"It's a different model and it's a gamble if you like, but we believe this could be the way forward."
Despite the calm approach and laid-back attitude of Geoff Sutton, managing director of MSN UK, the launch of Microsoft's superbrowser product, MSN 8, this month is one of the most significant events in the history of the UK network.
As a sign of how important MSN 8's launch is to the future of Microsoft's overall internet strategy, Sutton explains that during its US launch this October, Microsoft chairman Bill Gates and chief executive officer Steve Ballmer took to the streets of New York dressed up as butterflies.
Supporting Microsoft's 'It's better with butterflies' campaign, the two executives ran around the city giving out CD-Roms of its product.
Although Sutton may have the legs for a butterfly costume, MSN UK is to rely on online marketing for what Sutton believes is its biggest product launch ever in the UK. It also appears that MSN UK will be taking a sizeable slice of the $300 million (拢188m) that Microsoft is spending on the international launch of MSN 8.
"Advertising will appear on our network and elsewhere as well, so we will be carrying out a massive campaign," says Sutton. "The budget is big.
In the millions, plural."
MSN 8 takes a supercharged version of Microsoft's Internet Explorer browser and supports it with a supercharged version of the MSN.co.uk portal.
Additional software that has been crammed into the browser includes anti-spam technology, which Microsoft claims will cut 70 per cent of the spam that normally gets through an ISP's own detectors. It also contains Microsoft's popular Outlook services, which include calendar and email management software.
MSN 8 will also see Microsoft dip its toe into download management software. Assisting slower narrowband users, the software will allow people to begin downloads, stop at any time and then seamlessly resume the download minutes, hours or even days later, from where they left off. A shared browsing service will also allow remote users to surf the web together in real time - useful for when the parents get confused online.
By focusing on Microsoft's strength in software, the UK launch of MSN 8 draws a firm line under MSN's former identity as a content provider.
Nevertheless, MSN is hoping that content partnerships for MSN 8 will help to convince users to log in and, ultimately, pay for the service.
MSN 8's most important features surround services designed for younger users of the web. MSN 8's users will gain access to a remastered MSN.co.uk homepage and be shown exclusive content, including a new children's channel.
Following a partnership with publisher Emap, MSN 8 users will be able to view content from the Smash Hits (www.smashhits.net) and Sneak (www.sneakmagazine.com) web sites. As a result, Emap has agreed, in principle, to promote MSN 8 occasionally in both Smash Hits and Sneak magazines. The Walt Disney company will be supplying content as well.
The children's channel, which is not available on the existing MSN.co.uk portal, will be backed by MSN Learning, which gives users access to 60,000 articles from Microsoft's encyclopedia product Encarta, along with multimedia learning services.
On MSN 8, children are not allowed to roam free, however. As the software can give up to nine users individual login profiles, one main user can adjust MSN 8's settings for four age groups: under-nines, pre-teen 10-12s, 13- to 17-year-old teenagers, and those aged 18 and over. This way, an adult in the family could view MTV.co.uk's content, without fear of a younger child seeing it later on the same PC. Parents can monitor their child's web log, which gives details of sites visited, time spent on each site, files downloaded and to whom a child has chatted.
As Sutton explains, protecting young users on the web is becoming more of an issue as internet usage grows throughout the UK.
Their protection is one of MSN 8's priorities. "I've got a couple of kids who are on the internet all of the time," confides Sutton. "I want to know what web sites they are looking at and that they are not being contacted by strangers. The parental controls on MSN 8 help parents to do just that. As a parent, the question would not be whether I would pay for that, but how much I would be willing to pay for it."
The focus on the safety of children online is reminiscent of another portal's product marketing, which has gone so far as to liken itself to a 'mother' of all broadband services. MSN 8's launch in the UK will be interpreted as Microsoft's attempt to catch up with AOL's so far successful all-in-one ISP and family-oriented portal software offering (see box, p24).
Building on MSN 7, which provides bundled ISP access for nine million users, the recent launch of MSN 8 in the US mirrors its rival's AOL8 product. But, although MSN 8's release in Europe represents Microsoft's attempt to draw its so far advertising-funded European businesses into sync with its US parent, MSN 8 will not be offering bundled ISP services. Instead, it will let users bring their own access. This 'BYOA' focus will distinguish MSN 8 from its main competitors, says Sutton.
"If you look at a company such as AOL, it is absolutely all about bundling access with the service," suggests Sutton. "Our view is that access is a commodity and people can choose whichever form of access they want.
