Web 3.0 & MSN (Part 1)

Introduction

MSN is the all in one Internet portal of Microsoft. The Company has divided its core business into three divisions – Platform products and services division, Business division and Entertainment and Devices Division. The online services group comes under the first division. Microsoft, through MSN, has significant presence in the online business and owns some of the most attractive digital assets.

MSN is the home of Hotmail, MSN Messenger, MSN Search, Groups, Shopping, MSN Money, MSNBC News, Encarta, and Slate Magazine. MSN also operates country specific sites. Microsoft sites with 120.5 million is the fourth largest portal after Yahoo, Google and AOL. Microsoft’s consumer online initiatives are fragmented with a lot of different brands.

According to Alexa, MSN.com is currently ranked 5th amongst all websites for Traffic Rank. Video is a huge initiative at MSN. The Microsoft family of video sites includes MSN Video and Live Search Video. Microsoft is currently the 2nd largest player in the online video market as per the latest Compete data. MSN/Live Video grew 25.3% to 35 million visits on the strength of 21 million visitors in October 2007.

Microsoft earned revenues of $13.76 billion for the quarter ended September 30, 2007, a 27% increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.92 billion, $4.29 billion and $0.45, respectively. Most of the gains are due to Vista, even though the OS seems to be a pretty shabby display of Microsoft’s inability to deliver quality products to the market.

Online Services Business (which includes MSN) grew 25% to $671 million. Online advertising revenues grew 33% or $120 million to $487 million. This increase reflects growth in their existing online advertising business for search, home page, email, and messaging services. Microsft acquired aQuantive in the online advertising space, which is expected to help the company develop a stronger position in the high-growth online advertising market.

Recently, the Company picked up a 1.6% stake in Facebook with an investment of $240 million. Under this deal the Company would provide the exclusive third-party advertising platform for Facebook, extending a previous deal for Microsoft to sell banner advertising next to Facebook member profiles in the U.S. until 2011. This move was a strategic gambit against Google, and it has certainly given Microsoft a good psychological victory.

Microsoft recently purchased WebFives, which allowed users to share videos, photos and other Web content between devices. Microsoft plans to incorporate some of the technology into its services. WebFives had raised about $4 million in funding. It is more of a technology buy and could be used to beef up the Company’s video and a planned photo-sharing site.

Microsoft is losing a billion dollars a year online. Most of it is of course due to the investments it has made in online properties. It is following an expensive strategy of investing in all the online verticals, see what works and then expand. Microsoft, with its huge stash of cash, can afford to play this game, but it is not going to guarantee future success.

Microsoft through MSN is working on building a differentiated search experience in the four high value verticals of commerce, local search and mapping, entertainment and health, which collectively represent 40% of all global searches. The acquisition of Medstory in the health information search space was a move aligned to this strategy.

We will take a look at MSN’s Internet properties in the following posts, with a particular focus on the vertical strategy.

(To Be Continued)

This segment is part 1 in the series : Web 3.0 & MSN
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