When Microsoft unveiled its revamped Internet online service, the Microsoft Network (MSN) on 11 October, it looked as if the company was continuing its long tradition of getting things right the second time round.
Microsoft's second time right approach goes back to the early 1980s when it tentatively entered the spreadsheet market with a product called Multiplan, which was quickly eclipsed within a couple of years by the original Apple Macintosh version of Microsoft Excel.
Excel went on to become the spreadsheet of choice for both Apple Macintosh and Microsoft Windows users. Even Windows did not really catch on until the third or fourth time round as Windows 1, 2 and 3 failed to offer a compelling graphical alternative to the Macintosh.
The company followed the same pattern with the initial releases of Microsoft Word, Microsoft Windows NT and, more recently, Internet Explorer 3 browser software for the World Wide Web. The one exception to this rule was its Microsoft Access database, which went from introduction to virtual market domination within the space of only 18 months.
Many of Microsoft's competitors feared that MSN would do the same when it was originally launched alongside the heavily hyped Windows 95 operating system in August of last year.
America Online (AOL) was among the most vociferous and encouraged the US Department of Justice to take an interest in Microsoft's decision to include MSN access software with the Windows 95 operating system and an MSN sign-up icon on the Windows desktop.
AOL founder and chief executive Steve Case suggested that this amounted to unfair competition and expressed concern that Microsoft would quickly come to dominate the online services business.
A year later, AOL is still very much in business, although competitors like Compuserve have gone through some tough times, while MSN has signed up some 1.6 million members largely on the strength of its piggy-backed association with Windows 95.
The company spent only $12 million on direct advertising (not including its own advertising within the Windows 95 software) for MSN - a virtual drop in the ocean, compared with AOL's advertising spend last year of $400 million.
But all of that changed with the much-anticipated 11 October relaunch of MSN, which many industry observers initially expected to be all about Microsoft moving the entire content of MSN to the World Wide Web.
Although that was part of the announcement, the new MSN is also promising to feature all new services, original entertainment programming that can't be found anywhere else, along with a surprising new 'program viewer' based on Microsoft Internet Explorer technology that can be used to view both standard Internet sites as well as proprietary MSN member-only content.
Microsoft is hyping the new service as a chance to redefine what it means to be online and is introducing a new television-style concept within the MSN member area called Web Shows.
These original shows are divided throughout six different channels and Microsoft promises they will offer a completely new Internet experience for people with different interests and lifestyles.
In addition to a wide range of originally programmed Web Shows that will make their debut with the new service, other onstage features include news from the jointly programmed MSNBC venture with NBC television, a major US network, and a subscription to Michael Kinsley's Slate, a political magazine available in the US.
The nature of MSN's Web Shows range from the low-brow 15 Seconds of Fame, a show which gives members a chance to offer their stories about major life events such as the first time they got drunk, to more philosophical shows such as Retrospect 360 Degrees, which is designed to offer a multimedia view on topics like the history of the future.
Microsoft is putting a lot of resources into the Web Shows and is commissioning a great deal of new material from third-party producers in an effort to boost non-Microsoft content. It is evidenced by the existence of shows such as the ever popular Star Trek and US magazine show Entertainment Tonight on the MSN service.
'Our goal was to create a network that is easy to use, well produced and makes sense of new medium to our audience,' says Bob Bejan, MSN executive producer. 'MSN takes our members from being spectators of mass media to being collaborators in mass media. It does so in a way that is informative, engaging and highly entertaining.'
MSN also announced a pricing structure that includes what Microsoft is calling 'the MSN premier unlimited plan'. It offers unlimited access to the Internet for $19.95 per month - something that other major online service providers, notably AOL, have been slow to do.
There is also a new premier monthly plan for $6.95 a month that includes five hours of usage which, according to Microsoft, will place the company in a position of leadership on price/value among all online services.
The company will spend some $100 million of direct advertising dollars to promote the revamped service, starting with outdoor advertising, then moving to print and later television advertising. In addition, exhortations to join MSN will be included in a number of key Microsoft consumer products.
The company denies that it is going after AOL or smaller independent service providers (ISPs) and indeed has signed up many ISPs to resell a content-only form of MSN membership that does not include Internet access in the fee.
