Pace of broadband adoption fuels MSN strategy shift

NEW YORK: Microsoft Corp.'s MSN Internet arm is seeking users of high-speed services rather than competing with America Online for the slower but larger dial-up access business.

After launching a $300 million marketing campaign last year to promote its Internet service and take market share from AOL, a unit of AOL Time Warner Inc., MSN is shifting its focus to the fast-growing high-speed, or broadband, market.

Microsoft's move could mean fierce competition in a slowing but higher-margin business for the No. 2 spot after AOL.

"We knew broadband eventually was going to make its way into broader acceptance but, frankly, we didn't know when that was going to happen. We think it's happening now," MSN marketing director Bob Visse said in an interview.

High-speed connections are essential to Internet distribution of music, video and other entertainment. About 16 million U.S. homes had broadband in 2002, up from 10 million a year earlier, according to research firm IDC.

There were 40.7 million dial-up Internet users in 2002.

MSN is still working out details, but plans to spend more resources on "bring-your-own-access," in which it charges a lower fee for features like e-mail, exclusive content and mail tools, and users choose their own Internet access.

"It could be beyond a year before we know all the things we are going to deliver from MSN and which essential pieces will make up your broadband experience. It's going to take some time," Visse said.

MSN will compete for broadband customers with rivals, including EarthLink Inc. and AOL, the world's largest Internet service, which is trying to market its "bring-your-own-access" so it doesn't cannibalize its profitable dial-up business.

CHANGES IN THE DIAL-UP ARENA AFOOT?

MSN's strategy shift may be a blessing for EarthLink and some of the smaller dial-up Internet service providers, including discount ISP United Online Inc.

"MSN now opens the door for somewhat smaller rivals -- a shift that will reinvigorate the kind of fierce competition not seen in the ISP industry since MSN took No. 2 away from EarthLink in the second quarter of 2001," IDC analyst Steve Harris said in a recent report.

EarthLink has sacrificed profitability recently to get an early start on high-speed services, but strong growth in that business has not offset shrinkage in its dial-up subscriber base from a year earlier.

Mike Lunsford, EarthLink's executive vice president of customer experience, said MSN's strategy shift has been evolving over the last year and will not affect its strategy.

A spokesman for AOL and United Online declined to comment.

While growth in the dial-up business has slowed as more Web surfers switch to faster connections, MSN does not plan to abandon the dial-up business completely, Visse said. He said MSN would remain in that business as long as it was profitable, and does not envision leaving it in the next year or two.

MSN's $300 million marketing campaign last fall for MSN 8.0 did not publicize that the Internet software -- with features like parental controls and advanced instant messaging -- was also available for a lower price for those who did not want access through a "bring-your-own-access" type model.

"We didn't want to confuse the marketplace. We still have some work to do in order to provide the right experience for a broadband user who is going to subscribe just to our software," Visse said.

MSN expects incremental improvements to its Internet service before the next version comes out later in the year.