Internet Firms Gain Foothold in Washington

Girding for battle over Internet taxation, online privacy, data protection and other key cyberspace issues, a wave of dot-com companies is setting up shop in Washington.

In recent weeks, EBay, Amazon.com, Excite@Home Corp. and the Internet marketing giant DoubleClick Inc., among others, have hired Washington lobbying staffs, rented office space and stepped up political giving to influence whether and how the federal government regulates the multibillion-dollar electronic commerce industry.

The companies join Yahoo, which opened up a Washington office last year, and arrive on the heels of NetCoalition.com’s creation last July. NetCoalition.com is the first Washington lobbying group of purely Internet-based companies and includes founding members America Online, Inktomi Corp., Lycos Inc. and the-globe.com, as well as three of the four companies now opening permanent Washington offices.

The presence of so many Internet companies in Washington represents an about-face for an industry that once fancied itself too busy inventing the future to worry about government policy. And at least one high-tech executive, Cypress Semiconductor President T.J. Rodgers, calls the cozying up to federal bureaucrats a “major mistake.”

But as the Internet and computer technology have moved into the mainstream of American life--and as high-tech stalwarts such as Microsoft Corp. and Intel Corp. have come under government scrutiny--the relationship between Internet marketers and the government is becoming more charged.

“These companies are trying to get out in front of issues,” said Tod Cohen, who is leaving his post as a vice president of new technology at the Motion Picture Assn. of America to join EBay’s recently established Washington office. “They are saying, ‘It’s not worth it to stay on the sidelines and endure what Microsoft is going through right now’ ” in its landmark antitrust battle with the Justice Department.

Industry Had Been Slow to Woo Congress

The high-tech industry learned the value of having a Washington presence more than a decade ago, when the Federal Communications Commission began developing a standard for digital television with little input from software or computer hardware makers.

But after months of jawboning, Apple Computer Co., one of the few Silicon Valley companies with a Washington office in the late 1980s, persuaded Compaq Computer Corp. and then Microsoft, Intel and others to join in. Their input eventually led to an industry standard that accommodated both the computer industry and broadcasters.

“Until recently, our industry has been really lax with respect to Washington,” said James M. Burger, a Washington lawyer who led Apple’s effort in the late 1980s and early 1990s to rally the industry around a digital TV standard.

“If you asked a Silicon Valley CEO whether he wanted to speak to Congress or a big corporate customer he’d choose the customer every time,” said Burger. By contrast, CEOs from the highly regulated telephone industry would give you “a different answer,” he added.

Of course the high-tech industry has long been involved with specialized trade and industrial policy issues and sought to make sales to the vast federal government. But the arrival of Internet firms in Washington will dramatically ratchet up high-tech’s lobbying presence and threatens to deepen the political divide with Silicon Valley purists like Rodgers, who want no part of government.

“By the very way it works, Washington undermines the free minds and free markets that are the cornerstone of Silicon Valley’s success,” added Rodgers, an outspoken executive whose firm makes computer microchips. “. . . For that reason we should not normalize our relationship with it.”

For most of its short life, the high-tech lobby has enjoyed the embrace of both Capitol Hill and the White House.

Painting themselves as the architects of a New Economy that has driven unemployment to historic lows, high-tech firms have won a string of legislative victories on Capitol Hill.

Those wins range from convincing Congress to allow a greater number of highly skilled foreign workers to enter the United States and winning greater federal protection from private lawsuits in the event of Year 2000 computer crashes to getting an extension of lucrative tax credits for high-tech research and development and receiving a three-year moratorium--until October 2001--on new Internet taxes.

“There is virtually no stigma against the high-tech community . . . ; they are basking in the glow of the economic prosperity of the last 10 years,” said Charles Lewis, executive director of the Center for Public Integrity, a public interest group that tracks lobbying activities in Washington.

But the industry’s vaunted political prowess has come under siege with the emergence of such issues as Internet taxes, privacy and online access. Internet companies believe they should be free of sales taxes and allowed to police themselves in the area of online privacy and open access. And they have grown concerned about attempts by lawmakers and regulators to intervene.