Microsoft chief executive Bill Gates says that since only a small percentage of the computer buying public currently uses online services, the goal right now is to sign up new users - not lure customers away from AOL or existing online service providers.
In this environment, Gates says growth by all the major players is good news as it shows expansion of Internet use and makes a bigger market for all.
According to Mark Mooradian, a senior analyst with New York-based Internet consultancy Jupiter Communications, Microsoft's strategy for MSN seems sound and should yield at least Microsoft's stated short-term goal of doubling its current membership in only 12 months.
But Mooradian is sceptical about the claim by Microsoft that it simply wants to grow the market and isn't aiming to steal customers from AOL.
'To some extent, I don't buy that argument. The general strategy to go after ISVs and AOL seems a pretty sound one, although it is true that the cost of acquisition of new users is much lower.
Mooradian says that the pricing plan is pretty significant. 'MSN will offer lots more content than standard ISPs and it is significantly undercutting AOL. I don't find it as compelling a service as AOL yet, but I do think it will get there. It should drive quite a few people over to their camp,' he says.
He says that one of the biggest shocks in the MSN announcement was that Microsoft had only $12 million to market MSN directly, not including the free advertising that it garnered by appearing on the Windows 95 desktop.
He speculates that when you compare this with AOL's $400 million annual advertising spend, Microsoft could do significantly better than merely double its membership over the course of 12 months with its planned $100 million campaign.
Mooradian also said he was surprised that AOL did not immediately match the $19.95 unlimited Internet access price announced by MSN. 'Historically AOL has been very responsive,' said Mooradian. He says that perhaps because AOL has what he calls 'a more robust service'. The market leader perhaps thinks it doesn't have to match the price because it is offering more.
Despite all this, Microsoft says it does not expect to make money on the service for at least three years and definitely takes a long-term view of the whole Internet online services market. The company believes that there will be something like $13 billion to $15 billion in annual revenues generated on the Internet by 2000, and it is aiming to get 10 per cent of that business.
'Once again, there is a very different business model. People should be very conservative looking at us and other interactive media technologies in terms of profitability,' says Gates. 'Early investors will do very well.
'As to whether Microsoft is now a media company, yes we are doing media things such as hiring writers, artists and graphic artists, but we have not chosen to get into traditional media,' says Gates.
Gates says that as part of a partnership, sometimes Microsoft might end up being an equity owner in something which has that - MSNBC for example.
'From a percentage point of view you wont see them shifting our industrial code over to the media category this side of the millennium.
'We are selling more than $8 billion of software and the PC business and server business is growing as we are able to use Internet to deliver the content and have a relationship with the customers.
'One of the key constraints is how fast they can bring in great new people, but we have enough money in the bank and money comes in every day, so we can afford to do things on a long timescale,' he says.
'We are investing many hundreds of millions of dollars per year in this.'
This is all very interesting, but where in all this is there any opportunity for dealers? There is more to this question than there may at first appear.
The most immediate and obvious reply is that dealers can use the fact that the MSN sign-up software - therefore low-cost and easy-to-install Internet access - is included with virtually all new PCs that use Windows 95. As such, it provides a way for dealers to offer cheap and easy Internet access to their users.
Second, MSN provides a potential way for dealers to market and advertise themselves to their potential customers, particularly as MSN's plans for its Cityscape service come to fruition. It will provide city-specific Web sites in the style of Time Out magazine within MSN for major cities all over the world.
Third, and perhaps most important for dealers, the overall objective of the MSN relaunch appears to be to grow the number of users who are connected to the Internet. This will inevitably force MSN's competitors to become more aggressive in terms of pricing, particularly where unlimited access is concerned.
As more and more users go online, the pace of development for higher-speed modems, high-speed access technologies such as ADSL and xDSL and streaming multimedia services will pick up more quickly.
The beauty of this increase in the speed of such developments - driven once again by the increasing number of online users - is that it will also hasten the rollout of those technologies such as streaming audio and video that require beefier hardware, more memory and more hard disk space.
All of those portend a healthy upgrade business as well as continuing demand for new systems which feature all those higher speed and higher capacity technologies built in.
So while MSN 2 may not have a huge impact on the day-to-day lives of dealers, the very fact that it is being introduced with such a big marketing push and with such clear aims at growing the online Internet market will inevitably help create a market where more dealer products and services are sold to users.
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