January 14, 1998 12:00 PM PST

Microsoft shifts Web strategy

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There have been no splashy announcements, no big coming-out parties to mark an occasion--but all of Microsoft's (MSFT) subtle and not-so-subtle changes in its Web strategy are starting to add up to a major shift.

Microsoft observers have been noticing its changes on the Web: more content is free, the focus has shifted from entertainment to transaction-related sites, sites are linked together more, and free email and a search engine have been added.

In the last few days, Microsoft added a link on its flagship online service Microsoft Network to Hotmail, its newly acquired free email service. And the company also plans a major strategy shift at Sidewalk, its localized online arts and entertainment service, according to sources and published reports.

Why all the changes?

Simple: Microsoft wants to use the Web to do what it does best--make money.

Bill Bass, an analyst with Forrester Research who specializes in localized content, said that like a lot of others, he thought Microsoft had more ego than wallet invested in its Internet properties.

But recent changes have shown otherwise.

"I realized they're pretty much interested in making a buck," he said. "And if something's not going to make a buck, they'll kill it.

"They try these things," he added. "If they work , they'll reinforce them. Microsoft is a great company and they are great business people. And having an ego that makes you hold onto something after you should kill it is a bad business decision. Microsoft isn't going to do it."

The most recent victim of that cutback appears to be Sidewalk, which started as a content-driven collection of sites aimed at local arts and entertainment markets. Microsoft has been discovering that much of what its expensive staff writes goes unread.

"Sidewalk?s financial losses were far higher than projected, the costs of setting up and maintaining sites was too high, ad revenue projections were discouraging, and much of what Sidewalk listed was going unread," wrote Microsoft expert Fred Moody in the Seattle Weekly.

So Microsoft is scaling back the content at individual sites and centralizing the effort to cut costs, according to Moody and other sources.

At the same time, Microsoft will vastly expand the number of cities that Sidewalk serves, sources say.

Microsoft officials have steadfastly refused to comment on Sidewalk, only saying that more cities will be announced soon.

Whether the strategy will work is another question.

Bass has been predicting for a while that Sidewalk will fail along with other localized services such as America Online's Digital City and start-up CitySearch. Winners in this space will be newspapers and local television affiliates (along with local telephone companies that partner with newspapers and television affiliates) because they already have the required brand recognition and content.

But Microsoft, while willing to change, clearly isn't willing to pull the plug. And while some predict Sidewalk's doom, others praise it, with the caveat that it is expensive and difficult.

Of course, that could characterize much of Microsoft's Web effort. The company has been pouring millions into the Web, but it finds that no matter how much money it spends, it can't seem to make it pay off--at least, not yet.

When MSN launched in October 1996, the mantra was that the Web was becoming an entertainment medium like television and MSN was focused on bandwidth-intensive shows available exclusively to its members.

Many questioned whether Netizens would have the patience to sit in front of their computers and wait while entertaining graphics loaded.

But purely entertainment efforts have largely failed on the Web due to the bandwidth constraints. As it turned out, officials were not willing to wait for traffic to increase, especially when it appeared their gamble lost.

Instead, the company changed its strategy. It started pulling back on the entertainment effort and refocused on beefing up its so-called free space and its sites directly related to commerce, such as car-buying service CarPoint and travel site Expedia.

It also has brought some of its content from behind the firewalls and retooled its shows so that they offer usable information, rather than pure entertainment.

Next month it will kill off its online travel magazine Mungo Park, which features obviously expensive expeditions all over the world to promote its travel service.

And two large companies, Paramount and Disney, changed their policies with regard to MSN. Paramount had offered its Star Trek: Continuum on MSN but let its contract run out at the end of the year.

Disney also had offered MSN members exclusively its Daily Blast for free. That contract expires at the end of February, at which time Disney will extend the offer to other services, but will still make it available on MSN, said an MSN spokesman.

Earlier this month, Microsoft announced that it was buying free email provider Hotmail. Already the company is advising MSN members and nonmembers who frequent the page to go to Hotmail to register for a new account.

Some have speculated that Microsoft will use the deal to inflate its MSN member numbers by counting Hotmail account holders as members. Regardless of the numbers game, the move showed yet again that Microsoft is putting its fortune into the open Web, not hiding it behind the firewalls of MSN, which stopped releasing membership numbers and by most accounts is having trouble garnering new subscribers.

Microsoft also signaled its intentions when it decided to get into the search engine business, hiring Inktomi to develop the technology.

It's clear that to earn the hallowed position of home page--an honor most sites are seeking--a site has to have a good search engine, and Microsoft is hoping that its effort, code-named Yukon, serves that purpose.

Recently Microsoft also added an innocuous pull-down menu to its sites. While the menu doesn't look like much, the idea is to use to keep Netizens within the Microsoft circle.

 

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