Microsoft readies bulked up 'Mars' to wage ISP battle

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Microsoft Corp., attempting to gain traction with MSN after almost five years of false starts, is pushing toward a revamp later this year that should make the ISP more appealing and simpler to use. Yet MSN's strategy and future are as murky as ever.

Microsoft appears committed to delivering much-improved Internet service, and it's intent on attracting new users as well as disgruntled patrons of behemoth America Online. The newly revved MSN Internet service, now in beta test under the code name Mars, will be released most likely by early fourth quarter with new features and a fresh name.

But as MSN nears its five-year anniversary next month, the long-term strategy isn't so clear. Microsoft's bigger play could be selling tools and services to other ISPs rather than offering its own Internet service.

For now, Microsoft must fix its muddled MSN branding: MSN is the name of its Internet service, used by 2.6 million subscribers, according to Microsoft. It's also the name of the portal MSN.com, which had 39 million unique users in May, according to Media Metrix. Renaming the ISP could differentiate the access and portal offerings.

YEARLY RENEWAL

"Every year, [MSN executives] revamp, revise and renew," said Sean Kaldor, VP of e-commerce for Nielsen/NetRatings. MSN "has been the perennial one to pick at, but the reality is the Internet space requires this."

Microsoft is famous for taking a few revisions to get a product right; Windows didn't take off until the third version.

MSN relaunched late last year, buttressed by a $150 million marketing and ad campaign that broke this year from McCann-Erickson/A&L, San Francisco and New York. The campaign, Microsoft's biggest for MSN, has helped raise the portal's profile as a one-stop shop for personalized services and boosted its subscriber count.

But for now, MSN is a heavily hyped also-ran. It faces formidable competition from America Online, which boasts about 26 million members with its AOL and CompuServe brands.

Microsoft has been luring subscribers with price: It offers six months of MSN service for free when consumers sign up for one year, something touted heavily in the TV spots.

A recent demonstration of Mars revealed some new elements. For example, MSN will authenticate a user's ID for Passport, Microsoft's e-commerce service, at the sign-on screen so a consumer can sign on from anyplace. Mars also has a new search feature, new shopping functions and protection from unwanted e-mail messages.

IMPROVED FEATURES

A user's credit card information, already stored within Passport, enables easy purchasing without having to again furnish personal data. Mars also will offer tools to let consumers build Web sites and store related documents and photos online more easily.

"They'll be able to use the information in a rich way . . . share information with others," said Bob Visse, MSN's lead product manager.

Other key upgrades to come include improved calendar-management functions along with notification and alert features that communicate with users wherever they are, no matter what device they use.

"We want to be the easiest way for consumers to get on the Web and the richest, most integrated set of Internet services for Internet consumers," Mr. Visse explained.

In the battle against AOL, Microsoft will try to entice "switchers," people who aren't completely satisfied with the nation's largest Internet service provider. "We believe 50% of AOL customers aren't totally satisfied," Mr. Visse said.

In fact, Microsoft projects that 8 million AOL users will defect to other ISPs this year. Rival EarthLink also is aggressively courting disgruntled AOL users.

Also part of MSN's plan is capturing a chunk of the estimated 12 million new Internet users coming online this year.

Microsoft has been criticized for its on-again, off-again attempts to create a viable Internet service and portal community. But given the commitment of resources and a renewed focus, analysts said MSN has a good chance of increasing subscribers who will also spend money.

MSN also is expected to become a component of Microsoft's .NET strategy that provides integrated Internet services for consumers and businesses, which was detailed by top executives June 22. If, however, Microsoft works more with other ISPs to ensure the viability of its .NET strategy, MSN could wind up as more of a factor on the back-end of the Internet. That raises the question of whether Microsoft would want to stay in the access business--where it is so far behind the leader--and compete with ISPs that might buy its services.

'STEALING SHARE'

Microsoft, meanwhile, aims to meld MSN's diverse array of services, such as CarPoint, eShop, Expedia, HotMail, Messenger and others, under a single user interface with easier access. The reintegration follows recent moves by Microsoft to give some of its offerings--notably Expedia--their own identities.

NetRatings' Mr. Kaldor maintained MSN's mission now is about "stealing share" and, as it strikes more deals with content companies, gaining strength.

"They have to steal monetizable users from the others," Mr. Kaldor said. "I wouldn't be surprised if they made more and more of their stuff available to the general population. . . . They're evaluating (giving ISP service away for) free, but I don't expect it in the near term."

As the drive to sign new users and switchers intensifies, Microsoft will continue to push MSN aggressively through alliances and promotions with retailers such as Best Buy Co. and RadioShack Corp.

"We do feel we're making a ton of progress," Mr. Visse said. "People are coming and staying longer."

In May, according to Media Metrix, MSN.com racked up 39.4 million unique visitors who spent an average 71 minutes on the site. That's up 5 million users and 6 minutes from January.

AOL.com in May posted 32.1 million unique visitors who spent an average 18 minutes online. However, those numbers represent only the AOL.com portal, not its proprietary content areas. AOL's proprietary number of unique visitors for May was 25 million with an average of 772.1 minutes spent. MSN, including a few of its most popular proprietary destinations--eShop, Expedia, MoneyCentral and CarPoint--racked up 42.8 million unique visitors who spent an average 93.8 minutes for the month.

PLAY MORE, SPEND MORE

To evolve the service's appeal and reach, Mr. Kaldor maintained MSN should make everything more easy to use. Therein lies a challenge for MSN's product managers, marketers and executives: While adding turbo-charged customer services, the goal is to simplify the user experience so people shop and play more online. One possible strategy is segmenting services, such as MoneyCentral, into advanced and novice versions.

"If they want to reach out without offending their current customer base, they should consider alternatives to their interface, either another brand or an alternative offering that could go from a simple to a more complex environment," Mr. Kaldor suggested.

Copyright July 2000, Crain Communications Inc.

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