roundtable: Speaking of MS world dominance

roundtable: Speaking of MS world dominance

Speaking of MS world dominance

Keith Quigley (kjq@OnRamp.NET)
Sun, 08 Jun 97 18:37:04 GMT 

To: roundtable@cni.org
Subject: Speaking of MS world dominance
Date: Sun, 08 Jun 97 18:37:04 GMT
Message-Id: <M.060897.133704.90@ppp10-31.dllstx.onramp.net>
From: kjq@OnRamp.NET (Keith Quigley)


This may be of interest, considering the past commentary about Microsoft:


> Subject: Microsoft Moves To Dominate Online Commerce w/Sidewalk
> 
> The Wall Street Journal Interactive Edition
> June 5, 1997
> 
> Microsoft Moves to Rule Commerce on the Internet
> 
> By DAVID BANK 
> Staff Reporter of THE WALL STREET JOURNAL
> 
> 
> Bill Gates promotes the idea that information technology is ushering 
> in a new form of efficient, "friction-free capitalism" that will 
> reshape industries by eliminating the middleman.
> 
> But he rarely acknowledges that Microsoft Corp. is preparing to become 
> a new middleman, taking a cut of the action in return for bringing 
> together buyers and sellers on the World Wide Web.

The centerpiece of Microsoft's move to dominate electronic commerce 
is Sidewalk, a series of local arts, entertainment and recreation 
guides that Microsoft launched on the Web last month for New York and 
in April for Seattle, to be followed by sites for eight other cities 
by year end. The company has hired editors and reporters to tailor 
each Sidewalk site to local tastes. New York Sidewalk, for example, 
contains subway directions for all its events, and Seattle Sidewalk 
allows users to search for restaurants using such local criteria as 
"boat accessible."

But Sidewalk is just part of a much larger plan. According to a 
detailed Microsoft strategy memo and interviews with key executives, 
Microsoft wants to make each Sidewalk site a port of entry into an 
array of commercial sites that already includes Expedia for travel 
services, Carpoint for automobile sales, Cinemania for movies and 
Music Central for compact disks. Microsoft will soon add real-estate 
listings, classified advertising and consumer guides that combine 
Yellow Page-style listings with product reviews and promotions. 
(Microsoft's on-line financial services are in a separate division.)

The targets of these on-line services are vast. According to the memo,
prepared in December as part of a three-year planning process, Microsoft
plans to win a major share not only of the $66 billion local advertising
market but also of sales and distribution charges in the markets for 
airline tickets ($100 billion), automobile sales ($334 billion) and 
retail goods ($1.2 trillion).

"We think there's a pot of gold here," says Pete Higgins, group vice
president in charge of Microsoft's Interactive Media Group. "As we get 
to the turn of the century and beyond, we see this being a 
multibillion-dollar business."

Like other information publishers, Microsoft hopes to win on-line
advertising. But the memo provides the first details of a more 
far-reaching goal, a stream of transaction fees to supplement revenue 
from maturing software-upgrade sales.

Nathan Myrhvold, Microsoft's chief technology officer, confirms that
Microsoft hopes to get a "vig," or vigorish, on every transaction over 
the Internet that uses Microsoft's technology, though he says in some 
cases Microsoft's share could come from a one-time software licensing 
fee.  (Vigorish is a slang term used by bookmakers that means, roughly, 
the profit made for bringing bettors together.)

To win such fees, the memo says, Microsoft will offer consumers both
electronic information and the means to act on it. "We are challenging 
old and established businesses like newspapers, travel agencies, 
automobile dealers, entertainment guides, travel guides, Yellow Page 
directories, magazines and over time many other areas," as well as 
other on-line services, the Microsoft memo says. "We must devise ways 
of working with them or winning away their customers and revenue 
streams."

Already, Expedia, which books airline, hotel and car-rental reservations, 
is selling more than $1 million of tickets and travel services each week 
and is one of the three largest on-line travel agencies. Investor, which 
allows users to place trades and track their portfolios, is nearly 
profitable, according to recent statements by Mr. Gates.

Traditional retailers, particularly in travel, autos and financial 
services, are already feeling pressure from a variety of electronic 
competitors, which are able to cut sales and distribution costs by half 
or more. Analysts estimate about 15% of new-car buyers do their research 
on-line and as many as 2% make their purchases from dealers they find on 
the Net. On-line travel is expected to grow from $827 million, or 0.4% 
of total travel revenue, this year to $8.9 billion, or 8.2% of the total, 
in 2002, according to Jupiter Communications, a New York market-research 
firm.

But while others are looking at the same opportunity, Microsoft, with 
its presence on nearly every personal computer and $9 billion in cash, 
appears to be several steps ahead in its ability to integrate its 
offerings, enlist partners and undercut competitors both on and off-line.

Microsoft's advantages include a vast repository of information and the
ability, with a single log-on, to call up a user's profile of personal
preferences, whether the user is choosing a restaurant in Manhattan using
Sidewalk or booking a trip to Paris using Expedia. The release of a new
version of Microsoft's Web browser, Internet Explorer, this summer will
further boost the visibility of the sites by placing them on the main 
screen of many PCs.