“The issues are more politically charged now,” said Jill A. Lesser, vice president for domestic public policy at America Online. “They involve more consumer-oriented matters . . . , and our business models depend” on Washington treading gently.

That may not happen.

The Federal Trade Commission, for instance, launched probes last month into the privacy practices of both Amazon.com and DoubleClick, focusing on the two companies’ use of “cookies,” or small computer files that can track Web surfers and possibly prepare customized content for them.

And in a San Jose speech this month, President Clinton echoed the regulatory concern, warning Internet firms to strengthen their Internet privacy policies.

“People are worried about this,” Clinton told attendees at a conference sponsored by the Aspen Institute. “. . . Do you have privacy policies you are proud of?” Clinton challenged.

Meanwhile, Time-Warner Inc.’s planned merger with America Online has triggered a public uproar over the deal’s potential to limit Internet access. The issue split the industry and forced the two companies to pledge recently to give rival Internet service providers “open access” to their high-speed cable TV lines if their union is approved.

Even support for a permanent ban on Internet taxes, which many saw as an inevitable follow-up to the current three-year moratorium on Internet taxes, seems vulnerable.

Texas Gov. George W. Bush, the likely GOP presidential nominee, has said that the government should continue evaluating whether the moratorium should be continued as Internet sales grow. And lobbyists representing retailers indicate they are making some headway in challenging support for a continued ban on Internet taxes.

“We’ve been saying that sound economic policy requires a tax system that doesn’t favor one type of sale over another or one type of shopper over another,” said Lisa Cowell, executive director of the e-Fairness coalition, a Washington group representing 1.5 million retailers. “There’s a greater awareness in Congress about that now. The educational process is paying off.”

Some say high-tech is facing tougher going in Washington because the issues have grown more complex and because politicians and Internet users have become more knowledgeable about technology. Four years ago, members of Congress were just beginning to put their offices online. Today virtually all legislative offices are online.

In addition, the Internet industry suffers handicaps that some of its other media colleagues don’t face: Internet companies are geographically concentrated in a handful of states, and, unlike other media concerns in Hollywood or publishing, Internet companies are not known for their glad-handing ways.

But Internet companies have two potent weapons: money and jobs.

“When I go on the Hill I tell people this is a jobs issue,” said Josh Isay, a former aide to Sen. Charles E. Schumer (D-N.Y.) who was hired in January by DoubleClick to head its Washington office. “Of the last 300,000 created in New York state, one-third came from Internet sector, outpacing financial institutions and real estate. So, in order for this economy to continue humming like it is, it is very important that government sees high-tech as the engine of economic development.”

Yet DoubleClick, whose privacy policies have also drawn the attention of attorneys general in New York and Michigan, has learned how to play the lobbying game the old-fashioned way. It recently hired former New York state Atty. Gen. Robert Abrams to head its new advisory board and also signed on New York City’s former consumer affairs commissioner, Jules Polonetsky, as its new chief privacy officer.

The $18 million the online and personal computer industries are expected to make in campaign contributions this year is less than what many older media industries like telephone carriers, broadcasters and Hollywood will spend. However, political giving by Internet companies is growing faster than any other sector, according to the Center for Responsive Politics, a Washington research group.

Lobbyists for online firms react with disdain to any suggestion that they are maturing into yet another version of the stereotypical back-slapping influence peddler.

“I don’t think we have to play golf and schmooze” to be effective, said Paul E. Misener, who recently left his Washington law practice and a stint at the Federal Communications Commission to head up Amazon.com’s Washington office as vice president for global public policy.

A key for Internet companies may be in their relationships with consumers. Some groups representing consumers increasingly view Internet companies as opponents.

“What’s good for dot-com companies is not necessarily in the interest of Internet users themselves, whether we’re talking about the failure to prevent cyber attacks, e-mail spam or just general incompetence where the privacy rights of users are concerned,” said Edward Segal, president of the Washington-based consumer watchdog group Internetlobby.org.