MSN, AOL Unveil Latest Strategies

SEATTLE AP October 14, 2002; Helen Jung writing for AP reported that even Microsoft Corp. can play the role of David to someone else's Goliath.

With 9 million subscribers to its MSN Internet service, Microsoft places a distant second to America Online and its 35 million subscribers worldwide. MSN is battling a company that, for many, is almost synonymous with the Internet, from its ubiquitous distribution of free trial compact discs to popularizing the phrase ``You've got mail.''

Still, Microsoft's got a pretty big slingshot. And the Redmond, Wash.-based software giant is loading it with its biggest stone yet — MSN 8.

The new redesign of its browsing and Internet access service will launch just nine days after America Online rolls out AOL 8.0 on Tuesday, as the two powerhouses ratchet up a big-bucks battle to grab new customers.

Although Microsoft has spent billions developing and marketing MSN — including $500 million creating the new version and $300 million on an advertising campaign kicking off with a New York performance by singer Lenny Kravitz — the 7-year old service has yet to make a profit.

But Microsoft sees a future for MSN that will someday justify the massive costs.

``We believe that this is going to be a very very big business, a business the size of Windows or the size of Office in the future,'' said MSN marketing director Bob Visse, referring to Microsoft's two largest revenue-generating products, the Windows operating system and Office suite of business software. ``It's something that consumers will come to rely on in their everyday lifestyle.''

Across the country in Dulles, Va., AOL executives face the challenge of reconnecting with customers, analysts said. Company officials are optimistic that users will take to the redesigned AOL 8.0.

``It's clearly our best effort at delivering real value, real features and functionality and experiences that connect people with the other people in their lives,'' said David Gang, AOL's executive vice president for product marketing. ``This is the biggest step forward.''

Although the big two are drawing most of the attention, other competitors are hoping to snare customers as well, from No. 3 provider EarthLink to Yahoo's new high-speed Internet access service, offered through a partnership with SBC Communications.

Microsoft's newest MSN focuses on improving filtering of ``spam,'' or junk e-mail, and beefs up its e-mail program, one of Microsoft's advantages over AOL, analysts said.

The company also honed in on an AOL strength — parental controls that allow adult supervision of children on the Internet.

Microsoft has made its new browser more customizable, and is throwing in exclusive content from the network's Money pages and other sites to further entice paying subscribers.

AOL similarly focused on letting users include more customization, such as adding animated buddy icons to its instant-messaging program. It greatly enhanced its e-mail program, which still trails Microsoft's but represents a big improvement, said David Card, a senior analyst with Jupiter Research.

Card said he doubts either company's latest version will significantly change the competitive landscape, but others say AOL is vulnerable and Microsoft, with more consumer-focused how-to content and services, can make some inroads.

``It's almost as if MSN is for grown-ups and AOL is for kids,'' said Mark Anderson, founder of Strategic News Service, a technology newsletter. ``MSN is for more mature economic transactions while AOL is more for media content'' such as pictures of pop stars like Britney Spears.

The question remains whether MSN can keep the customers it lures.

According to a June report by Forrester Research, MSN retained 43 percent of its subscribers from 2000 to 2001, while 79 percent of AOL's members stayed with the service.

Microsoft disputes Forrester's methodology but clearly hopes MSN improves the numbers.

``MSN 8 is the first time where we feel that we have a product that is a step ahead of any of our competition,'' Visse said.

Microsoft also plans to beat AOL on price.

MSN subscribers will pay monthly fees of $9.95 for a ``bring your own access'' plan — connecting through another Internet service provider — $21.95 for a dial-up connection; and between $39.95 and $49.95 for broadband connections, depending on users' location.

AOL will charge monthly fees of $14.95 for bring your own access, $23.90 for dial-up and $54.95 for broadband. AOL spokesman Andrew Weinstein defended the company's higher prices, saying they have not stopped AOL from outpacing MSN's subscriber growth in recent years.

The battle won't end here, so to win future rounds, both companies need to consider how they can better appeal to people with high-speed access, said Mark Kersey, broadband and cable analyst for La Jolla, Calif.-based ARS Inc.

The nation has only about 15 million broadband subscribers, Kersey said, and ``I don't think there's a tremendous amount of content out there that really demands that people have broadband.''