Microsoft Network (MSN) - Microsoft Builds Its Online Service

MICROSOFT BUILDS ITS ONLINE SERVICE

When Bill Gates decided in 1993 that Microsoft should launch its own online service, it was conceived as a private dial-up service on the order of CompuServe or Prodigy at the time. In such a "closed" system, all content—databases, bulletin boards, etc.—was stored on a private network and could only be accessed by paying subscribers via local dial-up numbers. In 1994, however, while Microsoft was designing MSN, the online world underwent a momentous change. The Internet, an incomparably larger network, was opened to the public. For the cost of a browser and a modest monthly charge, users could surf the vast network. The Internet rapidly began displacing the old private dial-up networks. Microsoft, however, was unable to react quickly to the change. When the Microsoft Network debuted in August 1995, it did not yet offer Internet access—a feature its primary competitors, like AOL and CompuServe, had already implemented. Nonetheless, because MSN bore the Microsoft name, most observers expected it to be a rousing success.

Microsoft was hard at work developing a Web browser and other software for MSN, and it planned to install them all on Windows 95, the new version of its best-selling operating system, due for release around the time MSN was going online. Microsoft's plan to integrate MSN into Windows created more problems, in particular an icon on the Windows desktop which enabled computer users to sign up with the MSN service with the click of a mouse. Competitors, like AOL, maintained that this amounted to an antitrust violation and asked the Justice Department to intervene. It was alleged at the same time that Microsoft intended to track MSN users' visits to competing software makers in order to follow up with advertising of its own. Three weeks before MSN's debut, the Justice Department announced its investigation.

The first reactions to the service were mixed at best. Its complicated graphics were slow to load, critics said. Its on-screen interface was a virtual carbon copy of Windows, which would be off-putting to some users. There was very little brand-name content, and most of that had to be paid for. Finally, by 1995 it seemed inconceivable that a service from Microsoft would not include general Internet access. Microsoft put a browser together—but it was only available in a special version of Windows 95 or with extra software that cost about $50.

When Microsoft Network opened its virtual doors Microsoft admitted that it expected the service to lose money during its first year of operations. By the end of 1995, MSN had more than half a million subscribers, which placed the service up with the industry leaders. Industry observers predicted that the service would grow quickly to three million or more subscribers by the end of 1996. However, MSN's early growth was staggeringly slow, considering that some 7 million copies of Windows 95 had been sold, each offering the ease of one-click access to MSN. The slow start led some of MSN's content partners to cancel agreements with the service. It also caused the Goldman Sachs Group., an investment firm, to remove Microsoft from its list of recommended stocks, sending the shares into decline.