Microsoft Says It Won’t Cap Membership in Its On-Line Service at 500,000


Microsoft Corp., in the midst of a complex re-evaluation of its on-line strategy, said Monday that its new Microsoft Network service now has 525,000 subscribers--and that it would not temporarily cap membership at 500,000, as previously planned.

While the subscriber number might seem respectable for a service that has only been available for three months, established on-line service providers America Online and CompuServe not only boast far more members, but are still adding more new customers every month than Microsoft. And all the on-line service firms face a grave long-term threat from the growing popularity of direct connections to the Internet and the World Wide Web.

Microsoft share prices fell last week after Rick Sherlund, a prominent analyst covering the software giant, said the company was vulnerable to challenges from a growing crop of Internet software and service providers and dropped Microsoft from his recommended list.

Microsoft Chairman Bill Gates pooh-poohed such fears last week at Comdex, the Las Vegas computer fair, insisting that Microsoft was adjusting.


Specifically, the software giant is beefing up Microsoft Network, known as MSN, and shifting its strategy for the network. The company announced Monday that it will release a new upgrade to the network that will improve the its sluggish performance. The company said earlier it will “unbundle” MSN from the network service so independent Internet providers can offer MSN to their customers.

Such improvements, combined with close tie-ins of Microsoft’s dominant desktop software to MSN and the Internet, are still likely to make MSN an important force, analysts say.

“Microsoft’s initial goal was to be a dominant commercial on-line provider,” said Allen Weiner, principal analyst at San Jose market researcher Dataquest Inc. “Now they’re focusing more on providing seamless access to the Internet.”

The Microsoft Network will become a way of offering easy access to various sites on the Internet rather than develop as an exclusive community, Weiner said.

When Microsoft launched MSN this summer along with its much-hyped Windows 95 system, many assumed MSN subscriptions would quickly soar into the millions because software for MSN is included in Windows 95 and new users need only click on the MSN icon to sign up.

Competitors were so concerned about Microsoft’s entry into the business that they prodded the Justice Department to pursue an investigation into whether Microsoft’s decision to package MSN in Windows 95 was an antitrust violation.

Microsoft helped fuel the speculation when it announced dozens of big deals for exclusive content. Among others, the company announced an exclusive agreement to carry content from NBC.

But subscribers have complained that MSN failed to offer such rudimentary services as stock market quotes, that its information database services were scanty, and that its various billboards and discussion groups inactive.

Microsoft is still working on improving its network’s exclusive content. It has a large staff of editors who update the news service available on MSN five times a day. Michael Kinsley, former editor of the New Republic and co-host of CNN’s “Cross Fire” will soon arrive in Microsoft’s headquarters in Redmond, Wash., to start an electronic magazine that will be made available on MSN.

But when it comes to offering content, Microsoft faces a major dilemma. If it offers content such as Kinsley’s magazine only to MSN subscribers, few people will read it. Kinsley might be unhappy to discover that the potential base of his new magazine is just 500,000 instead of the tens of millions of worldwide readers surfing the Web.

Yet, if the magazine and other key content are available on the Web, what will attract consumers to subscribe to MSN? Microsoft’s Larry Cohen, lead product manager at MSN, says the company might provide some content on the Web such as a preview of articles appearing in the magazine, but reserve the premium content for its own subscribers.

Another problem Microsoft faces is its insistence on using its own Web browser for navigating MSN and the Internet. Critics note that other browsers such as the Netscape Navigator are quickly becoming standards, and Microsoft could lose subscribers by insisting on the use of its own proprietary software.

Technology gurus such as George Gilder have recently argued that Netscape and other Internet-based software such as Sun Microsystem’s Java have the potential not only to dominate the Internet but also to emerge as the platform for all computer applications, effectively sidestepping Microsoft’s desktop monopoly.

For example, Java allows applications to be built that would allow users to download a word processor from the network as the need arises.

But experts say Microsoft’s desktop monopoly is safe for some time, because most heavy computers users would be reluctant to depend on distant computers for essential applications such as word processing. And it still has plenty of ways to use that dominance to its advantage.

For example, when new users first began tapping onto MSN there was an outcry. Customers discovered that Windows 95 would automatically install software that was incompatible with such popular browsers as Netscape’s. Those who wanted to keep using Netscape had to make complex adjustments in their software.

Despite the outcry, Microsoft says it has no plans to make any changes. It is the browser companies such as Netscape that are changing their software to make it compatible with Windows 95. Meanwhile, for many who use Windows 95, the path of least resistance is to also use MSN.


Catching Up

After just three months, Microsoft’s on-line network has attracted more than 500,000 subscribers. How it lines up against the other big on-line services, in millions of U.S. household subscriptions:

America Online: 3.7*

CompuServe: 2.2*

Prodigy: 1.4*

Microsoft: 0.525

* As of October, 1995

Source: Estimates by Jupiter Communications