posted June 21, 2001 03:55 PM
Goddamned right, baby! This story proves that (to use a horribly dated term) - AOL will soon be Microsoft's bitch!
Internet service MSN is on a mission to lure away users from AOL Time Warner Inc.'s <AOL.N> AOL service, a move the head of MSN said will not be affected much by whether the two rivals head back to the negotiating table or not.
Talks between the two rivals broke down over the weekend. The negotiations were over a variety of issues including renewal of a deal that would put AOL software on Microsoft's Windows XP, the upcoming version of the software giant's personal computer operating system.
"I don't see a big change (to our strategy) whether AOL is in or not in," MSN vice president Yusuf Mehdi told Reuters in an interview. "This year I want to be able to crack the crisp articulation of why you should switch to MSN. My dilemma is that I have this wealth of riches of reasons for why (users should switch from AOL), but no silver bullet."
He added that while there was not one key differentiator, there were several smaller ones, including Microsoft's focus on technology and software and its ability to integrate that into the service.
There has been no indication that the talks will start up again. The failure to reach a deal means AOL loses a distribution system, which helped it become an industry leader with 29 million subscribers over the last five years while MSN lagged behind with 5 million subscribers.
No deal also means Microsoft will not be able to easily convert that large base into users of its instant messaging and digital media technologies.
SAME VISION, DIFFERENT APPROACHES
"Overall, we share the same vision," Mehdi said of AOL. "But we differ radically in our approach. We are a software-technology focused business, trying to make the Web better for people through richer e-mail, search, and other features. They are more and more a media conglomerate."
MSN has been in talks with personal computer makers and retail partners to increase distribution of the service. It has also been talking to content players, many of whom are not part of the stable of artists and publications under AOL Time Warner's umbrella, to offer a better service and increase the traffic and promotion of the content company's Web properties.
Mehdi said MSN is building a platform, which also differentiates itself from AOL, with Microsoft's .Net strategy and Windows operating system.
"A year from now we want companies writing special services that work on top of MSN," Mehdi said. "We will interoperate with anyone and make instant messaging a .Net service so any content company that wants to send messages to our users can do so without any permission. For example, FedEx can send an IM user a message once a package is delivered."
Instant messaging is a popular service which many see as a growth engine for the future. MSN has been working with a group called IMUnified to allow users of different instant messaging services to swap messages with each other.
The group has yet to implement its interoperability protocol that would enable this, but Mehdi said it already works on a technical basis and the hold-up has been business issues. AOL's popular instant messaging services, ICQ and AIM, are not interoperable and the company has said it has to address privacy and security issues first.
Increased penetration of high-speed Internet access, which will improve services like richer advertising with more data, digital delivery of music, and interactive television, will also help differentiate MSN.
"As broadband comes on, the software bet we are making is really going to have us differentiate radically," Mehdi said. "This fall we will have a nationwide broadband service through DSL (digital subscriber lines)."
In the next six months, Mehdi said MSN would put its toe in the water with enhanced subscriber services, such as music downloads and music subscription services.
"The music service depends on when we sign deals with some of the labels and I think we can do that. The problem is if you find it economically interesting," Mehdi said, adding that MSN is still investigating the idea.
The recent decision by AOL to raise the price of its flagship service to $23.90 from $21.95 gave MSN an opportunity to woo subscribers.
MSN responded with a $50 million campaign that included a promotion that let users lock in a rate of $21.95 until Jan. 1, 2003. It has doubled sign-ups from direct channels such as Web sites and call centers since the promotion, which should boost its subscriber numbers, Mehdi said.
Since most U.S. Internet service providers are faced with about 3 percent of its subscribers leaving a month through "churn," market shares can shift rather quickly, Mehdi said.
ALLIANCES AND ACQUISITIONS
While MSN had looked at acquisitions in the U.S. access market, Mehdi said it has decided growing organically has been working well.
Internationally, MSN, which has a presence in 33 countries, said it wants to solidify its position where it is No. 1 or No. 2 and roll out premium services through alliances with ISPs and wireless carriers rather than mergers and acquisitions.
"What we put on the table is that we are willing to co-brand and give up parts of the network. For example, for DSL carriers we are willing to say if telephony is important to you maybe you can take that piece (of the business)," Mehdi said. "We are more willing to carve out and customize our offer to get a partnership and that has had a lot of impact."
While he said the Brazilian market is ruled by the local players right now, Mehdi said investors should look for MSN to make some efforts in the U.S. Hispanic market soon.
Earlier Thursday, the MSN and its joint venture partner Telmex <TMX.N> said they were buying struggling Spanish-language Internet portal Yupi.com in hopes of helping MSN compete better with AOL in the fast-growing Hispanic Internet market.