Mapping MSN's changes

The software giant says it is reorganizing the company around its customers' needs rather than around products or technologies. But some observers question whether the new business unit, which will handle MSN and other content offerings and is to be run by two former software executives, can bring the company's Net strategy to the next level.

Microsoft has tried to leverage its brand name, its huge installed base of software customers, and its deep pockets to garner eyeballs. But so far the online giant has yet to really catch hold in the online service and content arena, with its path marred by the departure of key executives and its audience dwarfed by America Online and Yahoo, among others.

Under Microsoft's reorganization, the company's Internet division--formerly known as the Interactive Media Group--will become the Consumer and Commerce Group.

The new group will include the MSN.com portal, Microsoft's WebTV Networks, commerce server software products, and the company's individual e-commerce Web sites such as CarPoint and HomeAdvisor.

Though observers expected the company to look for a seasoned media veteran or perhaps an executive in the broadcast communications market to lead the new group, Microsoft appointed two executives from within its software ranks, Brad Chase and Jon DeVaan, ostensibly as interim chiefs.

Chase, an 11-year Microsoft employee, most recently served as a marketing executive for the company's Windows operating systems. DeVaan is a former software programmer who worked on applications for Apple Computer's Macintosh platform.

Chase made a name for himself during the creation of the company's Windows 95 software upgrade. DeVaan, a 14-year Microsoft veteran, previously was vice president of desktop applications.

The two software executives will replace Pete Higgins, former vice president of applications and content, who led the now-defunct Interactive Media Group until last November when he stepped aside for an indefinite leave.

Microsoft is looking for a leader--possibly a media veteran--to run the Internet unit, "but if we don't find someone that meshes with the culture here we're prepared to go to battle with Jon and Brad," said Marty Taucher, director of network communications for MSN.

"These are two of our more experienced managers we've had," Taucher said. "Microsoft frequently moves executives around to give them new experiences."

But others are not as confident about the software executives' chances for success.

"If these guys don't get a boss, the answer is no, the reorganization doesn't change things much because they're not media guys," said Bill Bass, an Internet analyst at Forrester Research.

Meanwhile, Laura Jennings, who served as vice president for MSN for three years, will become a member of Microsoft's new Business Leadership Team, a high-level strategic group focused on business development, partnerships, and cross-promotion of the company's products and services.

MSN: Hits and misses
The intention of the company's reorganization is not to overhaul the Internet properties as much as it is to "continue the positive trajectory," Taucher said.

"We've had some mis-starts and some missed opportunities, but we believe we're heading very much in the right direction," he said.

MSN gets 25 million unique visitors per month, Taucher said. According to Media Metrix, it is the No. 3 Web portal. But its reach is partly driven by Microsoft's Internet Explorer browser and Hotmail, its free, Web-based email service. Hotmail users, for example, are pushed to MSN when they log out of the service.

Despite MSN's reach, analysts say Microsoft can't escape its checkered Internet history.

"They've had some success: CarPoint, Expedia. But they've also had some non-successes: MSN, Slate," said analyst Bass. The latter refers to Microsoft's online magazine, which tried unsuccessfully to charge for subscriptions.

CarPoint generates $450 million in auto sales each month through dealer referrals, while Expedia accounts for $12 million weekly in car rentals and hotel reservations, according to a spokesman. In addition, Hotmail adds 150,000 new accounts per day and is approaching 40 million registered users.

But Bass said Microsoft and its MSN portal are still "on auto pilot" until a full-time leader with some media or communications industry experience is hired to oversee Chase, DeVaan, and the new Consumer and Commerce Group.

A change in focus
Last month the company said it intends to redirect the focus of its MSN portal toward e-commerce functions, and the recent changes within the former Interactive Media Group are largely focused on e-commerce and helping small- to medium-sized businesses capitalize on commerce opportunities, executives said.

Some analysts said those changes could point to a new strategy for the software giant in trying to overtake AOL as king of the Internet hill.

"I really feel like they're shifting the battle with AOL into their own backyard, which is on the software side," said Barry Parr, program director at International Data Corporation. "They tried to compete as an online service, and they tried to compete on content, but now they're focusing on the software because they've discovered that they can't do those things well."

For example, Microsoft could use its software to drive users to its Web sites and encourage business customers to use its products for e-commerce transactions. Observers say the use of its software is the one true advantage Microsoft wields as content and commerce collide online.

Parr said that strategy also could bear fruit for the company as demand for high-speed connections increases. "Broadband is going to be a lot more software-driven than the Web," he said.

A broadband plan
Although analysts said Microsoft's Internet strategy has been confused at times, the company has recognized the potential for high-speed Net connections to remake the industry.

"I do think Microsoft has shown an intention to remake itself when it comes to broadband," said Melissa Bane, director of Internet strategies at the Yankee Group, a market research firm.

In addition to its broadband plans, Microsoft is considering customizing its content for wireless connections. Many analysts believe that once third-generation wireless standards are in place--which will allow for high-speed data transmission--wireless Internet devices will become commonplace.

"I think it's something a lot of the portals want to do," Bane said. "Microsoft, like AOL, has one eye on alternative device strategies--take WebTV, for example."

Yahoo also is looking toward alternative devices. Just today, it announced a deal to extend its reach to handheld devices and television-based Internet appliances like WebTV.

"We've said we want MSN to be available on a wide range of devices," MSN's Taucher said.