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MS takes up Sidewalk

Analysts say newspapers and other online guides fighting over advertising revenue should be worried about Microsoft. Very worried.

Microsoft (MSFT) will be cutting a very thin slice of the local content cake when it launches its much-anticipated Sidewalk service tomorrow. But observers say it just might turn out to be the tastiest, richest piece.

The first of the Sidewalk guides will launch tomorrow for Seattle. Microsoft is expected to follow up with Sidewalk editions in New York, San Francisco, and Los Angeles.

So far, the other major contenders in the local content arena such as CitySearch and America Online's Digital City have launched sites that purport to offer one-stop shopping for all local information--from restaurants and entertainment listings to information about women's shelters.

But Microsoft has decided to focus exclusively on entertainment, offering services such as restaurant reviews written by a staff of top reviewers, concerts, show and movie listings, and extensive maps that help users check on actual traffic conditions and parking.

Larry Cohen, group product manager of the Microsoft Network, said he has set up Sidewalk to automatically email him every time one of his favorite bands comes to town. The idea is that the reader can use Sidewalk to not only find a restaurant but also to plan a whole evening.

Analysts say competitors--that is, newspapers and other online city guides fighting over billions of dollars in advertising revenue--should be worried. Very worried.

"They did a good job," said Bill Bass, an analyst with Forrester Research. "It's slick. For entertainment, this is a better product out there than anything else."

Ironically, added Peter Krasilovsky, an analyst with Arlen Communications, Sidewalk's strength lies more in its "excellent journalism" than its technology. "You'd expect Sidewalk to have the very latest in all kinds of computer functionality. It isn't as functional as other services but it is useful."

All in all, although he had some criticisms of Sidewalk, such as its lack of local feel, Krasilovsky generally liked the site. "I think Sidewalk's very nicely executed."

Does that mean the cash will start rolling in immediately? Microsoft doesn't expect it to. With its very deep pockets, it can wait for the market to mature. For Microsoft, Sidewalk is only the beginning.

The localized service will link to Microsoft's other new MSN properties, such as its Expedia travel service or its CarPoint car-buying service. Sure, advertising will be an important source of revenue for the service. But Krasilovsky, for one, thinks the real money lies in the promise of online transactions.

"Sidewalk is the anchor of [Microsoft's] interactive services group," he said. "Microsoft is hoping you'll get onto Sidewalk and then go to Expedia...and then go to the bank, and so on. It's the online transaction part of the business that's really likely to make things go."

Microsoft has said Sidewalk will not sell classified ads, the bread and butter of traditional newspapers. But Krasilovsky notes that it has promised no such thing for its other services. "Sidewalk may not be going to classified ads, but it's going to be linking to sites that do."

That's why he thinks Microsoft will continue to be a major threat to newspapers and alternative weeklies.

According to Bass at Forrester, local ads in newspapers and yellow pages generate about $66 billion a year. About a dozen or so major players are fighting for at least some of that.

But newspapers have been generally slow to protect those ad dollars by embracing the Web, said Mark Mooradian, an analyst with Jupiter Communications.

"It's the newspaper's market to lose," he said. "The strongest candidate for arts and entertainment information on the Web is definitely the newspapers. They have the brands. The good thing for Sidewalk is they have the opportunity to get up online with a compelling service before any of those people do."

And Microsoft is like a basketball player who is eight feet tall. When someone that big walks on the court, the other team pays attention. If it turns out the player's a great athlete, then opponents are in big trouble.

"Any time Microsoft comes into your market, I don't care what it's doing," Bass said. "You need to pay attention."