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MSN: From content to software sales

After a long and trying attempt to create a compelling Web content offering, Microsoft is focusing its Internet strategy on what it does best: selling software.

After a long and trying attempt to create a compelling Web content offering, Microsoft is focusing its Internet strategy on what it does best: selling software.

And while Microsoft has not given up fully on content, its recent moves suggest that it would rather buy content than create it from scratch.

Matt Kursh, business unit manager of MSN, said it is "conceivable" that Microsoft will strike partnership deals with existing businesses and develop what he calls a "broad-based Switzerland approach" to its Web strategy. That approach could involve outright sales of some properties, analysts have speculated.

For example, a recent Forrester Research report predicts Microsoft's local guide, Sidewalk, will be sold to Ticketmaster Online-CitySearch, another popular, e-commerce-driven online entertainment guide. Sidewalk would retain its yellow page directory, the report said.

Neither company would comment on the report.

For the past few years, Microsoft has taken a circuitous route in developing a cohesive Web strategy. It jumped out of the starting gate by launching its ill-fated MSN proprietary online service, only to eventually separate the content and access parts of the business. The content was placed on the Web, and the Internet access part was marketed as simply a dial-up ISP, similar to MindSpring or EarthLink.

Microsoft then launched content-driven properties such as MSNBC, Web magazine Slate, and Sidewalk, which have met with mixed results.

And in October 1998, Microsoft launched MSN.com, a portal meant to compete with others such as Yahoo, Excite, Lycos, and Netscape's Netcenter.

However, Microsoft appears less and less interested in the media side of its Web business. Creating content to attract audiences and tap advertising revenues is not Microsoft's game, analysts and industry observers have long pointed out. The software giant is beginning to direct its Web strategy in a more familiar direction.

Microsoft is putting most of its development resources into creating database-driven Web sites to facilitate more "utility"-oriented services, such as comparison shopping guides and product databases. It is touting its "vertical" e-commerce-based sites such as CarPoint, Expedia, and HomeAdvisor, and it has revamped Sidewalk, once filled with original content from each region, into a yellow page directory and buying guide.

With these technologies, analysts and observers say Microsoft's Web strategy is centered around filling these databases with names and numbers of businesses that will become a channel to sell its software.

"The direction appears more about a test bed of technologies they want to sell to ISPs and [application service providers]," Rob Enderle, an analyst at Giga Information Group, said about MSN.

Undoubtedly, these sentiments also were expressed by chief executive Bill Gates in March when the company announced its strategy to link its e-commerce software and small-business hosting with its MSN portal. During the speech, Gates also said the company will leverage its acquisition of LinkExchange, an ad banner network, as a channel for delivering Microsoft technologies to smaller companies.

Reorg: Software first?
Additionally, the company's recent reorganization was intended to group its products according to consumers' needs, not around specific technologies as it had been in the past.

Perhaps most telling was the company's decision to appoint two former software executives, Brad Chase and Jon DeVaan, to head the rechristened Internet division, now called the Consumer and Commerce Group. Moreover, the company continues to search for someone to head MSN after the departure of former Interactive Media Group head Pete Higgins.

Microsoft has sought candidates from leading Web companies, as well as from within its ranks. Sources said former MSN head Laura Jennings, once considered a viable candidate, has recently taken maternity leave from the company and likely will not fill the position. Jennings plans on returning to Microsoft, a company spokesman said.

Negotiating for alliances or a sale?
Many industry observers believe Microsoft is looking for ways to increase its online revenues through partnerships with other players; it also is seeking ways to unload some of its properties.

One property that some analysts predict Microsoft will unload first is its MSN Internet Access service. Microsoft guards its subscriber numbers carefully, and although it continues to say publicly that Internet Access is an integral way to drive audiences to its MSN Web properties, the service continues to use the underdeveloped MSN Onstage site as its default home page.

Kursh said Microsoft continues to believe the dial-up business will make money, but he admitted that "a lack of execution" left the ISP in the shadows.

Some analysts say these are signs that Microsoft will try to deal off Internet Access.

"Unable to provide a better mass-market experience than AOL?MSN will sell its ISP subscribers to AT&T," Forrester Research analyst Bruce Kasrel wrote in a report in April.

Disney executives recently disclosed their interest in possibly offering a dial-up Net access service for their Go Network portal and online community.

Separately, an influential Excite@Home board member recently suggested that the leading Net-over-cable company also needs a dial-up option as a way to add subscribers until cable upgrades bring high-speed Net access to a larger pool of users.

Additionally, the possibility of a CitySearch deal underscores moves by Microsoft to get out of the pure media business, according to Lisa Allen, the Forrester analyst who speculated about a Sidewalk deal.

"They found out that 'doing media' is a lot tougher than throwing some nouns and verbs together," Allen said. "It requires writers, editors, artists, and designers."

Sources say Microsoft also has held talks with telecommunications leaders such as Cox Communications.

Executives at Cox confirmed they talk frequently with the software giant but declined to discuss specifics.

"We have an open line of communication with Microsoft," said Peter Winter, president of Cox Interactive Media. "We have active talks with everyone who we think one day might be important to us."

Winter said he believes most companies are still learning how to make money online and that Microsoft is likely to be one of the successful companies--despite some early stumbles.

Investments are key
Regardless of the speculation, Microsoft plans to continue investing in companies and even partnering with competitors. One company that Microsoft may buddy up with more in the future is Excite@Home. Since Microsoft invested $5 billion in AT&T, Excite@Home's largest shareholder, the relationship is more established toward doing more distribution deals.

Excite and Microsoft also joined together to invest in WebMD, another sign of more potential partnerships between the two companies, according to Excite@Home president George Bell.

"That was a pretty good example of what we'd like to do more of," he said in a previous interview. "We'd like to join forces as investors and partners so we can anoint winners."