Las Vegas-based e-tailer Zappos, which prides itself on innovative management techniques like paying new hires to leave, is also an "innovator" in the advertising space. Not for the company's TV ads, but for leveraging the post-9/11 security landcape to get the word out. "When I'm coming through security I know that it can be frustrating and this is to provide a little lightheartedness," senior marketing manager Andy Kurlander said of the ad-buy for space in the buckets used by travelers to feed shoes and other items through the x-ray machine. The company should also consider a market which can only buy mail-order that's an even more captive audience: Prisoners. Heck, they could order new kicks straight from a Microsoft TouchWall.

Longtime Amazon.com partner Borders opened an independent storefront on the Web today. Analysts don't hold high expectations for the new Amazon rival and Borders Group Inc. president and CEO George Jones told the AP the company knows what's up its up against. "It's not the intent that we're going to out-Amazon Amazon at what they do," Jones said. So what is the intent behind Borders's store on the Web? Likely, Borders opened shop on the Web to help sell the company. Two months ago, Borders announced it was for sale and only last week, Barnes & Noble confirmed a team of its executives are looking into a deal.

When Peter Thiel launched PayPal a decade ago, he had a vision of a global payments mechanism which would accelerate the withering-away of the nation-state. And then he sold it to eBay. eBay's latest failure to transform the international monetary system is quite literal; for almost two weeks, PayPal has had a bug which prevents it from collecting cross-border payments for subscriptions — this while its new president, Scott Thompson, has been touring the globe. The error: a bit of code in a drop-down menu. Subscriptions are a small part of PayPal's business, though vital to the complaint-prone blogging class. Regardless, it's a trivial bug that should have taken minutes, not weeks, to fix; that eBay has not yet done so would seem to speak to a profound rot in its technical organization — which Thompson headed up as CTO before his promotion.

The United States Armed Forces no longer use the F-14 fighter jet, which can make it a real pain for armies that do, such as the Iranian air force, to repair theirs. Fortunately, there's eBay and Craig Newmark's Internet-based love-in, Craigslist. The U.S. Government Accountability Office reports that F-14 spare parts and troop equipment such as night vision goggles can be found and purchased from both sites. "Many of the sensitive items we purchased could have been used directly against our troops and allies, or reverse engineered to develop counter measures or equivalent technologies," read the GAO report. Another instance when a few buyer ratings could go a long way. (Photo by James Gordon)

New York's state legislature passed a law that will require Internet vendors with any business ties to the state to collect sales tax. The law is so sweeping that it includes nonphysical ties, such as affiliate-marketing programs, which pay a slice of sales to websites which refer customers to an online store. Amazon.com responded with a lawsuit. Now Overstock.com says it's cutting loose its 3,400 affiliates in New York. The idea is to show "the New York governor and legislature that this is bad for New York businesses," Overstock VP Jonathan Johnson told the New York Times. "There are affiliates in New York who will see their business go away because of a not-so-thoughtful action by the New York State legislature." Amazon will keep its affiliates and begin paying sales tax June 1. New York hoped to increase its tax revenues by $50 million with the measure. Overstock's letter to affiliates is included below:

California's Republicans are deliberating whether or not to tax your porn downloads. State Assemblyman Charles Calderon (D.-City of Industry) first proposed a tax on all online porn, estimated to bring in $500 million to offset Gov. Arnold Schwarzenegger's budget cuts, and now wants to levy a 25 percent tax on any adult businesses operating in California, and on consumer's purchases of porn, too. It's fiendishly clever.

Meg Whitman isn't losing any sleep over eBay's role in prepping Virginia Tech gunman Cho Seung-Hui for his rampage that left 33 dead. Asked what was her worst moment at eBay, Meg confides to confides to Portfolio: "The site outage in 1999," adding that she had to sleep on a cot "for multiple nights." Whitman goes on to give eBay kudos for being "incredibly vigilant around trust and safety and keeping the .01% [of customers who aren't 'basically good'] in line," a boast made all the more ridiculous by the company's recent defense of its sale of combustion-enhancing fertilizer to troubled teen Ryan Schallenberger. (The gist of eBay's defense: Ammonium nitrate isn't just used to blow up high schools and federal buildings.) Seeking Alpha has a complete transcript of the interview, in which you'll find these nuggets Portfolio's editors skipped:

Jeff Bezos can safely unclench his legs. Amazon.com reported first-quarter earnings of $143 million, up 29 percent from the same quarter last year, on sales of $4.14 billion, up 37 percent. Wall Street dithered over the forecast, sending shares down in after-hours trading, but the underlying reality is this: Amazon.com, already large, is growing at a prodigious rate at a time in its life when most expected it to slow down. And the growth had little to do with digital sales or Web services. No, people are simply buying more online, more often. CFO Tom Szkutak said the company saw no signs of a recession in U.S. shoppers' buying behavior. How can that be, as other companies complain of economic woes?

