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MS e-commerce strategy shifts

Microsoft abandons its Merchant Server 1.0 software; its replacement, Commerce Server 2.0, is due to ship this summer as part of Site Server.

Microsoft's (MS FT) announcement of new Internet commerce software marks a turnabout for the company from what it espoused in its first e-commerce release late last year, according to industry analysts and software competitors.

"It's pretty clear that the original Microsoft strategy wasn't getting very far. This is a much better strategy," said Allen Weiner, an analyst at Dataquest.

In a series of announcements yesterday, Microsoft said it would update its e-commerce offerings, essentially abandoning the Merchant Server 1.0 software it shipped in December. Its replacement, Commerce Server 2.0, is in beta now and due to ship this summer as part of Site Server, Enterprise Edition.

The new pricing at $4,999, with additional commerce sites on a single server for $499 each, is a huge price cut from Merchant Server 1.0, which was listed at $18,490 per server and $3,495 for each hosted site for Web hosting services.

"This basically not an update of Merchant Server but a new product," said Craig Danuloff, CEO of iCat, which last week released version 3.0 of its flagship iCat Web storefront software.

"This is an explicit recognition that this is a toolkit for commerce," agreed Jack Corsello, senior product manager for Actra, a joint e-commerce venture of Netscape Communications and GE Information Services. Actra expects to roll out its e-commerce software May 19.

"Microsoft had initially put Merchant Server in a higher part of the market," Corsello added. "It's a toolkit, and there are tremendous hidden costs to develop a full-fledged commerce site."

In another Microsoft announcement yesterday, the company said it would build Microsoft Wallet, buyer software for making secure purchases over the Internet, into future versions of its Internet Explorer browser and its Windows operating system.

Signaling a new focus on business-to-business commerce, Microsoft also said it would promote a new "Open Buying on the Internet" protocol to be published later this month by the Internet Purchasing Roundtable, an American Express-sponsored consortium of Fortune 500 corporate buyers.

"The emphasis on business to business makes so much sense," said Torrey Byles, e-commerce analyst with Giga Information Group. "That's where the action is."

Dataquest's Weiner concurred, saying Microsoft will let companies market to consumers or to businesses with the same software.

"This will be an impressive platform, especially in light of the Hewlett-Packard announcement," the analyst said, referring to today's news of Microsoft teaming with HP and VeriFone to market turnkey Internet commerce systems for banks and online merchants. (See related story)

Microsoft itself emphasized new business-to-business capabilities in Commerce Server 2.0. Among the 68 partners announced as supporting Microsoft's strategy were Harbinger, Premenos, and Sterling Commerce, three prominent names in EDI (electronic data interchange). EDI is a popular way for big companies to buy from suppliers in transactions handled computer to computer, without human intervention.

"Microsoft will give tools to companies to integrate traditional EDI into the commerce operation," Weiner said. "This puts a lot of other competitors--Netscape and Open Market, for example--in a defensive mode."

Although some analysts see iCat as a potential casualty of Microsoft's new positioning--it's Electronic Commerce Suite of template-based software to set up and run Internet catalog sites is priced at $3,495 for Windows NT--CEO Danuloff is optimistic.

"I would contend our NT product is attractively priced compared with their $5,000 product," he said, pointing out that iCat's Professional version, priced at $9,995, runs on Unix platforms.

"This is classic vaporware, something Microsoft will deliver six months out," Danuloff added. "Microsoft's price alone would kill Merchant Server 1.0 sales if 1.0 sales were doing anything at all. We've heard of a dozen to two dozen cases where Microsoft is giving away the software with two weeks of free consulting."