Microsoft Shifts Its Focus To The Web's Front Door.
Imitation may be the sincerest form of flattery, but when your imitator is Microsoft, it's also the scariest. Last week, the software colossus began releasing information about its new business offensive on the Internet. It probably won't surprise anyone that Microsoft's goal is to become America's gateway onto the Web. What is surprising is the way they plan to do it. No longer focused on what one representative called the "old-fashioned model" of online services (read America Online), Microsoft has set its sites on a very different Web player: Yahoo.
It seems that researchers in Redmond have determined that the Web means two things to consumers: searching and email (a conclusion shared, to some extent, by Yahoo, Excite, Lycos and Infoseek, which months ago expanded their search and directory sites to include free email). Microsoft's new "portal" site, called Start.com, will offer free email through HotMail, which the company acquired for an estimated $300 million last fall. Inktomi, the San Mateo, Calif.-based company that also created the search engine for HotBot, will provide Start.com with search and navigation.
The launch of Start.com is the latest volley in what could be the biggest virtual battle yet-the fight over who will take users to the Web. At the very least, the new venture signals a sea change for Microsoft's online business model.
The company says, for now in any case, that MSN-the much-feared pay service that three years ago was going to Apple-ize AOL, CompuServe and Prodigy-will continue to be a subscriber-based online offering. But there is little doubt that the emphasis is turning away from controlled content creation and toward aggregation. More and more, MSN content has shifted from its paid zone to the free zone. And the Microsoft mandate to its producers now calls for practical, functional applications over entertainment-oriented content.
"MSN in general is in evolution from an old-fashioned proprietary online service model to online services on the Web," says Jeff Sanderson, general manager of marketing for Microsoft's Interactive Media Group. "In October of 1996 when we launched MSN 2.0, we said we are moving MSN to the Web. In December of 1995, Bill Gates put a stake in the ground and said the Web is where it's at."
That stake might well have been through the hearts of M3P, the online producer types who had been signing deals with content creators for MSN "shows." The unit is now focusing more on developing existing areas on MSN such as the women-oriented Web program Underwire. The launch of Start could also foretell Microsoft's long-rumored exit from the access business. MSN currently outsources access to UUNET Technologies.
So why would a powerhouse like Microsoft end up chasing a fledgling Yahoo and its army of 380 employees? Because the number of MSN subscribers has been stagnant, mired at about 2 million, while Yahoo, with much lower content and marketing costs, has been rapidly expanding worldwide. In December, Yahoo charted an average of 65 million page views per day, according to Plan. "Given the kind of tepid growth they've had in the past year, Microsoft is looking to leapfrog to the next stage," says Mark Mooradian, group director, consumer digital content, Jupiter Communications. "That's their portal play, and it is reactionary [on their part]."
To Microsoft's Sanderson, however, Start.com is not a question of stealing market share from Yahoo or AOL. He notes that about 20 percent of households are connected to the Internet, but even these users are not using it frequently or even regularly. The goal is to create something so useful that more people will go online and use it more often. "It's a growing pie game right now," he says.
The creators of Snap! Online, which is CNET's portal offering, agree. "Within the next two years, there will be five major gateways for consumers online," says Tom Melcher, general manager of Snap! Online. "AOL will be one. Yahoo will be one. Between three and four slots are available." That leaves-at least-Snap, Excite, Infoseek, Lycos, Microsoft and even Netscape battling for those slots.
"This is where the advertising will be delivered," Klein says. "It's better than spot. This is bigger than local sites."
No company has captured a dominant front-end position from the moment surfers dialup. Yahoo, which is perhaps the most visited site on the Web, is a frequent first stop by browsers but lacks the distribution to become an automatic starting point. Its recent partnership agreement with MCI might allow it to make the leap as a free, online service-at least for MCI dial-up subscribers.
AOL, which has the distribution through its 11 million members, has become a major portal. But it is unclear whether nonmembers (the majority of Web users) will be interested in using AOL.com, the service's Web presence, as a starting place for searching and interacting.
One interesting player is Netscape, which, at press time, was rumored to be for wholly or partly for sale; AOL is said to be interested in buying at least its Web site.
Netscape executives often trumpet the company's homepage as the largest site on the Net; it is already an advertising vehicle to reckon with. But despite talk of a new search alliance and the development of news and other content, the company has yet to find a true identity for netscape.com. Critics say Netscape is a gateway site only for users who haven't yet figured out they can change the startup page to whatever site they want. Still, in the marketing battle to control the Internet's doorway, that might just be enough to win-for now.