snafu begins with a single sentence in California’s Financial Code. Section 22311 states that 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, doesn’t 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.
The next sentence of the legal code goes back to talking about insurance, and the overall section deals with lenders who are regulated by one part of the department.
On Wednesday, state officials double-checked and decided they had no authority over Microsoft under any interpretation of the law even if they 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.
“We don’t know why they’re doing this,” California’s Stewart said of Microsoft. “It is not a loan--it is a rebate program.”
This was welcome news in Redmond, Wash., where Microsoft officials moved to stem their loses. The rebate is expected to reemerge shortly, with the same penalties as in other states.
Menn reported from San Francisco, Sur from Pasadena. Times staff writer Hector Becerra also contributed to this report from Los Angeles.
