Stagnating WebTV offers free access for two months

After years of low subscriber numbers, Microsoft now says it will offer its WebTV Internet access for free for a limited time, a move to bolster the service in the face of a huge threat from archrival AOL.

The promotion offers two months of free WebTV Interactive service to customers who purchase a WebTV Plus set-top box, which are priced around $199. Customers who sign up for the service and send in a coupon will receive two months of the service, priced at $25 per month.

Acquired by Microsoft in 1997, WebTV was the first company to offer Net access through the television. Despite the growing industry trend of accessing the Web through devices and appliances rather than the desktop PC, WebTV has struggled to turn initial buzz into steady growth.

"I think the demographics of WebTV users have typically been very different than PC users, and it seems to me that the service isn't as slick as it could be," said Sujata Ramnarayan, an analyst with market research firm Dataquest.

WebTV's latest move may not be enough to stave off impending competition from 800-pound gorilla America Online. The online service behemoth and Microsoft archrival is set to launch AOL TV this summer. Analysts have heady expectations for the newcomer to TV-based Web access.

Influential Internet analyst Henry Blodget estimated that AOL TV could add at least $200 million in annual revenue for the combined AOL Time Warner, predicting that such devices could eventually appear in 30 to 50 percent of households that subscribe to AOL. With numbers like that, AOL TV could easily eclipse Microsoft and its one million WebTV subscribers, a scenario which likely contributed to the timing of this month's promotion.

When appealing to first-time users, the AOL brand name may be more appealing than Microsoft's reputation for bugs and complicated software, analysts say.

"I think AOL has done a very good job in terms of being consumer friendly; its typical users are those getting on the Internet for the first time," said Ramnarayan. "Microsoft is not exactly known for user friendliness."

WebTV executives declined to comment on the motives behind the promotion. "It's after Christmas and we do promotions all the time," a company representative said. "Promotions are a normal part of business."

WebTV, which appeals mainly to those who do not own computers, has attempted to broaden its appeal by positioning itself not as an alternative to the PC but as a provider of Internet-"enhanced" television. This strategy has met with mixed results. WebTV missed its own deadline to hit the one million subscriber mark, but it did sign important deals such as one with provider Echostar to create set-top boxes for its satellite television service.

Moreover, the company has been criticized by its own customers for failing to provide certain technologies that are popular on the Net, such as Java and the newer versions of Real Networks RealPlayer. Many have wondered if this was because of issues between parent company Microsoft and its competitors.

Company executives have always insisted that those technology decisions were not mandated by Microsoft, but rather that the company was constrained by the limitations of the price and hardware requirements of the WebTV set-top box.

"It's possible that there are some use issues--it's not really going beyond the early adopter," Ramnarayan said. "There are some pricing issues and user interface issues and infrastructure issues."

The promotion and bid to boost subscriber numbers also comes at a time when analysts expect the overall market for information appliances, such as TV set-top boxes, to surge. The market for these devices is set to grow from 11 million units shipped this year to 89 million in 2004, according to International Data Corp.

operating flaws

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