MSN Narrowing Focus

In an effort to reach profitability, MSN is converting free services to fee-based services and will rely exclusively on partners to provide broadband ISP service. At the same time, Microsoft hopes to earn money from broadband users by creating value-added services for these users, perhaps including digital media services (such as music and video downloads). This shift in emphasis creates partnering opportunities for ISPs and other companies that can help MSN provide services to consumers, but it could alienate some users of MSN services and drive them to Yahoo or other competitors.

Two Businesses: Sites and Services

Today, MSN has two main businesses: free Web sites that earn money exclusively from advertising, and Internet-related services (such as MSN Internet Access, Hotmail, and MSN Messenger) that earn money from a combination of advertising and subscription fees, including periodic charges for special services such as extra e-mail storage.

Relative to other Internet companies, MSN has done fairly well with the first business, although it’s unclear whether this business is yet profitable. According to MSN Vice President Yusuf Mehdi, the group stands to earn US$200 million in advertising revenues this fiscal year (which ends June 30, 2003), putting it very close to Yahoo. Moreover, these free sites have relatively low operational costs compared with running an ISP and other services, and a consolidated content posting and presentation system is expected to cut costs further.