Aside from assisting Microsoft in its core sales of software and helping to extend its monopoly over operating systems into all reaches of business computing, the whole transition to online commerce is shifting power from financial institutions themselves to those managing the software through which customers access all of these services. As banks and brokerage firms increasingly conform to standards like OFX, it becomes easier for software to reduce each service to a line on a software screen and quickly search for the best deal.
In the words of many analysts, financial services are being "commoditized," meaning consumers will not go to banks or brokerages as one-stop centers but instead go through intermediaries, particularly the personal finance software and web browsers that connect people to the Internet. As Microsoft assumes an ever greater role in all aspects of financial software and technology services at both the consumer and business end, it gains a greater and greater advantage in becoming that center for accessing the whole range of financial services. Analysts predict that the fees paid to sponsor and participate in the Microsoft Investor web site will continue to increase. While Microsoft has spent lavishly on free services and financial analysis to attract customers to its Investor site, it has used the Web traffic to generate fees and commissions from participating financial services companies. Charles Schwab and Fidelity Investments already allow their customers to trade stocks through Microsoft's service. Since Schwab alone already has 908,000 active online customer accounts with holdings of more than $66 billion, even a piece of that and other financial allies' business promises large growth areas for Microsoft.
Controlling the browser market and entry to the Internet allows Microsoft to increasingly direct customers to its Internet sites, and to those financial services from which it gets a commission. Even if the core Internet standards are not controlled by Microsoft, it increasingly has designed associated standards for online exchange and services that are linked to its own financial enterprises. It is control of that browser gateway that gives Microsoft tremendous power in shaping the whole range of financial exchange on the Internet.
For many analysts the "holy grail" of electronic financial services is the ability of companies to send bills to customers over the Internet. Up to now, customers have used software like Quicken and Money to electronically pay bills they received through normal mail. This kind of service saved the customer time but had little cost savings or profit for anyone else, so most online banking customers paid extra for the service. But if companies sending bills could save the expense of printing and postage associated with mailing bills to customers, online banking would then have savings that some company could convert into serious profits.
In late 1997, Microsoft made clear that it intended to be that company. In a partnership with First Data Corporation, Microsoft formed a new company called MSFDC to develop the means of electronically "mailing" consumers their bills. First Data is already the largest merchant processing service for Visa and Mastercard, so the combined company starts off with a massive advantage in converting paper credit card bills over to their new electronic system. For consumers, the service would be free while MSFDC would collect 35 to 50 cents for each bill presented to the consumer--less than a company would spend on paper and postage but a large accumulating sum for MSFDC.
In December 1997, Wells Fargo became the first bank to agree to pilot the system, while major billers like Advanta Corp., Chase Credit Card, GE Capital, The Hartford Financial Services Group Inc., J.C. Penney Company Inc., New Century Energies and their subsidiary Public Service Company of Colorado, Payment Systems for Credit Unions Inc., PECO Energy Co., Shell Oil Co. and Texas Utilities all signed on for the service. Taking a page from its competitor MECA, Microsoft is offering the service under Wells Fargo or any other banks' "brand" even as Microsoft will get a cut of each bank transaction. This service is expected to radically change how banks operate. "Wells Fargo believes that bill presentment is the key to providing a truly compelling online banking offering for our customers," said Dudley Nigg, executive vice president of Wells Fargo Bank at its introduction. "They will be drawn to the convenience and power of receiving and paying bills in one easy step, with all of their payment information fully integrated into their banking relationship."
Adding to Microsoft's increasing dominance of online transactions is its purchase of WebTV and its role as a supplier of software for cable boxes that will give consumers high-speed access to the Internet. In January 1998, one of the largest cable companies, Tele-Communications Inc. (TCI), agreed to order Windows CE software from Microsoft for an initial 5.9 million cable boxes (at a price of $25 per box for Microsoft) . Not only will this strengthen Microsoft's Windows monopoly, it will also put the company in the position to supply the bill payment and other online financial software applications embedded in cable set-top boxes. It is rapidly forging similar deals with a range of other cable and telephone companies as well. Once again, Microsoft is using market power in one area, in this case operating systems combined with its cable and telephone alliances, to give it an anticompetitive edge in other markets like bill payment and online transactions.
Going beyond its role as supplier of software and online transaction services, Microsoft is increasing its role as the direct retailer of products and services over the Internet. Along with selling financial services through its Investor web site, with plans to add real estate, mortgage services and insurance to its menu, Microsoft is branching out to everything from selling cars, booking travel for customers, to selling tickets to local entertainment venues. (Again see "From MS Word to MS World" for more in-depth discussion). By packaging these product services together, and with its increasing control of desktop browsers, Microsoft is building an integrated financial and commercial empire where customers will use Microsoft-produced software to access web sites using Microsoft server software, then buy products sold by Microsoft, and have the transaction processed through a bank using a system owned by Microsoft. This is a level of vertical commercial integration never before seen in the history of the country.
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