AOL has been successful in some countries, but not in others. I believe its model is more limited than ours. The whole walled-garden approach is very old-fashioned and tying people into access is much more limited than giving them the freedom to choose."
While giving users more freedom, MSN is in a strong position to offer its services in association with basic internet access providers. MSN 8 could help BT Retail achieve its aim of having 500,000 users signed up to its basic broadband service by summer 2003. By promoting MSN 8 to their users, the more developed, focused ISPs could eliminate the cost of creating engaging content and concentrate on their main business. "We could partner with any number of people as we're providing the software that sits on top of the access," says Sutton.
However, not everyone is happy about any co-promotion between BT Retail and MSN. "We are concerned about the impact of a tie-up between BT and Microsoft, in terms of consumer choice, and will be looking closely at how that relationship develops to make sure real consumer choice is maintained," says Jon Gisby, managing director of portals at Freeserve. "This is particularly the case in the emerging broadband market, which will see web services take up more time spent online."
But the question remains as to whether UK users will be web-savvy enough to distinguish MSN 8 from AOL's or indeed Freeserve's own all-in-one, ISP and portal packages. Broadband users already paying out in excess of 拢25 per month for access may well be reluctant to pay MSN 8's monthly rental fee of 拢6.99 or its annual fee of 拢59.99.
The person in charge of driving forward the widespread adoption of MSN's subscription services, including MSN 8, is Nickie Smith, previously marketing director at travel e-tailer Expedia.co.uk. Her new role is as head of subscriptions marketing for MSN Europe, Middle East and Africa.
Sutton believes, though, that UK users are ready to pay for premium services, as shown by the growing take-up of MSN Hotmail Extra Storage, which lets users store a greater amount of emails and digital photos - more than the free generic Hotmail service - for an annual fee of 拢19.95. Sutton says 120,000 of Hotmail's 7.4 million UK users have signed up since February this year.
MSN 8 gives UK users 30 megabytes of extra email storage and 100 megabytes of photo storage.
"In terms of the development of the internet, people are beginning to pay for things that make a difference," says Sutton. "We've had everything free for a long time and that's clearly changing with things like music and high-quality software."
Again, Freeserve's Gisby argues against this notion. "In an environment where cost is still an important factor in the take-up of internet access, unbundling basic internet functionality such as email, parental controls and so on from the actual access seems to us to be a retrograde step," he explains. "Our experience suggests that users value an inclusive package - particularly when you look at the overall spend associated with telecommunications, and home entertainment in general - and that they are not prepared to pay more for services, which are an integral feature of their decision to go online."
The introduction of subscription charges to sites offering mainly free content is becoming the norm, given the state of the global advertising market. Digital brands such as Yahoo! have scaled back on their advertising targets in favour of paid-for online services. Yet Sutton denies that MSN UK wants to copy this strategy, especially as it continues to attract the bigger advertisers, including Nestle, Sony, Unilever and Tesco.
"We're trying to shift the market away from the way things happen at the moment, but we'll still stick with advertising," says Sutton. "Even though there are a lot of problems with advertising in general, it's a good business for us. Year-on-year our advertising revenues have gone up by 23 per cent, so it's a profitable business and we will keep developing it."
Strong ad revenue also means that the free MSN.co.uk site will remain open, despite the launch of a subscription version. In fact, the free site will be used as a springboard for MSN 8.
"MSN.co.uk as a free service will not go away," says Sutton. "We have a growing free business that we can fund through advertising and it brings in a huge amount of users. We can then provide value-added services that a percentage of those people will pay for, which in the long term will be a massively profitable business. The natural thing is to use our own network as an up-sell vehicle for MSN 8's subscription service."
Given MSN 8's focus on personalisation and tailored settings, advertisers could go on to target specific audiences. Features such as MSN 8's dashboard, which lets a user place a column of regularly updated weather, shares or sports data on their desktop, could also be used for targeted advertising.The dashboard is set to advertise MSN's own network events, but the logical step would be to explore how this channel of communication could be used by advertisers.
"Yes, we would use the dashboard for advertising," says Sutton. "If you look at BSkyB, you pay a subscription, but you still get advertising, so, absolutely, we will do that. As we go into MSN 8, we're looking at how we will do it differently from MSN.co.uk, such as how intrusive should we be? Advertising is all about providing the right ad for the right person at the right time. You would be much happier to get an advertisement about cars if you like cars, than if you got one about fishing."
