Content revival in Redmond

In the latest spate of multibillion-dollar acquisitions among Web portals, one major Net player has remained on the sidelines: Microsoft.

But there are signs that the corporate empire of Redmond, Washington, may finally be planning to make a move and extend its own franchise through partnerships and licensing deals--similar to the strategy it has used to sell its software.

So far, the software giant's own portal MSN.com has remained an under-marketed, under-branded member of the crowded portal landscape--in spite of heavy traffic. The site is characteristically "un-portal" compared to other entrants--Yahoo, Excite, and Lycos, for example, have made their names as "uber-aggregators," partnering with many outside firms, sometimes even with competitors, to add content.

MSN, however, links predominantly to Microsoft-branded content and services, such as Hotmail, MSNBC, CarPoint, and Expedia.

But Microsoft continues to pursue dreams of involving itself in many businesses--be it the Web, software, or any other hot commodity. Whether the company can link these disparate interests and aims remains to be seen, some say.

"They have to be a player, they have to have a stake in the ground in everything," said David Simons, managing director of Digital Video Investments. "While they are doing both, clearly their long-term focus is to grow Microsoft's earnings on a consistently huge base."

In some ways, Microsoft's current online strategy is similar to its position when the Net exploded onto the scene in 1995. Microsoft once again seems to prefer to protect its software business, rather than take chances with new opportunities.

But Redmond can afford to be slow. With some $20 billion in its coffers, the company has the ability to test out different business combinations without drastically affecting its bottom line. Chief executive Bill Gates is aware of the muscle his company can flex, shrugging off the high valuations associated with Net-related companies in a recent interview.

The company to date has added to its Web portfolio through acquisitions, spending more than $1 billion for companies such as WebTV, LinkExchange, HotMail, and the Firefly Network.

But competitors are raising the stakes. A flurry of record-sized Internet deals have been announced in recent months: America Online bought Netscape, @Home snapped up Excite for a record $6.7 billion, and Yahoo bought Geocities.

During this period, Microsoft's response has been less ambitious and more predictable: a licensing deal with a longtime computer ally, Compaq Computer. The deal calls for Microsoft to license MSN Hotmail to Compaq's AltaVista unit, while dropping its previous search engine partner, Inktomi, for technology from AltaVista.

Microsoft's Web presence
Microsoft has one of the largest audiences on the Web, with a reach of roughly 48 percent of all Web users, according to the latest Media Metrix figures. The numbers include all Microsoft-branded sites, including its own Microsoft.com company site.

First indications of what may be Redmond's Web strategy became clear on the heels of the Compaq agreement last week.

The initiative is Microsoft's first step towards developing a new strategy to license its MSN.com portal site to other computer manufacturers as well as Internet service providers. Similar to the way it distributes its software, Microsoft seems to be banking on its existing relationships with computer manufacturers to distribute its Web brand.

In a couple of weeks, Microsoft is expected to launch a major marketing campaign in hopes of branding its service more successfully to Netizens.

"We still have a relatively unknown brand out there," said Marty Taucher, director of network communications at Microsoft. "We've spent a lot of time over the last six months testing unique value proposition to consumers. We're now ready to roll that out."

Microsoft may want to take a cue from the @Home/Excite combination and the partnership deal between America Online and Bell Atlantic--and it certainly has the means to do so.

Whether the company will use its financial muscle to persuade companies to deliver Microsoft-grown content is unclear, but Redmond's interests in the pipes that provide the Web pages is clearly evident, following a series of investments in broadband companies--from satellite players to new-age telecommunications carriers.

A portal future?
Microsoft's Web history has been marked by constant strategic shifts. Amid the Net megamergers, the question arises: Does Microsoft's Web strategy culminate in the purchase of someone else's portal, as many have rumored?

"MSN hasn't done a very good job at being a portal," said a source close to Microsoft. "All those people running MSN are the good old software people. They want to use [MSN] as a technology showcase of Microsoft technology."

In the aftermath of @Home's acquisition of Excite, details surrounding the deal included a number of high-profile suitors exploring options with the Web portal--and Microsoft was one of them. With Excite now in the arms of its Redwood City neighbor, Yahoo and Lycos are the two remaining major independent portals--fueling speculation that Lycos could most likely become the ideal target for a Microsoft acquisition bid.

"By acquiring a portal [Microsoft] could achieve reach," said Jupiter Communications analyst Patrick Keane. "Advertisers and Wall Street are increasingly impressed with reach as a number that is important.

"Would acquiring Lycos be a potential up-tick in their stock price? It probably would," he added.

With rumors circulating about Microsoft's portal interest, questions remain on how committed it really is to playing its own Web portal game.

Taucher would not comment on speculation of Microsoft acquiring Lycos, but said that the two companies have met for talks in separate occasions.

"We're open to a lot of different things, and we're always talking to lots of different people," he said.

But Taucher added, "I don't think we will go out and do any major acquisitions."

Real play yet to come
As opposed to the flashier, aggregate-everything strategy of its portal competitors, Microsoft's Web play has thus far remained at a level consistent with its philosophy, according to analysts.

"Whether it's the Microsoft network or the software business, they're all about selling stuff," said Gartner Group analyst Mike West. "They're not all about content aggregation or about search."

Redmond will not remain in the shadows for long. Down the road, MSN will become more integrated into a broader platform of Microsoft products, giving it a greater default audience. Soon, MSN will become the default home page of its Internet Explorer 5 Web browser, as well as its Microsoft Internet Access ISP, according to company executives.

Taucher also added that WebTV and MSN will begin "figuring out how they can be the same service," giving MSN another channel through which to accelerate its place in a converged world.