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StockTalk
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TMF Interview With Microsoft Vice President of MSN Laura Jennings
December 21, 1998
With Yi-Hsin Chang (TMF Puck)
Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Internet properties are among the most popular sites on the Web. In July, the company announced plans to unify all of its websites under a single brand, MSN.COM. In October, the company unveiled the redesigned portal, giving users links to such features as Hotmail, MSNBC, CarPoint, Expedia, and MSN Web Search, which is based on technology developed by Inktomi Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INKT)") else Response.Write("(Nasdaq: INKT)") end if %>. MSN has also been launching individualized portals with local content in various countries around the world, from Brazil to Denmark to South Africa and Singapore.
TMF: Why did you decide to consolidate all of Microsoft's Internet properties under the MSN brand?
Jennings: It made a lot of sense for us to do that. Prior to us doing that, we were sitting with three of the top 10 or 12 sites on the Web, plus leading sites in each of the major categories -- news, investment, automotive, travel, etc. But what we hadn't done was start to actively cross-promote within those properties or start to really pay attention to our customers who were using more than one of our products.
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"There are components of MSN that make money and components of MSN that don't. Overall, as a network, no [we're not making money]."
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So by consolidating everything under one brand, we were able to do a number of things. First, you see that the network as a whole has really accelerated in terms of reach and usage. At the beginning of the year, we were one of the fastest growing portals on the Web, and we're now in the number three reach position, so that's allowed us to give a much stronger message to our advertising customers.
But the other thing it's done is it created an environment that forces us to focus on what our customers, what our end-users are actually trying to get done online -- not just within specific properties, but what they're trying to do overall. We draw an analogy to something we did in the late '80s with Microsoft Office, where we had the number one word processor, the number one spreadsheet, etc., and then we created the framework for those called Microsoft Office. Once we did that, it forced us to take a different look at what people were really trying to get done in the desktop application space. And it was out of that thinking that common-user dialog, linking and embedding other cross-application technologies got developed.
So I think that's where we are now. By creating this common network framework, we'll begin to do a much better job in helping customers get done what they're trying to do during their online sessions.
TMF: What would you say is your most popular area? Would it be the Hotmail service?
Jennings: Hotmail is definitely one of the strengths of the network. There are very few sites on the Web overall that have a higher frequency than Hotmail. The average Hotmail customer will spend nearly an hour a month on the site, and it continues to pick up customers at a really incredible rate. So Hotmail is definitely one of the real strengths of the network, and it is, in fact, the number one or number two referral property for nearly everything else on our network.
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"We want MSN to be the best place to get things done online."
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Another strong area of the network in terms of popularity would be news, with MSNBC. There are really three big activities on the Web today -- email, search, and our news property. MSNBC has been number one I think in 16 out of 26 months since our launch or something like that. It's always the number one or number two property in the news category, and so that's also, in terms of a broad reach property, one of the strengths of the network.
The other one I would point out to highlight is actually MoneyCentral, which we call our investor property. The reach of that property is a little bit less because it's a slightly more specialized area than news is. But the frequency is extremely high, so we find that our MoneyCentral customers are loyal customers -- they come back often. So that also is a popular destination for MSN customers, and the property has enabled us to drive traffic around the network.
TMF: What would you say are areas that perhaps need improvement?
Jennings: You saw us in the last few months launch a couple of new areas. One of those was our own branded Web search, which we will continue to invest heavily in and improve over time. But I think what you are seeing there is a version 1.0 product that's basically doing high performance, fast searching on the Web, but it's relatively undifferentiated from search available on other sites. So we need to continue to invest there.
In the community space, although that's extremely popular -- we have WebTV that's set to be launched with forum and chat -- I think there's an opportunity for us as a software company to really innovate in the communications community area and add a lot more features to that section of the site.
TMF: Are you now making money from MSN?
Jennings: It depends on what part of the network you're talking about. There are components of MSN that make money and components of MSN that don't. Overall, as a network, no. When we put everything we're doing together, we're still very clearly in investment mode.
TMF: When do you think you'll turn the corner on that?
Jennings: I think we'll turn the corner on this in the next 24 months, overall. Again, as I said, it's a difficult question to answer at the aggregate level because some of these properties are quite new. Some of the properties are already profitable.
TMF: What are your goals for MSN? How do you plan to outdo competitors such as Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> and America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>?
Jennings: Our goal is to be the place that end-users think to go when they're trying to accomplish something online. We want MSN to be the best place to get things done online. We think that builds on the heritage we have, of course, in the software business. I mentioned the Office analogy a few minutes ago, and we take that very seriously internally -- that although bringing things together under the network concept was a good first start for us, and we're proud of where we are in terms of being one of the leading networks online today, we're going to be very focused on those cross sites or cross-topic area scenarios, really focusing on what people are trying to get done, bringing people into our usability labs, doing a lot of research to figure out how we could begin to innovate not on a property by property basis. We think we're building strong properties already -- but on a network level. What are the things we need to do to help you to have a much more productive experience during the whole online session, not just when you're on a specific online property. One other thing I would add to that is continuing to invest on the strong base we have with Hotmail in the communications area. That will also be a focus for us.
TMF: What do you think sets MSN apart from other Internet portals?
Jennings: Today what sets it apart is the quality of the portal areas. There's no question about that. Hotmail has leading market share in the e-mail space. That's property that's very high performance, very dependable. We continue to invest in that property. MSNBC I mentioned. Investor, Expedia, CarPoint, even Home Advisor, Internet Game Zone. These are all properties that we invested in on a category basis.
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"I would look for us to make more acquisitions in a specialized market area than in buying one of our competitors."
