lthough Microsoft denied reports earlier this month that it is yet again recasting Microsoft Network (MSN), the company is making more of what has been a proprietary "pay-per-view" format available for free on the World Wide Web.
It also recently pulled the plug on most of its "shows" on the pay side of MSN. Although it says the fall lineup will offer many more, brand-new "shows," this is the second time the company has abruptly canceled its lineup and gone thro
ugh a shake-up that left contractors hired to design content scrambling to find new jobs.
There is a touch of irony about this whole mess. Remember two years ago when MSN was about to be launched? At that time, Microsoft's competitors in the commercial online business were pleading with the federal government to keep Microsoft from monopolizing the market. Chairman Bill Gates told me at that time that MSN was not a threat to other commercial online providers at all. He said if there was a credible threat to America Online, CompuServe, and others, it was the Internet.
In the midst of all the posturing, AOL CEO Steve Case said MSN would be "Microsoft's Vietnam." Still, he was first in line to ask the government to take action. (I'll ignore here the obvious irony that as soon as Microsoft agreed to put AOL's sign-up software on the Windows 95 desktop, Case dropped his complaints like a hot potato.)
Ironically, it turns out that Gates and Case were both right. Microsoft's MSN wasn't the threat that c
ompetitors feared and it has certainly been a long, hard, Pyrrhic battle to get no place in particular for Microsoft's troops.
One of the things that many experienced Microsoft watchers expect to see one day in the not-too-distant future will be the demise of MSN as a proprietary service and its transformation into primarily, if not totally, an Internet service provider. Indeed, AOL has become a major ISP as it has expanded its subscriber base to something over 10 million customers. Compare that to Microsoft's 2.3 million subscriber base.
But just because some of Microsoft's most visible new media efforts have gone awry, do not mistake that as an indication that Microsoft is done for. This is all new territory for all of us -- users, vendors, and press alike -- and no one really knows which models will succeed and which will fail.
As it turns out, the competitors and wags who liked to chortle that Microsoft "missed the Internet" and therefore was finished, were wrong. Microsoft did indeed turn its
elf around more quickly than almost anyone imagined. But there is something fundamental that Microsoft supporters miss when they say that Microsoft has been vindicated. That is: Why did Microsoft miss the Internet in the first place, if it has minds as keen as Gates' and his executive committee foreseeing the future?
While I don't have a complete and adequate answer to that question, I do know that part of it is that Microsoft got caught up focusing on "How do we make money off of everything we do?" That is a bias in itself that Microsoft has gotten hooked on. There is nothing inherently wrong with the notion, but it does create blind spots similar to the ones I discussed in my
last column
-- the kind of blindness created by being too engineering-oriented.
If the creative idea that gets Microsoft's marketing dollars always has to be driven by "How do we make our 'vig'?" (to use Microsoft visionary Nathan Myhrvold's term, short for "vigorish," a word bookmakers use for their
cut of a transaction), then it overlooks something that the market, i.e., the user, has in mind: "How do I spend less and get more?"
That's how the Internet got users' attention. It was, for most purposes, free. Myhrvold, Microsoft's chief technical officer, in memos excerpted in a recent New Yorker article, specifically derided the Internet because it was free -- that is, it didn't lend itself to capitalism very well.
Granted, there has to be a happy medium because any commercial interaction is a two-sided affair. There is a seller and a buyer, and if the buyer is dissatisfied he'll look elsewhere and find a less expensive deal or a product or service that better fits his needs.
With MSN, Microsoft has ignored at its own peril that basic tenet of business. It should be quite evident by now from its own demographic studies and its two years of tracking what parts of MSN people use -- Internet access, E-mail, chat rooms, etc. -- and which they don't -- particularly the "Onstage" areas. That infor
mation should have painted a clear picture about what customers want.
So I predict that until it learns to listen to what the market wants, which I suspect is mostly free content in place of glitzy and often irrelevant "shows," MSN will continue to be a hole in which to pour money.
It may be that commercial online services themselves are anachronistic. The Internet has adopted a revenue model somewhere between magazines and cable television -- that is, you pay for access, but most of the cost is borne by the advertisers. If you need a pay-for-research service such as Lexis/Nexis, perhaps the pay-by-the-hour method or per-transaction fees make sense.
Will Microsoft be able to scramble to figure out customers' needs and gain ground on AOL? Perhaps, but that may be the least of its worries.
Microsoft completely recast MSN once in the past two years and has scrambled to change its programming at least twice in that same time period. And each time it seems like a television network that is flailing
but not getting ahead in the ratings. It completely "relaunched" MSN last year, then a few months later killed its first batch of "shows" and came up with a new "season." We are about to see them launch yet another new season after killing most of the current batch of shows.
Another, closely related Microsoft endeavor, MSNBC, the joint cable news channel and related Web site, is also in trouble. Microsoft likes to puff that it is "available" to 35 million cable subscribers. But if that is true, why does the cable channel only attract, according to a recent news story, 200,000 to 300,000 viewers on its best night in its best time slot?
It seems to me that, once again, Microsoft's inexperience at figuring out what customers want on an instant-by-instant basis is putting it at a disadvantage. Microsoft is pretty good at figuring out what its customers want in the long run, as in operating systems and applications. For instance, for years, Microsoft has maintained wish lists of features that its systems
and applications customers request in calls to technical support, in E-mail, and in focus groups. But it is evidently less skilled at gauging and executing customer demand when it comes to MSN and MSNBC. Partly, I suspect that Microsoft's inexperience in the area of creating real-time content leaves it at a disadvantage.
But at the heart of MSN's problems is the fact that most users don't want to pay extra for content, no matter how glitzy and cool it is. They can either look at or ignore the flashy ads, and drum their fingers as the content portion of each page is rendered, but they don't want to pay any more for it than they do on the Internet. Other than Internet access fees, that comes down to "nothing." Magazine and newspaper publishers, for the most part, figured that out a century ago. The advertisers subsidize the content.
Long term, the fact that Microsoft has MSN and its cable investments, such as MSNBC, make some sense. They are, in the words of departing chief financial officer Mike Brown,
investments in "future access to customers." That is, Microsoft will have brand-name recognition with future users and it will have a number of different pipes over which it distributes software and content.
But in the meantime, it should think about getting past its blind spots. And perhaps it should take a cue from another Seattle-area household name -- Nordstrom, the chain of department stores. If "Nordies" doesn't have what you're looking for, they are famous for scouring the area or even the nation, to get it for you at no extra charge. Or, if they can't get it for you, they'll cheerfully send you to a competitor who will.
That is not a trait I've ever seen at Microsoft.
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