As well as facing pressure to make MSN 8 a success in the UK, Sutton and his team's marketing will be used to roll out the product across the rest of Europe. So far, Sutton says creative will focus on child protection on the web and spam control.
"We've got a team of designers here who are looking at some revolutionary and different approaches," says Sutton. "The aim is that a lot of what we do here will then get distributed to Europe as we're the first in Europe to launch MSN 8. There's a bunch of countries coming early next year, including Germany, France and Italy. The work we do is the pioneering work, which then gets fed back in a cost-effective manner. That's often the way it is at Microsoft - the UK leads and takes the punches."
Sutton is brief in his description of creative for MSN 8's marketing, but maintains that it will be one of the largest on-line campaigns to run on the web in the UK. The scattergun approach of TV is of no use to the firm's targeted strategy.
As well as being able to download an MSN 8 'light' version, customers will be able to install the full MSN 8 using a CD-Rom. Its distribution will be triggered by user requests via MSN.co.uk, rather than following the sweep of its competitors. Although users are warming to paying MSN for additional storage space, it is clear that MSN is prepared to throw everything it has at generating awareness of its new product in the UK.
"The aim is pretty much to let UK internet users see that MSN 8 is here and why they should be looking at it," says Sutton. "That's the principal way we'll be pushing this product. We are very much focused on using digital marketing to sell it."
Sutton and his team have a challenging task ahead of them. Attempting to convince 11.1 million of MSN.co.uk's monthly visitors to upgrade from a standing start, it will take time for MSN 8 users to mirror AOL UK's two million subscriber base.
But, given that MSN UK is growing faster than any other global MSN operation, according to Microsoft's three-month results to 30 September 2002, MSN 8's prospects in the UK would appear to be positive. That said, Sutton's affable shine disappears when asked for the network's projected UK growth figures. "I'm not going to go into figures at this point," he says. "I'm excited by the opportunities out there and I think it will do well. Everyone I know who has seen this product likes it, so we've got to be in with a fighting chance."
AOL'S LATEST VERSION PRESENTS A CHALLENGE FOR MICROSOFT
With the launch of MSN 8, MSN believes that it is setting itself up as a direct competitor to AOL, which has just launched its latest version, AOL 8, in the US. However, Mindy Mount, AOL UK's executive vice-president and co-managing director, says Microsoft has a way to go before it catches up with AOL's two million UK users.
"We are two very different firms - Microsoft creates software and sells it through retailers; we are a lifestyle brand that aims to make people's lives better and more convenient," she says.
"You take competitive actions from well-funded companies like Microsoft seriously, particularly in the US where MSN has an access business as well as a content portal," she says. "But MSN has never had an access business in the UK, and while it has made several attempts to provide paid-for services they have never worked."
Mount says that while she would "never say never", at present AOL has no intention of unbundling content and access. "While paid-for content is the latest thing, the business model may need developing," she says.
"We are offering a package that gives our members the ease of getting everything in one shot from their ISP, with a free helpline and at what we consider to be a reasonable price." Mount thinks it is unlikely that consumers will want to pay much for content on top of their ISP bill.
AOL 8 provides several enhancements to the AOL package, including a feature that gives parents a report card of their childrens' online activities and more broadband services.
TISCALI COUNTS ON COMBINING ACCESS AND CONTENT IN ONE
Tiscali launched its latest access, services and content package, Tiscali 10.0, in May and has now migrated 85-90 per cent of its membership to the new platform.
Tiscali 10.0 offers a number of services including a personalised browser - used by 15 per cent of subscribers - instant messaging, free SMS, a members' area and a fax service that allows subscribers to send and receive faxes online.
At present, Tiscali 10.0 subscribers receive access and content, although they can pay for extra content. But Richard Ayers, portal director at Tiscali, says it is looking to develop a "product not dissimilar to MSN 8" that offers content separately to internet access. "We would need to ensure that this did not cannibalise our ISP base," he warns.
When it comes to MSN 8, Ayers believes a lot of content and services can be found elsewhere, on the Tiscali site for example. "There is only a small amount of people who are so worried about parental controls that they would pay for them," he speculates.
"If I was MSN I would be worried about that."
Ayers' own concerns are based around the potential relationship between Microsoft and BT in the UK, with BT Retail offering no-frills internet access and MSN 8 supplying the content and services.
"We would be worried about getting caught between Microsoft on the one hand and BT on the other," he suggests. "MSN 8 looks much like the other Microsoft products, so there is a concern that it could just be bundled in with other Microsoft products."