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In terms of our network, each of the properties on our network is one of the top three in their category, and I think that definitely distinguishes MSN from other portals. It's more of a breadth versus depth approach. We first invested to build the best we could in the depth area, and now are beginning to pull it together as a network -- again, following the strategy that worked for us in the late '80s in the desktop space.
TMF: Are you focusing more on building up your own sites and forming partnerships rather than expanding through acquisitions?
Jennings: We have only done two major acquisitions over the last 18 months. Both of those were highly contemplated and big acquisitions on our part. The first was Hotmail. I talked about how that worked out. The second done just a couple of months ago was Link Exchange, which we believe will turn out to be equally as important to the network as Hotmail was.
Link Exchange has a relationship with a very high percentage of small websites on the Web. Through the quarter before we acquired them, they serviced over 800,000 sites on the Web, which is incredible penetration into the basic million or so sites out that are on the Web today. So we're very deliberate with what are large acquisitions. Outside of those two, we're really more focused on continuing to improve products that we develop here at Microsoft and working with external partners versus doing a lot more acquisitions in this space.
TMF: Could you see Microsoft actually acquiring, say, another portal like Yahoo! or Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> somewhere down the line?
Jennings: One of the things that is different about Microsoft as a potential acquirer is that a lot of companies who are in the market to make an acquisition today are interested in traffic. So an acquisition like Yahoo! or an acquisition like Excite makes a lot of sense for a company that's in the market for traffic. We already have traffic, in terms of where we are already online and the natural assets that we have to bring more traffic to our sites.
So when we look at acquisitions, we're less interested in buying reach than we are in buying specific technology. In the case of both Hotmail and Link Exchange, we got technology which prior to that point didn't exist at Microsoft, and we were investing in areas that were outside areas we were already investing in. So I would look for us to make more acquisitions in a specialized market area than in buying one of our competitors.
TMF: How important is the Internet to Microsoft's future growth? Do you think MSN will ever replace Windows in terms of being the company's flagship product?
Jennings: That's a question that's impossible to speculate on -- a direct comparison to Windows. They're just very different businesses. MSN represents an extension of Microsoft's business into not only a new marketplace, but it's adding a direct relationship with end-user customers, which is very different from the relationship we have in our traditional flagship products that go through distribution channels.
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"The challenge for all of us is to figure out how we do a better job of meeting our customers' needs so that they really begin to identify as an MSN customer or an Excite customer versus someone who spends a lot of time at different sites on the Web."
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I think in terms of its importance to Microsoft, any of the analysts today would agree that the Internet is important to nearly every company in the future. And clearly what we're doing here at MSN is important to Microsoft, both as a new business that will continue to grow the company but also as a business that over time will support and help defend our traditional business.
TMF: I wanted to ask about your online magazine Slate. Is it accurate to say that Internet users don't want to pay for online content?
Jennings: Yeah, I think if you look at the number of Internet end-users who pay for content today -- I don't have the actual numbers for you, but it's a small percentage of the total Web audience that pays for content. Microsoft actually has three subscription products. There are other companies like Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> and Time Warner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %> who also believe there is some content that consumers will be willing to pay for over time and are willing to make an investment in that kind of programming. But today the market is very small.
TMF: So how would you judge the success of something like Slate or MSN Investor, areas where people have to actually pay for it to see it?
Jennings: Maybe we're biased or we're low forecasters, but all those properties are exceeding the expectations we set from a budget perspective, for where we'd be in terms of subscriptions. Investor -- I'll use that as an example -- the subscription there is really surprising, how quickly it took off. So we are quite pleased with where we are today. We'd love to see the market get bigger in terms of end-user willingness to pay for content online.
TMF: How do you decide whether to charge a fee for content or to offer it for free?
Jennings: For the most part, that decision has been made the way other companies have made it -- and the content is free. We're weighing the opportunity to create a business based on selling distribution opportunities basically to other companies versus making money off of end-users directly. And it's that trade-off that helps us determine whether this is something we want to charge customers for or not. We do market research, obviously, as we bring out new features to figure out consumers' willingness to pay. And we take a relatively long-term view in terms of when we expect a payoff.
TMF: What do you see as the biggest challenge for MSN and other Internet portals?
Jennings: If you look at the reach of Internet portals, 85% of all people on the Web -- in the U.S. anyway -- use a portal during the course of a month. But there's a tremendous amount of overlap between the customer base among many of the portals. My customers are Yahoo! customers, they're Excite customers, etc. So I think the challenge for all of us is to figure out how we do a better job of meeting our customers' needs so that they really begin to identify as an MSN customer or an Excite customer versus someone who spends a lot of time at different sites on the Web. I think that explains why we are so committed to investing in core communications functionality. That is of high importance to our customer, and it is also a very loyalty-building activity. But I think that is a big challenge, to begin to differentiate and develop a relationship with our customers more than the fleeting relationship of all the portals out there today.
TMF: Where do you see the Internet and Microsoft's position on the Internet in two to three years?
Jennings: We're committed to investing in this area, being innovators in this area, to be one of the top portals on the Web. In terms of differentiation, we want to be the place where people go to get things done. Highly task-oriented, highly focused on what people are trying to do. Again, building on our core competency as a software company.
The other thing we want to do is continue to expand outside of North America. We have had in the past year a leading portal site in seven markets around the world, but in the last 45 days we have launched or announced portal sites in another 22 expansion markets. So I would look for us to continue to expand and invest internationally. Microsoft has always been a very global company so we'll be investing in that area as well.
TMF: Thank you so much for taking the time to speak with us.
Jennings: Thank you for your time.
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