Microsoft moves to make Internet service profitable
Posted on: Friday, 9 January 2004, 06:00 CST
Microsoft said on Wednesday that it was repositioning its money- losing MSN Internet service operation to try to compete more directly with Yahoo's personalized Web portal and America Online's broadband premium service.
At the same time, it is planning a new MSN premium service, priced at $9.95 monthly and modeled on Apple Computer's Mac Internet- based customer support service.
The strategy shift was announced by Microsoft's chairman, Bill Gates, in a speech in Las Vegas on Wednesday at the annual Consumer Electronics Show.
The shift represents a concession by Microsoft, which has spent billions of dollars trying to unseat America Online as the leading Internet service provider. Microsoft makes a profit from its Windows and Office products but lost $299 million on its MSN business in 2003.
Both Microsoft and AOL are struggling with customers who are moving away from dial-up Internet connections to high-speed broadband connections. Industry analysts said that Microsoft started a $300 million marketing campaign 14 months ago to attract dial-up users but has decided to abandon that effort.
Microsoft will continue to provide dial-up Internet access to subscribers, but it is now focused on competing with Yahoo's Web portal business, as well as AOL's new broadband services. Microsoft's executives said that the company planned to revamp its Internet search service this year to compete more effectively with Google, the Internet search engine company.
This is not a business that our research and development power could bring anything to, Gates said, referring to the Internet access business, in a telephone interview before his presentation. We weren't confused about that. We stayed in the access business for a while, and then we decided it wasn't for us.
The Microsoft executive who heads the MSN service, Yusuf Mehdi, said that Microsoft generated $1 billion annually in online advertising revenue and saw growth opportunities in creating a Yahoo- style Web portal and Google-style search-based advertising.
This is a major bet for us to get a relationship with people where we know more about their habits and usage, Mehdi said.
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