Microsoft Bided Time for MSN Revamp

Microsoft’s move to cleave MSN in two — one unit focusing on communications services, the other on information offerings — comes as the division notches its first profitable quarter, but there are other factors driving the timing of the reorganization, one analyst says.

During the 2000 holiday season, Microsoft , and many of its competitors, offered to subsidize consumers’ PC purchases in exchange for three-year dial-up commitments.

“Microsoft is getting out of the branded ISP business at the same time as the contracts are expiring,” analyst Joe Wilcox of Jupiter Research (owned by the same parent as this site) said. “The company doesn’t expect to re-sign them, figuring many will upgrade to broadband.”

Along the same lines, Microsoft has been severing deals with ISPs, including BellSouth and Qwest for co-branded Internet service. In some cases the Redmond, Wash., company also invested in the partner.

Instead, the company is focusing on improving its tools and presentation for broadband users, with services such as video, photo tools and financial research offerings. Some of these features will be part of the firm’s new MSN broadband offering.

Some ties with ISPs remain. For example, Verizon provides MSN service as a carrot to new DSL subscribers and serves as the start page for others. The level of commitment on Microsoft’s part is far less than previous initiatives.

Introduced over the coming months, the new broadband MSN is designed to appeal to broadband users, regardless of how they access the Internet (DSL, cable modem), or through whom (Baby Bells, cable operator, satellite provider).

“Changes will not take place until our current work with the premium services launch is complete,” Lisa Gurry, MSN group product manager, told

Gurry described yesterday’s move as a “realignment of divisions” that will allow each group to be more focused and customer-oriented.

Ted Schadler, an analyst at Forrester Research, agreed.

“This feels like a natural split to make it easier for each business to invest in and pursue its separate opportunity,” Schadler said.

Jupiter Research’s Wilcox said that the delineations make sense, separating services that are largely advertising-supported (e-mail, content, search) or subscription-based (video), Wilcox said. But since Microsoft isn’t breaking down the balance sheets for the coming units, it’s hard to predict whether both will remain profitable.

Obviously, Microsoft thinks the units will, and is no doubt heartened by the rebounding ad market as well as the paid search business.

MSN’s ad sales are ahead of rival Yahoo!’s and the company is also developing its own search engine to rival Google. In August it dumped LookSmart, and will use Overture for paid search listing for the MSN portal until 2005.

At the same time, MSN will be keeping close tabs on Google’s IPO plans, which will give that company a great deal of cash to invest in research and development.

Microsoft has company reportedly hired Paul Ryan, former CTO at Overture, to lead its new search effort. The initiatve is not only important to MSN.

Microsoft is looking to better integrate search technology throughout its offerings, which could mean the MSN refocusing will have implications in other divisions within the company.

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