Having secured a strong presence in the world of direct financial transactions, Microsoft is already moving aggressively to leverage its money, expertise and software position into a dominant role in a wide range of Internet commerce, from on-line car sales to travel to real estate listings to local entertainment and classified listings. Analysts predict more than $35 billion in goods and services will be sold over the Internet by the year 2000, and Microsoft is already gunning to have a large role in that new business, using its command of technology to leverage its position.
Travel: Microsoft's first major success has been its Expedia on-line travel service which is expected to book $100 million in travel transactions in 1997 - with Microsoft receiving a commission on each transaction. Established in October 1996, it is already carving out a large slice of what is expected to be a $4.5 billion online travel market by the year 2000. Expedia not only books travel plans but provides a full range of travel information and online guide books, generating additional traffic. Microsoft adds revenue from advertising fees by hotels paying to display additional information besides the basic listings included at Microsoft's site, while selling banner advertising in the main areas. To top it off, Microsoft is licensing the core transaction technology to American Express and airlines like Continental and Northwest.
Rivals are already worried that Microsoft's combination of technological expertise and alliances will soon choke off fair competition. Texas-based Sabre, a traditional supplier of travel reservation services for airlines to travel agents, argues that a level playing field ultimately benefits consumers. In February 1997, the Texas Attorney general issued a subpoena to investigate Microsoft's practices, charging that Microsoft is giving Expedia an unfair advantage through default links built into Microsoft's Internet Explorer browser.
Car Sales: Microsoft launched its CarPoint site to try to match its success in online travel in the virtual car dealership business. Started initially as an editorial guide to car shopping, the site was relaunched in July of this year as an e-commerce site logging 30,000 visitors a day. Viewers can browse reviews of cars, calculate what they can afford, and solicit bids from up to three dealers near their homes. Microsoft has teamed up with Reynolds & Reynolds Co., a long-time technology service provider in the auto industry, to tap its network of 10,000 auto dealers around the country. Microsoft gets paid $1,000 per month by each participating dealer and a commission on each successful car sale. CarPoint in mid-year launched a used-car listing service, marking the company's first foray into the classified ad market. While no sales numbers have been reported yet, a Reynolds spokesman noted that 47% of online queries have resulted in a sale through the service.
Real Estate: Microsoft has announced plans for a Web site for real estate listings code-named Boardwalk (with the reference to Monopoly almost making you think Microsoft has a sense of humor). To be launched in early 1998, the Boardwalk service will allow users to search for residential properties and connect with local Realtors. Marrying its new Internet commerce experience to its financial transaction alliances, Microsoft is working with Countrywide Home Loans to offer on-line lending on the real estate site.
Local Entertainment Guides & Classifieds: Microsoft has spent over $100 million in the last year launching city-by-city on-line entertainment and information sites called Sidewalk, a crucial tool for going after the estimated $15 billion in local classified ads and the overall $66 billion local advertising business each year. Without the space limitations of a newspaper, Sidewalk can provide a wide range of information, from show times to ticket prices to comprehensive reviews, plus restaurant guides and even personalized services to alert customers by email when events of interest are coming to town.
Newspapers see these kinds of guides by Microsoft as a real threat to their existence, especially striking fear into the weekly "alternative press" whose bread and butter are the entertainment listings that Microsoft is targeting. "Bill Gates," argues Edward Canale, marketing director for the Sacramento Bee, "wants to skim the cream off the newspapers' business without paying for real journalism." What worries newspapers most is that many online analysts expect classified ads - what newspapers depend on for a third of their revenue - to be used online as free "content" to draw consumers to other advertising and direct Internet commerce sales. So even if newspapers launch themselves onto the Internet, they will still lose revenue unless they become commerce sites themselves and match Microsoft's technological expertise in online transactions.
Robert Ingle, Knight-Ridder's president of new media, gave a keynote address in the summer of 1997 to a gathering of 500 newspaper executives, denouncing the threat from Microsoft and noting that Microsoft is spending more on new media ventures than the entire newspaper industry combined. A number of newspapers had initially cooperated with Microsoft based on promises from the company not to move into classified ads, yet within the year Microsoft broke those promises, launched its used car ads on Carpoint and announced its planned real estate listings on its Boardwalk site. Added to the indignity, Ingle noted that many newspapers were purchasing software from Microsoft, which in turn was using profits from the software to fund its new ventures to undermine those very newspapers and even hire key reporters away to staff its Sidewalk sites.
While Microsoft currently faces competition in each of these individual online markets, it is the only company in all of them, from personal finance to travel to real estate to car sales to local information services. Its technological expertise and deep pockets give it a built-in advantage to begin with, but Microsoft's ability to bundle these on-line services together allows it to repeat its "suite" strategy of linking and cross-promoting its different ventures into one dominant "super-site." Combining customized local versions of Expedia, Carpoint and Boardwalk will give each city's Sidewalk a powerful competitive edge over any rivals. And analysts see Microsoft's breadth itself as a selling point to advertisers. Jupiter Communications analyst Peter Storck argues, "They can package a network with a whole bunch of demographics in one media buy. That's what advertisers are begging for."
The real kicker, however, goes right back to Microsoft's dominance of the desktop. Microsoft's new version of its Internet Explorer 4.0 contains a feature called "active channels" ø technology to send Web site information directly to the desktop. The software comes with twelve preset "channels" which Microsoft is busy licensing to media outfits and planning to use to promote its own Internet commerce sites. Not only is Microsoft pressuring media outfits for exclusive deals to help reinforce its browser, it is in turn requiring computer resellers to stick with its preset channels as part of its operating system and browser licensing deals. Combined with its massive spending and technological know-how, Microsoft is adding in its usual pattern of monopolistic tie-ins to dominate online commerce.
One other wrinkle is Microsoft's recent investment stake in Comcast Cable, which in turns owns the QVC home-shopping cable channel. QVC's new on-line site, iQVC, is only selling $1 million of goods per month, but it is backed by the QVC experience of over $2 billion in cable sales each year and, as importantly, has experience in fulfilling orders fast and accurately. With its investment in Comcast, Bill Gates announced, "We'll be sitting down and talking out how we can help QVC move and drive forward their interactive activities."
Next: Content and Media Dominance
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