Microsoft to Discontinue MSN Rebate Promotion
Microsoft Corp. said Friday that it is discontinuing a $400 rebate to new subscribers of its MSN Internet access service, an offer aimed at rapidly building its user base but one that analysts say has hit it in the pocketbook.
The software giant instead will offer one free year of MSN to buyers of new personal computers. It expects the new deal will enable it to continue to add at least half a million subscribers each quarter, said Bob Visse, lead product manager for MSN marketing.
Microsoft has been using such rebates to draw users to MSN from rivals such as AOL Time Warner’s industry-leading America Online service, which boasts about 27 million subscribers, compared with MSN’s 4 million.
The $400 rebate for subscribers who signed a three-year contract would be halted in March, while the new offer, which expands to other PC makers a deal initially given only to buyers of machines from Dell Computer Corp., was already in effect, Visse said.
Separately Friday, Microsoft and the Justice Department agreed on a schedule for oral arguments in Microsoft’s appeal to keep the company from being split into two.
The parties decided to spend the bulk of the two days scheduled arguing the central issues of the case: whether Microsoft could bundle its Internet Explorer browser and Windows operating system, and whether the company used anti-competitive practices to maintain a monopoly.
The rest of the arguments, which total 4 1/2 hours, will be spent discussing whether Microsoft tried to obtain a monopoly and whether District Judge Thomas Penfield Jackson’s breakup order in June was fair and supported by the facts.
According to the joint proposal to the U.S. Court of Appeals for the District of Columbia, the parties “are prepared to rest on their written submissions” as to how Jackson conducted the trial and his statements outside the courtroom.
Oral arguments are scheduled Feb. 26 and 27.
Shares of Microsoft fell $1.56, or 2.5%, to $60.81 on Nasdaq on Friday. They made up some of that loss in after-hours trading after news of the MSN plan, trading at $61.13.
Analysts have expected a rebate change since Microsoft’s quarterly earnings report last month in which executives indicated that the $400 offer was in effect too popular and was eating into the company’s bottom line.
“It’s obviously much more economical,” Brendan Barnicle, an analyst with Pacific Crest Securities, said of the new offer. “A $400 customer acquisition cost is pretty high, even for an ISP, which arguably has a longer return period.”
“They are trying to do something about what is essentially flattish revenue growth at MSN,” Barnicle said.
Under the new MSN plan, people who didn’t buy a new PC could still get a $200 rebate by committing to two years of MSN service, or a $75 rebate on nine months of service, Visse said.
Buyers of Microsoft’s MSN Companion Internet appliance, a stripped-down device made by Compaq Computer Corp. for Web and e-mail access, could still get the $400 rebate for a three-year contract with MSN, Visse said. MSN service costs $21.95 a month.
