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MSN takes on AOL

Many wonder if the newly reborn Microsoft Network will be good enough to take on America Online, but AOL isn't taking any chances.

BELLEVUE, WASHINGTON--Microsoft (MSFT) is approaching its massive launch of Microsoft Network the same way Microsoft approaches everything--with the goal to dominate the world.

But as the revamped Microsoft Network debuted today, the same question persists on the minds of many: Will the new MSN, costing either $19.95 per month, or less if you use another ISP, be good enough to take on the king of online services, America Online?

Emily Green, an analyst with Forrester Research, thinks so, and that's saying a lot. Green has been one of the most bearish analysts about MSN, the number-three online service behind market leaders AOL and CompuServe.

The new site, to be available in early November, will be accessible directly through a Web browser rather than a proprietary program.

At the $19.95 rate, subscribers will have full access to the entertainment content behind a members-only firewall, as well as the rest of the Internet. At $6.95, those who have their own Internet service provider can get into MSN's proprietary content. (See table below)

Seeing the site, heavy on entertainment with the look and feel of television (Entertainment Tonight is featured), made Forrester's Green a believer. "What I saw was very engaging. It made me want to drive."

Other analysts concurred. "They're clearly bringing broadcasting to computing," said Kathy Hale, an analyst with Dataquest, "[and that] is going to be a new experience. It will create a generation of people that think of computing differently. It's common to talk about the PC as the 2-foot experience and the TV as the 12-foot experience. Now they've moved it back to a 3-foot experience." That, she said, will send AOL scrambling.

But Microsoft chief Bill Gates says he's unconcerned for the moment about a rivalry with AOL. "We're both in this business together. Typically, when a business is growing and you're trying to drive it towards profitability, you actually like to see your competitors do better. The day we see them hit 10 million, that's not a bad day. There will be some people who switch between the two, but that's not going to be a focus for us."

AOL, meanwhile, has not taken the threat lightly. Viewing the new MSN as a serious potential threat, America Online is planning to counter the relaunch later this month.

As reported by CNET last week, AOL plans to offer unlimited Net access, just like MSN. The leading online service is expected to set consumer pricing at about $19.95 per month, as well as charge Internet service providers for proprietary AOL content. An annual pricing plan will also be announced, sources said.

"Very soon it will be our turn to make a new series of announcements that will give a real sense of why we are so confident that we are uniquely positioned to maintain our position of global leadership," AOL Chief Executive Steve Case said. MSN's move "validates the approach AOL has been pursuing for years."

AOL shares fell today on the MSN rollout. The company's shares fell 1-1/8 to 24, 5/8, their lowest point since July 1995. Microsoft shares jumped 3-3/8 to 137-1/8, near a record high.

MSN, however, believes it has taken that approach a significant step further. "We are not trying to 'out-AOL' AOL," Jennings said. "We expect our market share of new subscribers to go up." Microsoft plans to "more than double" the number of subscribers to MSN by the end of June, 1997.

To this end, MSN, which spent almost nothing advertising its current service, plans to heavily market the "new" MSN. The company has vowed to spend $100 million on marketing in the next year, with an 800 number (800/373-3676 or 800/FREE MSN), print ads, and television commercials.

MSN disclosed new features at the conference today, such as Expedia travel services and Microsoft Investor, which are free with Internet access. The MSN program viewer is organized into four areas: OnStage, Communicate, Find, and Essentials.

OnStage, for example, is the news and entertainment area. It features original Web shows such as Fifteen Seconds of Fame, an online version America's Funniest Home Videos. In Communicate, users send and receive email, participate in chats, and enter discussion groups. The email allows members to create messages, complete with pictures and sound, and even spell-check them.

There is also an online shopping feature, the MSN Plaza, that allows members to buy flowers and shop at Tower Records and iQVC. Shopping is not limited to such relatively small purchases. MSN also provides an online car-buying guide and stock trading courtesy of discount broker Charles Schwab & Company.

But some of the content, such as Underwire, an area that focuses on women's issues, drew snickers from reviewers.

Others worried about whether today's Internet technology could support MSN's glitzy content. "It's very much like TV," said Kate Delhagen, an analyst with Forrester Research. "The downside of that is that the bandwidth doesn't support it."

MS says the emphasis will be on programming as similar as possible to TV, complete with weekly programming on issues including comedy, health, and fitness. To get around some of the bandwidth problems, MSN will be sending a CD-ROM to its subscribers so they don't have to wait online for graphics to download.

"Our goal with the new Microsoft Network is to bridge the gap between what users expect from the Internet and what has so far been delivered," Laura Jennings, vice president of the Microsoft Network said.

With CompuServe "critically wounded," according to Green, by next year at this time, she fully expects MSN to be the number-two online service, right behind AOL.

Microsoft also expects big things for MSN.

Pete Higgins, Microsoft group vice president of applications and content, expects the membership of the MSN Network to double by June 1997. Further he projects that the entire online market--including online subscriptions, advertising, e-commerce, and Net access--will grow from $4 billion in 1996 to 13 to 15 billion in 2000. "We think it's reasonable to get ten plus percent of that number."

MSN Pricing Plan
Complete Net access service
Plan Base Cost Hours
Additional Cost/Features
Monthly $6.95/
5 $2.50/
additional hour
Annual $69.95/
5 $2.50/
additional hour
Unlimited $19.95/
Unlimited usage  
ISDN Unlimited $49.95/
Unlimited usage  
Content-Only Plans*
Plan Base Cost Additional features
Free Passport Free Access to selected MSN services on home page
Destinations Monthly $6.95/
Unlimited access to MSN content
Destinations Annual $69.95/
Unlimited access to MSN content

*For users who already have Internet access