Start-ing over

Microsoft has quietly ditched its new media strategy in favor of a stripped down 'portal' approach.

On March 31, without much fanfare, Microsoft ceased production of original entertainment content for the Web, thus ending its ballyhooed run as a new media production company. "Our research shows that with the exception of games, pure entertainment is not what people find most valuable on the Web," Microsoft Network vice president Laura Jennings explained in a statement disclosing the shutdown. Just 18 months ago, Bill Gates launched MSN's new media enterprise, promising $400 million of support to original Web productions. "Money comes in every day," he said, "so we can afford to do these things on a fairly long timescale." A year and a half was apparently long enough. Microsoft now plans to start anew, consolidate online holdings, and by the end of the year relaunch its new media operations (again) under one project, aptly code-named MS Start.

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Start is in beta trials on Microsoft's internal corporate network. The company refuses to comment on the project, but we got a sneak peek two weeks ago. Start will become the pre-installed home page for Microsoft's Internet Explorer Web browser. It's designed simply, without graphics, for speedy access and looks a lot like the browser's current default home page ( The beta version of Start already offers a fuller set of services than the current home page, including Microsoft's own Internet search engine, e-mail, and content provided by former MSN competitors Time, Wired, TV Guide, The Economist, Ziff-Davis, and Disney Online.

Start features 10 separate topic areas set along the lefthand column, including news, business, entertainment, health, home and family, sports, and travel. Users will be able to customize the righthand portion of the screen with headline "clips" from the various sections. For example, movie buffs can set their Start home page to load the latest headlines from People magazine, Hollywood Online, and Disney, with links to the respective sites. Content from MSNBC and Slate (the sole remaining original MSN editorial project) will be listed in the news section alongside headlines from Time.

Start is what Microsoft strategists call a "portal" site to the Internet. Online advertisers have been reluctant to support pure media ventures like MSN's "shows," preferring instead to place ads on high-volume sites, especially search engines like Yahoo and AltaVista.

"At least seven of the top 10 sites [on the Internet]... really act as hubs for user activity,"Microsoft's vice president of Interactive Media Pete Higgins explained at a financial analyst meeting last July. "They dominate traffic. They dominate advertising revenue.... They really can control the traffic on the Web. They control what sites get viewed, and it's something people clearly are willing to pay for. AOL, Yahoo, and Netscape have announced a flurry of deals whereby other sites are willing to pay them millions of dollars for premium positions."

Back when Gates unveiled Microsoft's"Strategy for the Next Mass Medium" in the Emerald conference room of the company's Red-West campus, MSN was presented as the cornerstone of Microsoft's online business, with expectations to fulfill many "portal" responsibilities now planned for Start. From the outset, though, MSN suffered technical problems with its e-mail delivery systems and billing services. Microsoft hoped to reap $60 million from MSN subscribers (for access to the Web, e-mail service, and its proprietary content) by July 1997, plus another $30 million in advertising by 2000. Instead, Microsoft itself was the biggest advertiser on MSN, and as Jennings told The Wall Street Journal in November, billing problems cost the network $20 million.

Start will be free, including Web-based e-mail service from Hotmail Corp., which Microsoft bought in December for an undisclosed sum. Rather than produce expensive original content ࠬa MSN (analysts estimate Slate costs $5 million annually), Start will adopt AOL's strategy and serve as an access point for traditional media companies as they expand online. "There are people out there who can do these things better than we can," Higgins explained. Privately, Microsoft is also conceding MSN's dial-up Internet provider business: "No one expects to make money from consumer access," explains one internal memo distributed to company executives.

Instead, Microsoft hopes Start will be the first thing people see when they log on to the Net and a wedge, by pure traffic volume, into the telecommunications industry. Herein lies the real payoff. Microsoft has in recent months partnered with cable and telephone companies, including TCI, GTE, and US West, to provide an operating system and Internet browser—together, a portal service—to communications leaders who are rapidly adding online functionality to local, long-distance, and cable-television services. Simultaneously, traditional analog tele-communications are digitizing into an Internet protocol that will require a new networking infrastructure worth billions to software-makers like Microsoft.

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