Microsoft Corp. yesterday unleashed a high-powered, $350 million campaign to persuade America Online's 35 million customers to switch to its MSN service, whose newest software includes updated e-mail and anti-spam features, parental controls, and exclusive content through a new partnership with Walt Disney Co.
The new software, MSN 8.0, represents the latest version of Microsoft's online subscription service, which provides computer users with a way to connect to the Internet and gain access to exclusive content. Microsoft dubbed the offering "The Butterfly" in a lavish advertising blitz that played across Web sites and television screens yesterday; Chairman Bill Gates even got into the act, donning a butterfly costume for a promotional video.
"It's really a breakthrough product for us," Gates said at a promotional event in New York's Central Park. "This is a big milestone. It's way beyond the simple browsing that you would have thought about in the past. We're going to drive online usage, both in terms of the number of people and the number of hours online, in a very significant way."
Microsoft issued its revised software one week after Dulles-based AOL released its update, called AOL 8.0, turning up the heat in a competition for Internet users.
MSN still operates at a loss for Microsoft. Nearly all of MSN's roughly 8 million customers, and AOL's 35 million customers, connect to the Internet on regular telephone lines. MSN's service, at $21.95 a month, costs $2 a month less than AOL's, and Microsoft has aimed its campaign at AOL users, urging them to switch.
To simplify the task, MSN provides people with a single-click method of transferring online address books, "buddy lists" and other personalized data from AOL to MSN. Analysts said AOL has been able to retain many of its subscribers over the years because they do not want to go through the hassle of setting up new accounts and e-mail addresses.
MSN is also trying to attract subscribers with enhanced services. For the first time, MSN is offering parental controls, which industry analysts say is a key selling point. To distinguish itself from AOL, MSN will send parents a weekly e-mail describing how much time their children spend online and where they spend it. In addition, the feature will notify parents of sites children attempted to visit but were denied access to by preset restrictions.
MSN also announced a partnership with Disney that includes marketing of a new, co-branded online service aimed at kids that will feature Disney content and be distributed through the company's theme parks, retail stores and mailings. Appearing with Gates in New York, Disney Chairman Michael D. Eisner said the alliance with MSN is a great way for both firms to promote family-friendly online content. This is not the first time that MSN and Disney have teamed up; Disney's ESPN unit is one of the featured channels on MSN's home page.
David Card, an analyst with Jupiter Communications, predicted that consumers would benefit from the enhancements by AOL and MSN but that few would switch services. Card said that neither company's new offerings do much to advance the move by computer users from dial-up access to high-speed "broadband" access. Although Microsoft prices its service a couple of dollars below AOL's, Card said the difference was not enough to prompt many people to switch.
"I like both products," Card said of MSN 8.0 and AOL 8.0. "They are richly featured; they are slick and cool, and mark advances over their previous versions. They both raise the bar so much that anybody else trying to compete in this space would have a tougher job. But I don't think they are going to gain share from each other. They will both gain it from other providers."
Card said the only way to significantly increase the number of users online would be a major price cut or more robust content delivered via high-speed connections. MSN's partnership with Disney, in which subscribers receive Disney content as part of the service, reflects greater value for the monthly fee rather than any reduction in price, he said.
Industry analyst Gary Arlen said Microsoft wisely chose to improve the most popular part of its online service by enhancing e-mail and anti-spam features. He also said the outright targeting of AOL's customer base reflects a meaningful shift in the aggressiveness of Microsoft's efforts to capture the online consumer.
"This is a significant threat to AOL," Arlen said. "The powerful Microsoft assault is escalating. Recruiting Disney, and branding it, is the kind of thing that goes to one of the cores of AOL's young customers." Arlen also said that if the technology behind the "one-click" conversion is successful, it could transform the marketing fight between the online titans.
"If it works, it is a real sweet service," he said.
AOL officials are watching MSN closely but not fearfully, they said. The Microsoft campaign is the latest in a series of costly attempts to wrest subscribers from AOL, which offers its own communication capabilities and online forums that are not readily available from any competitor. Yesterday, while MSN celebrated its launch, AOL continued with the $100 million rollout of its souped-up software.
"We are flattered that they are taking a lot of the core features that built AOL," said JoeRedling, America Online's marketing president. "With the power of our brand, we continue to get our fair share of customers and grow the base."