Other high-tech executives are sounding the alarm. In a thinly veiled
reference during a speech to analysts, Louis Gerstner, chairman of
International Business Machines Corp., chided unnamed technology 
companies "that have decided they want to be in the newspaper business 
and the travel business and the banking business."

Mr. Gates plays down the potential for conflict. Speaking to a 
convention of newspaper publishers in Chicago on April 29, he advised 
them not to get "overly paranoid," assuring them his company was a 
partner not a predator.  "We're not doing local news, we're not doing 
classifieds," he said.  Nonetheless, Mr. Higgins confirmed in a 
subsequent interview that Microsoft is indeed exploring selling 
classified advertising and has hired local reporters and editors for 
its Sidewalk sites.

In any case, newspapers are girding for battle. Mr. Gates is "absolutely
interested in newspapers' franchise in local areas," says Fred Tuccillo,
director of new media at Newsday, a unit of Times-Mirror Corp. that is 
going head to head with Sidewalk in the New York area.

But newspapers aren't writing big checks for their on-line efforts, and
Microsoft is spending more than $200 million this year for what it calls
"interactive service media."

Expedia illustrates how Microsoft is reshaping the economics of the 
markets it's entering. Last year the company established itself as a 
travel agency and negotiated deals with major airlines to sell tickets 
for about half the standard travel-agency commission rate, says John 
Neilson, who wrote the December memo and is vice president of Microsoft's 
Interactive Service Media division.

Microsoft's on-line competitors decry the lowball pricing. "They really 
have drained the pool," says Ken Orton, president of Preview Travel Inc., 
another major on-line travel agency. "They went out intentionally to buy 
significant market share by reducing the amount of revenues their 
competitors could generate."

Partners worry about competition, too. Microsoft enlisted Auto-By-Tel 
Corp. for its Carpoint site to let buyers complete purchases from 
new-car dealers.  Auto-By-Tel agreed to pay Microsoft to feed Carpoint 
users into an extensive network of auto dealers, who provide consumers 
with no-haggle offers.  Auto-By-Tel takes a monthly membership fee from 
the dealers of between $500 and $1,500.

Now, Microsoft is replicating such a dealer network on its own, says Mr.
Neilson. We and Auto-By-Tel "will be doing the same things," he says. 
Last month, Peter Ellis, Auto-By-Tel's president and chief executive, 
moved to end the partnership. "What seemed to be mutually beneficial 14 
months ago now appears to be less so," Mr. Ellis wrote in a letter to 
Mr. Neilson.

Similarly, Christos Cotsakos, president and chief executive officer of
E*Trade Group Inc., predicts Microsoft, now a partner, will eventually 
become a competitor. E*Trade pays Microsoft to bring customers to its 
on-line stock brokerage service through Microsoft's Investor Web site 
but keeps most of the $14.95 fee on each trade. Mr. Cotsakos figures 
Microsoft will want to collect those fees itself. "They learn, they 
assimilate, they copy," says Mr. Cotsakos. "Once they get done with all 
the other blips on the radar screen, you become the blip."

This summer, Microsoft will introduce national used-car classified 
listings, a pilot project for a larger effort in classified advertising. 
Next year, Sidewalk will offer local "consumer guides" and possibly 
real-estate listings. The internal memo makes clear that Microsoft has 
no intention of letting up:

"If we get our vision right and execute better than anyone else, we will
radically change the way individuals make decisions in their lives. We 
will also radically change the way marketers of all types sell to their 
customers. We must be aggressive."


------------------------------------------------------------------------


Interactive Services


Sidewalk
(www.sidewalk.com)
These entertainment and activity guides, now in place for New York and
Seattle and coming soon for eight more cities, will serve as the local 
"port of entry" into many of Microsoft's Web-based services. Expedia
(expedia.msn.com) One of the three largest on-line travel services, 
Expedia includes features to find the cheapest fares and notify travelers 
of special deals. A companion magazine, Mungo Park, specializes in 
adventure travel. Car Point (carpoint.msn.com) Prospective car buyers 
can get the details on any make and model, read reviews and find out 
dealer invoice prices. Purchases can be made from 60,000 local dealers 
through Microsoft's partner, Auto-By-Tel. Investor (investor.msn.com) 
Investors can track their stock and mutual-fund portfolios, receive 
e-mail updates of significant market changes and place trades. Cinemania
(cinemania.msn.com) The on-line version of Microsoft's popular CD-ROM
contains reviews of thousands of movies and local movie times. Music 
Central (musiccentral.msn.com) The on-line music store includes music 
clips, concert coverage, interviews and reviews. 

Copyright (c) 1997 Dow Jones & Company, Inc. All Rights Reserved. 

--
Keith Quigley / keithQ@XtraOnline.com
Director, Product Operations
http://www.XtraOnline.com
214.819.9539 v
or  Q@Whoever.com

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