How MSN connects to world of free ISPs

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A consumer can't surf the Net or the broadcast airwaves these days without tripping over a bevy of offers for free Internet service.

People can get free Internet service from major portals--Yahoo!, [email protected], Lycos and AltaVista Co.--and dozens of standalones--dotNow!,, Freewwweb, and NetZero. Conspicuously absent, however, is Microsoft Corp.'s MSN.

Yahoo! jumped into the space as in conjunction with Kmart Corp. AltaVista, [email protected] and Lycos offer free dial-up service through, a company owned by CMGI that develops free custom ISPs.

However, MSN has not made a free play thus far. MSN--the third-ranked consumer Internet service provider, according to Jupiter Communications--relaunched recently with a high-profile campaign created by McCann-Erickson Worldwide, New York and San Francisco.


"MSN is an integrated Internet solution, and a big part of that is access through rebate offers, retail ties [with Best Buy Co. and Radio Shack] and [warehouse] clubs," said Deanna Sanford, lead product manager for MSN. "We're building MSN Internet access into the Web companions (such as mobile devices) that are coming out later this year.

"Certainly it's one of the very many options that we've explored, but at this point, we have no plan to offer it free. I'm not saying we never will."

Still, Ms. Sanford said Microsoft considers MSN a premium ISP, differentiated from the freebie pack in offering 24-hour customer service, URL filtering and reliable dial-up connections. The ISP claims more than 2.5 million worldwide subscribers; Microsoft declined to say how many subscribers enrolled since the $150 million MSN ad blitz launched in February.


Offline relationships with bricks-and-mortar retailers will grow more important to win and keep subscribers. For example, MSN offers Costco shoppers a discount on the $21.95 monthly fee.

Making MSN free would allow Microsoft to take on 800-pound gorilla America Online. The No. 1 ISP claims more than 22 million subscribers, and sibling service CompuServe has 2.5 million. AOL's edge is great; the combined MindSpring and EarthLink is a distant No. 2.

MSN also could boost its subscribers by buying one or more of the free players, such as NetZero or Juno Online Services, though pending antitrust issues might make that difficult. There is a precedent: Microsoft bought its way into free e-mail by acquiring Hotmail.

Most important to Microsoft, a free ISP service would bring more people into, helping it generate traffic for the portal.


Though MSN's Ms. Sanford said there are no plans to offer a free ISP, some industry observers project Microsoft may do so before the yearend.

"I believe MSN will have a free offering," said Allen Weiner, VP-analytical services at Net-Ratings, a Web measurement service.

Mr. Weiner said it's a good idea for MSN to offer two service tracks--one free for modem users, the other a DSL service with mobile access.

"It makes sense, but the stars are not properly aligned for them to do it," he continued. Mr. Weiner maintains that Microsoft has two problems in contemplating a free offering: The company fears attention from legal entities and might harbor concerns about where a free service would reside if the company were forced to break up.

Joe Laszlo, senior analyst with Jupiter Communications, concurs: "The antitrust thing has probably been a factor dissuading MSN from acquiring a subscriber-based ISP, but not necessarily from becoming a free ISP."

Microsoft's portal play is critical as it tries to extend packaged software expertise to a Web-distributed model. MSN, considered key to e-commerce initiatives, needs to position itself as a premium brand because it seeks consumers who will spend freely online.

Microsoft's MSN has had a rough start since it launched with Windows 95 in August 1995. The brand has long had a confused double meaning: MSN is an ISP, but it also is a portal visited mainly by people not using the MSN ISP.

"Microsoft hasn't been as focused as it could have been with MSN in terms of trying to build a strong offering," Mr. Laszlo said. "Microsoft, like most of the high-value, national narrowband ISPs, is actually pretty leery about diluting its brand and cannibalizing its own customer with a free ISP offering." He maintains Microsoft is also concerned about a free ISP hurting profits.


As portals launch free ISPs, the strategy appears similar to telcos' such as MCI WorldCom's dial-around long-distance service that's entirely separate from the flagship brand. It could only be a matter of time before the major ISPs promote targeted service tracks.

"If and when AOL and MSN follow in this trend, they'll definitely try to distinguish between free vs. paying," Mr. Laszlo speculated. He cited Juno as an innovator in promoting a suite of paid and free Internet access services.

"Ultimately, MSN could decide that it wants to roll out under a different brand a free offering, to appeal to a broader range of customers," Mr. Laszlo added.

Copyright March 2000, Crain Communications Inc.

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