Microsoft considers raising MSN's price

Microsoft on Monday said it is evaluating new features and a possible price increase for a pending version of its MSN Internet Access service, due out later this year.

"As we add value to the service, we're going to evaluate the price. But nothing has been decided," a Microsoft representative said.

A price increase for MSN 8.0 would bring the service price closer to that of its biggest competitor. Microsoft currently charges $21.95 a month for standard dial-up service. Last year, America Online increased the price of its standard dial-up service to $23.90 a month, and Earthlink raised its subscription rate by $2 to $21.95 a month.

"If your major competitor raises prices, you're going to think about whether you will too," said Rob Lancaster, senior analyst at the Boston-based research firm The Yankee Group.

Microsoft has waged an intensive campaign aimed at wooing customers to its lower-priced service, offering substantial incentives such as free months of service for AOL members who switch. Through such tactics, it has attracted some 7 million subscribers compared to AOL's 34 million.

Although Microsoft has appeared willing to absorb heavy expenses associated with acquiring new members and running its MSN service, it has also demonstrated signs of cost consciousness. Last year, it discontinued a $400 rebate program after acknowledging that the program had eaten into its bottom line.

Earlier this month, MSN began to enforce limits on storage for its free Hotmail Web-based e-mail service while heavily promoting a premium version for $19.95 a year.

The Yankee Group's Lancaster noted that the price gap between MSN and AOL leaves ample room for the company to preserve a small discount even if it decides to charge more.

"Perception is everything here. MSN wants to be perceived as an AOL competitor and viewed on the same plane," he said. "But MSN wants to stay slightly cheaper than AOL. If they see a little space to raise their prices and stay under AOL, I don't think it will damage them."

News.com's Stefanie Olsen contributed to this report.