September 17, 2002 2:22 PM PDT

MSN 8 to foist fees on outsiders

Microsoft this week plans to move one step closer to launching MSN 8, a major overhaul of its online service that for the first time will charge people who use an alternative Internet service provider.

The company expects to release the second testing version to preselected testers as early as Tuesday. MSN 8 Beta 2, which is feature complete, sports new parental controls and e-mail spam filtering, among other features.

The software giant has yet to announce a release date for the finished product or pricing for non-Microsoft ISP users, although MSN product manager Lisa Gurry said it plans to charge less than $14.95, rival America Online's fee for its "Bring Your Own Access" service. She added that Microsoft does not plan to raise current dial-up or broadband MSN monthly rates.

Jupiter analyst Michael Gartenberg said the move reflects a broad industry shift toward paid services on the Web.

"MSN has consistently evolved and, like most companies, Microsoft wants to transition into the paid services arena," he said. "By adding additional features for MSN subscribers, Microsoft hopes to drive more MSN customers into the paid services model as well as to lure new customers and perhaps attract some of the AOL base."

The new fees for MSN come as Web portals, including AOL Time Warner's America Online and Yahoo, are emphasizing exclusive content and services in a bid to drive subscriptions. Yahoo last week launched a co-branded high-speed access service with SBC Communications with add-ons such as free online file storage. AOL Time Warner, meanwhile, has begun to hinge the future of its ISP on the creation of high-quality content, following the model of its flagship HBO premium cable TV channel.

The changes in some ways would take MSN back to its roots of a fully paid service competing head-to-head with AOL. AOL has long been a target of Microsoft, which turned its sights on the online service company more than six years ago with Windows 95. Microsoft bundled MSN with the operating system, in part using Windows 95 as a leverage to gain subscribers for the fledgling online service.

AOL is the world's largest online service, with some 35 million members, compared with 8.7 million for MSN.

When MSN early on failed to make significant progress in closing on its lead, Microsoft shifted to the Web to market its consumer services and turned MSN primarily into a straight Internet access service.

You get what you pay for
With MSN 8, Microsoft plans to backtrack on that plan by differentiating more clearly between what customers get for free through MSN.com and what they pay for through the MSN online service.

Microsoft has long offered a free version of MSN without ISP access known as MSN Explorer, which includes the Internet Explorer Web browser, instant messaging and e-mail, among other things. While subscribers to the MSN Internet service will get access to the new features, people who access the Web through other Net providers will for the first time be required to pay to activate the upgrade.

It is unclear how many MSN Explorer users are not also subscribers to the MSN online service. Microsoft said it does not keep track of the number of people who use MSN Explorer independently of its ISP service.

The subscriber-only focus indicates Microsoft sees a need to turn MSN into a profitable, self-sustaining business, analysts say.

"I get the sense that with MSN--if you put a few pieces together--you can see that an edict came down from the top that it's time for the bleeding to stop and it's time (for MSN) to become profitable--if not tomorrow, then the next day or pretty quickly," said Rob Horwitz, a Directions on Microsoft analyst.

Gartenberg agreed. "Like all companies that experimented with various degrees of free services, there is increased pressure to reduce the free services and shift to a revenue-based model," he said.

A shift in strategy
Currently, Microsoft's online service and MSN.com Web site offer similar content and services, with the main differentiator being Internet access. With MSN 8, the software giant intends to make paid services that are currently offered through its MSN.com Web site available to MSN 8 at no extra cost to subscribers. Many new services would be exclusive to MSN 8 subscribers.

People using MSN 7 could still access previous services, but they would need MSN 8 to access new ones.

Microsoft's Gurry made clear that the MSN and MSN.com strategies would be diverging in the future but moving on complementary tracks.

MSN.com "is incredibly popular, and we will continue to build on that," she said. "We have over 300 million people visiting MSN.com every month. We're still using the traffic to that site. It's a great way to build our advertising as well as building up equity to the brand."

But going forward, the MSN online service would be the main conduit for delivering paid consumer Web services.

"The content and information that's on MSN.com we will continue to invest in," Gurry said. "That will all continue to be available for broad users. But from a technology standpoint and (for) software services that will all be done for subscribers. The software advances we will be making will only be available to MSN 8 subscribers."

Sniffing out spam
With MSN 8, Microsoft has focused on beefing up communications, tools, improving Web browsing and increasing online protection, Gurry said. Many of the most important enhancements, such as spam filtering, would only be available to paying customers.

"The junk mail filter should reduce junk mail by 80 percent to 90 percent," Gurry said. Most spam filters check the subject line for markers that indicate junk e-mail, "but, of course, the spammers have gotten smart by including spam in the body of the message."

The filter looks at a combination of checks, including the body of the message, to sniff out spam. "The word 'mortgage' likely wouldn't trigger the filter, while 'free online mortgage' probably would," Gurry said. That filter also is capable of screening out any future e-mail containing keywords designated by the user.

The addition of the spam filtering could prove invaluable to many MSN customers. The feature, which is not available with any Microsoft desktop product or popular Hotmail Web-based e-mail service, is part of the company's plan to increasingly differentiate MSN with unique features or services.

Other e-mail enhancements include increased formatting options, automatic compression of files, and a more Outlook-like interface.

The majority of existing services would be the same as those available for free from MSN.com. "But there will be a number of services that will be available exclusively for MSN 8 subscribers," Gurry said.

For example, MSN Money will come with a free online bill-pay service "and many other money features only available with the Money packaged product," she continued. Nonsubscribers would pay $6 a month for the bill-pay service.

MSN 8 subscribers also will be able to access an additional Encarta Encyclopedia service that other people would pay $10 a month for. As another information bonus, the MSN start page will come with more customizable information options than the one accessed through MSN.com. There will be about 150 content options.

Another content-oriented feature is the MSN Dashboard, which offers quick, regularly used information such as MSN Messenger contacts or favorite news sites. Dashboard, which can be docked on the Windows task bar for access when using other applications, updates content dynamically.

Microsoft also will include some technologies found in Picture It, the company's desktop digital photo software, in MSN 8.

"Those are all areas we know consumers want to do more of on the Web," Gurry said. "They want to manage their finances, access online research, and share their photos."

In addition, MSN Carpoint will offer special car repair location services as part of MSN 8.

Parental permission
Microsoft hopes to woo new customers to MSN through new parental controls set throughout the product. For example, parents can put limits on e-mail, instant messaging or Web access. The controls work with all nine available MSN e-mail accounts.

Microsoft offers broad and granular controls. Applied broadly, parents can apply restrictions based on age groups. On a more detailed level, parents can restrict access to specific content or even to aspects of other MSN services.

"You could block explicit lyrics from MSN Music or control content accessed through the Encarta online encyclopedia," Gurry said.

Parents also will be able review a child's online activity.

Microsoft has not revealed the release date for MSN 8, but the company has acknowledged basic pricing will not change. Basic service would be $21.95 for dial-up access and $39.95 or $49.95 for broadband, depending on the speed.

Next year, Microsoft plans to offer a separate MSN online client for the Macintosh.

 

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