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Microsoft Plays The Net

News: Analysis & Commentary: STRATEGIES


It's a major about-face for Bill Gates. In August, Microsoft Corp. launched a massive effort to catch up with America Online Inc. and CompuServe Inc. by offering Microsoft Network, a new proprietary online service accessible only through Windows 95 software. MSN quickly attracted 600,000 members--not a bad start for a product that was late to market. Then, Gates abruptly decided he was fighting the wrong battle. In early December, Microsoft's chairman announced that next year, MSN would be available to all of the estimated 11 million users of the Internet.

Gates' new vision for MSN is much more democratic. After the makeover is complete, anyone who is equipped with a Web browser--not just users of Windows 95--will be able to click onto MSN's home page on the Web and try out the network's menu of services and information. And content providers can skip the hassle of using Microsoft publishing software to design their products for MSN in favor of any Internet publishing software. The result: MSN's menu of news, games, and services is likely to expand dramatically.

TEASERS. But the change in strategy leaves Microsoft with far less control over its product. And Gates's shift isn't enough to turn MSN into a standout product. "Their plan isn't any different from what the other online services are doing," says Lorraine Sileo, an analyst for market researcher Simba Information of Wilton, Conn. In the past year, services such as Prodigy have been adopting Internet standards and adding Web-based content. "Most of the online services are already looking at the Internet the way we are," admits William Miller, director of marketing at MSN. Yet he says Microsoft is better positioned to set the pace on the Internet. "For the currently successful and larger online services, it's harder for them to make the jump."

Like its rivals, Microsoft still faces the problem of making decent money from its Internet ventures. Microsoft's strategy: Making parts of MSN free, but charging fees on "exclusive" content, much like fees for premium cable channels vs. broadcast networks. Cybersurfers browsing through MSN will get teasers about exclusive products. Decisions have not yet been made on what will be exclusive. One possibility is online games, such as Microsoft's Fury3, a shoot-'em-up CD-ROM action title that could be played against others online. Or users of online-only products such as CarSource, an automobile-buying guide, could pay extra for more detailed information.

Microsoft also may charge MSN subscribers extra for news from its own online newsroom. What's more, Microsoft will likely spend as much as $200 million to help NBC Inc. launch an interactive news channel to compete against Cable News Network in exchange for an exclusive online distribution deal. "Content is the ultimate business," says Gates.

Not all of MSN's content partners are uniformly enthusiastic about the changes in the service. On the one hand, large partners such as NBC welcome the shift. Besides the all-news channel idea, NBC already has a wide-ranging deal with Microsoft to produce news and entertainment for MSN. If Microsoft had stuck to its own standard, NBC would have had to develop its Internet content for two audiences: those on MSN and those viewing NBC content on the Web using Netscape. "Now, it gets cheaper and more efficient [to develop for MSN]," says Joshua S. Grotstein, general manager of the TV network's online ventures.

Still others, such as Cooking Light magazine, were taken aback by the shift. "We had planned a lot of refinements to our online area with [Microsoft's MSN] software," says Doug Crichton, editor of the food magazine's online version. "To be honest," says Crichton, "We really don't know what it means." Yet if Gates gains the desired clout on the Net, even the skeptics may have no choice but to go along with the plan.


Old and new strategies for Microsoft Network


-- Lock content providers into using Microsoft Web-publishing software

-- Provide access to Microsoft Network only through Windows 95

-- Charge subscribers a monthly fee, plus extra for special areas


-- Let content providers use any Internet publishing software, including Java

-- Allow access through any Internet browser, such as Netscape

-- Develop new revenue sources, such as online ads

DATA: COMPANY REPORTS, BUSINESS WEEKBy Paul M. Eng in New York, with Amy Cortese in Redmond, Wash., and Kathy Rebello in San Francisco

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