Is CNN for real? The headlines on its website — "Minced onions force emergency landing" — cause some to wonder if its Atlanta-based producers aren't having a jape at the expense of news junkies. Now, an expansion into selling T-shirts confirms that CNN is laughing at us, not with us. Capitalizing on the trend of mass-personalized e-commerce, CNN.Shirt lets readers pick any recent headline and put it on a T-shirt. As blogger Andy Baio notes, the feature is easily manipulated, allowing users to construct any story they want and get it printed. But why bother making up the news when CNN shows just how much stranger truth is than fiction?

Years ago, PayPal was an independent company which fought constantly with eBay to be allowed on the site as a way to settle accounts after an auction was won. Now, years after eBay bought PayPal, the payments service is elbowing out all manner of competition. In Australia, eBay is limiting purchases to either PayPal or cash on delivery — no checks or money orders allowed, let alone rival electronic payment methods. In the U.S., eBay was sued last year for tying PayPal too closely to its online marketplace. How soon they forget: PayPal is aiming to quash an economic freedom its founders, including noted libertarian Peter Thiel, fought for.

Recession or no, online retail sales are expected to increase 17 percent to reach a record $204 billion in 2008, making up 7 percent of all retail. [WSJ]

San Francisco-based online and catalog retailer RedEnvelope, abandoned by its CEO and its bank, has laid off substantially all of its 200-some employees, we hear. The website is expected to go offline Friday morning. The company, founded in 1997 and taken public in 2003, was hit by woes both old and new. For an e-commerce business, it was slow to embrace change, relying too long on its printed catalogs, and failing to embrace even the most basic techniques of acquiring customers online.

Scott Galloway of Firebrand Partners scored a coup recently: The New York Times Co. agreed to nominate him and a fellow activist investor for a seat on its board. Did the Times do any due diligence on him? Galloway's chief accomplishment online is cofounding RedEnvelope, a San Francisco-based online retailer.

Under new CEO John Donahoe, eBay is moving to take its affiliate marketing in-house, a tipster tells us. The auction giant could dump ValueClick's Commission Junction, which currently pays website publishers to direct bidders to eBay's stores, for its own eBay Partner Network. The eBay website is already active, with what appears to be a login for beta testers. eBay Partner Network is also the name of a recently formed eBay subsidiary, according to an SEC filing. Amazon.com has long had its own affiliate-marketing subsidiary, which has turned into a venture to provide all kinds of services to startups. By farming out the work, eBay has lost both a cut of its sales and a chance to play in a field that's a fast-growing part of online advertising.

Little-read blogger Bernard Lunn writes 978 words exploring the ramifications of Etsy, a website which sells handmade goods and recently raised $27 million. It's a deep, dense piece, contemplating Etsy as part of a "much broader economic shift" that heralds "the rise of mass customization." But it doesn't answer the question posed in the headline: Is Etsy the next eBay? Let us explore this lofty concept:

The declining amount of clicks on Google ads may not forecast a recession. Check out this chart from Hitwise. It shows that the amount of traffic going from Google to retail sites continues to increase year-over-year, up to 13 percent in January. Searchers are shopping more than ever. So why the declining ad clicks? Reporting its fourth-quarter earnings, Google said it has gotten better at eliminating accidental ad clicks. One awaits the glorious future wherein Google deems any click not leading directly to a sale an oopsy-daisy.

Want a cheap HD-DVD player? Head to eBay. Despite a call to boycott the site over a change in its fee structures, sellers have placed more than 200 listings for Toshiba's HD-A3 HD-DVD player, with most being sold for $50-$80 — more than half the retail price. [The Register]

eBay plans to reduce the price sellers have to pay to list items and charge them more after each item is sold, new CEO John Donahoe told the Wall Street Journal yesterday. The auction site also plans to discount fees and highlight listings for merchants with the highest customer-service ratings. eBay sellers are angry about both changes. How angry? AuctionBytes told its readers to call in and leave messages expressing their wrath. Here's a clip with the best minute and half of the full nine minutes of ranting. (Photo by Piez)

Deal-a-day closeout site Woot.com frequently uses irreverent ad copy when trying to sell products, sometimes going so far as to criticize the product and ask why people would want to buy it. In addition to selling closeout items and t-shirts, Woot uses clever advertising to get you to visit its website. Check out this ad that a tipster spotted in Gmail:

Whitman's out and the new guy in charge, John Donahoe, says step one to fixing eBay is fixing its internal search engine. "Our buyers tell us that we know you have unmatched selection, but we can't always find what we want," Donahoe told Bits. Unable to find what they want to buy using eBay's search, Donahoe's theory goes, these users go to Google instead. What Donahoe doesn't mention: eBay has been talking about improving its search for years.