With focus on numbers, MSN pressured to perform

When Microsoft takes the wraps off the latest version of its MSN Internet access software next week, the company's Internet unit will not only be faced with a major product launch, but also mounting pressure to compete with rival America Online (AOL) and stand up on its own financial feet.

Although Microsoft is preparing to report strong 2003 fiscal first-quarter earnings after the bell Thursday, it will also be breaking out MSN's earnings for the first time, a company representative said, putting the unit in the spotlight.

Furthermore, the launch of AOL 8.0 earlier this week set the stage for an all-out battle on the Internet access front, as both Internet service providers (ISPs) prepare to duel for users with new, revamped versions of their software.

Microsoft appears ready for the challenge. Not only did the company kickoff a US$300 million marketing campaign this week in preparation for the launch of MSN 8, it is also playing up the service through its alliance with National Broadcasting Company Inc. (NBC), flooding the MSNBC.com news site with MSN content.

MSNBC.com put on its new look Thursday, replete with a MSN navigational bar on its pages, directing readers to MSN features and content. When MSN 8 launches next Thursday, the site will also be more closely tied to the Internet service, allowing MSN users to click on the News link throughout the network to be sent to the MSNBC.com home page.

The software giant is also pushing its MSN Messenger service through the popular news outlet, by offering to send free news alerts to users' computers, cell phones, pagers and e-mail accounts via Messenger.

The MSN push comes at a time when competition is fierce. Although AOL has long held the lead on Microsoft's Internet service - AOL currently claims 35 million users compared with MSN's 9 million - AOL's decision to overhaul its service has made it more urgent for Microsoft to gain ground.

AOL 8.0, unveiled Tuesday, is packed with new community-oriented features, includes more varied programming and plans to do away with third-party pop-up ads. Although Microsoft has not revealed all the details of MSN 8, the company appears to be planning to woo users with bolstered security measures and parental controls.

In addition to shoring up its service, MSN is also looking for improved third-party marketing deals designed to both increase its exposure and curb its costs.

The Redmond, Washington company plans to let its long-standing advertising and profit-sharing agreement with retailer Best Buy Co. Inc. expire in March unless a more advantageous deal can be made, Best Buy revealed in filings submitted to the U.S. Securities and Exchange Commission this week.

Although Microsoft reported growth last quarter in its "Consumer Software, Services and Devices" sector, where MSN results have previously been recorded, the Internet unit has not been able to stand up financially on its own.

In its 2002 fiscal fourth-quarter earnings report, the company said that within that unit "the majority of the revenue growth from the prior year stemmed from Xbox video game system sales."

In a further effort to shore up the unit's revenues, the company will begin offering a stand-alone version of the service with the launch of MSN 8, charging users of other ISPs $9.95 a month to access MSN content and services.

While Microsoft plans an all-out campaign for MSN 8, it's consumers who will decide if the strategy flies when the company hatches the butterfly-branded service next week.

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