MSN splits into two

Reed Stevenson

SEATTLE: Microsoft Corp. is splitting its MSN division into two units, one to take control of Web communications while the other develops its information portal and targets growth in areas such as search technology and music services, said executives.

MSN, which reached profitability on an operating basis for the first time in the latest quarter, was started in 1995 as Microsoft's answer to the emergence of red-hot Internet businesses such as Yahoo! Inc. and America Online.

But as Microsoft poured billions into the division to tackle emerging threats, MSN evolved into something of a mishmash of software and services managing everything from dial-up access, a Web portal and Hotmail to the MSN Messenger instant messaging service.

At the same time, top Microsoft executives decided earlier this year to invest in developing search services to challenge Google Inc.'s position as the Internet's top search engine.

But executives also determined that MSN's structure was making it harder for Microsoft to ensure that it remained permanently profitable, said David Cole, Microsoft's senior vice president in charge of MSN.

Over the next few weeks, MSN will split into two operating units, Communications and Information, that will be divided based on the customers they serve and the products they offer.

The information unit, which will be headed by Yusuf Mehdi -- a longtime Microsoft executive known for his work on Internet Explorer -- will include the MSN portal, its emerging search service, e-commerce sites, and entertainment and other services.

The communications division, which will be headed by Blake Irving, will focus on growing MSN's communication-focused products, such as its subscription MSN service, Hotmail, MSN Messenger, and its Passport identity service.

Microsoft, which initially marketed broadband access services under the MSN name, but lagged behind other providers, has shifted its focus to selling users a broadband portal, specialized Web browser, enhanced e-mail features, and other features under monthly subscriptions.

Both executives will report to Cole.

"One thing that we want to do is innovate at a more rapid pace," Cole told Reuters.

Mehdi, who will oversee a lot more of MSN's research and development in the new structure, said that search technology and music services were also key growth areas for for MSN.

"We're moving to reorganize and capitalize on those opportunities," Mehdi said.

MSN executives also said that they had hired Paul Ryan, former Chief Technology Officer of online search advertising company Overture Services Inc., to head up MSN's nascent search efforts.

Redmond, Washington-based Microsoft has not provided figures detailing MSN's profitability, although those are due when Microsoft files its quarterly report with the Securities and Exchange Commission within the next few weeks.

MSN executives also cautioned that the entire division could slip into the red again, as the company invests in developing new services.

Reuters