A Beacon of Hope for MSN

It's Europe's top portal, and widening its lead

The long, tortuous history of Microsoft Corp.'s MSN internet service has produced more than its share of disappointments. Launched in 1995, MSN has endured countless changes in strategy and management -- not to mention losing about $2.5 billion over the past eight years, according to estimates by Banc of America Securities analyst Bob Austrian. In the critical U.S. market, it continues to lag behind AOL Time Warner Inc. in subscribers and Yahoo! Inc. in Web traffic. But for Microsoft's pooh-bahs in Redmond, Wash., there's brighter news emanating from London. There, a determined crew of managers has turned MSN into the top Internet portal in Europe.

Now, MSN is widening its lead over European rivals. In the past 12 months, traffic to its free Web sites has surged 26%, to 34.3 million unique visitors per month, according to researcher NetRatings Inc., while Yahoo's grew less than half as much, and AOL eked out a 4% gain. The difference helped MSN grab three more points of audience share, climbing to 43%. Germany's T-Online and France's Wanadoo, also posted gains, but lack the regional breadth of their American rivals.

More important, MSN is hauling in dough. Judy Gibbons, vice-president for MSN's Europe, Middle East, and Africa unit, says advertising on MSN's 17 sites across these regions, the source of nearly all her group's revenues, has grown by more than 30% in the past year. Microsoft won't break out revenues, but analysts reckon they're on the order of $150 million annually. At this rate, the European unit may turn a profit before its U.S. parent. "It's just a fantastic business," crows Gibbons, who joined Microsoft in 1994.

It's also a critical boost for Microsoft's efforts to stake out a sizable claim on the Web. "MSN is one of the few divisions of Microsoft that the general public thinks fondly of," says analyst Rob Rosenthal of researcher IDC. MSN had global revenues of $1.1 billion in the six months ended Dec. 31, up 23% from a year earlier, while its losses narrowed sharply, to $254 million.

Gibbons, a 45-year-old Brit, drove MSN's British site to No. 1 before being promoted to her current post in 2000. Now she and her 350-person team are succeeding with a two-pronged strategy. They're leveraging MSN's strengths wherever possible, such as its globally recognized brand, centralized computer systems, and consistent user interface. But they are also taking care to tailor content for each country. In France, news comes from Agence France-Presse, while in Germany, publisher Tomorrow Focus provides everything from fitness tips to TV listings. With millions of daily Web visitors, plus 20 million e-mail accounts on its affiliated Hotmail service and 16 million users on its instant messaging application, MSN Europe has built a huge client base to shower with online ads.

Persuading advertisers to come on board was another coup. Gibbons got top brass to fund a $30 million marketing push to woo skeptical European media buyers. The investment is paying off. A year ago, MSN's ad sales in Britain lagged nearly 30% behind Yahoo's. But since August, MSN has outsold its rival by more than 2 to 1, says researcher Thomson Intermedia PLC. Things could get even better this year: Forrester Research Inc. predicts European online advertising will surge to $1.2 billion in 2003, and MSN could snare more than 20% of that.

At the same time, MSN's European group is moving aggressively to diversify its revenues. It has struck deals with dozens of cellular operators around the region to link Hotmail and Messenger with mobile text-messaging services. MSN Mobile manager Vassili le Moigne says each user generates $2 to $5 per month in revenues for growth-hungry carriers, which split the take with Microsoft. MSN is also gearing up to launch a new "pocket" version that runs on mobile phones and handhelds.

Gibbons' most ambitious push is getting consumers to shell out. While in the U.S., MSN is both an Internet service provider and a portal, in Europe it is only the latter. To turn European users into paying subscribers, the company is rolling out its MSN 8. For $10 a month, the service provides features such as spam filtering and photo editing.

To be sure, MSN isn't alone in chasing new opportunities. Yahoo, which remains more popular in France and Germany, offers many of the same features and enjoys better brand recognition across Europe. The Web giant inked a partnership last summer with Europe's largest independent mobile portal, Sonera Zed Ltd., to link Yahoo products with text messaging and the wireless Web. "We aim to be Europe's favorite wireless destination," says Yahoo Europe Managing Director Mark Opzoomer. No question Yahoo is running hard. But for now, MSN leads the pack.

By Andy Reinhardt in Paris, with Jay Green in Seattle

Before it's here, it's on the Bloomberg Terminal.