Microsoft Wants More of That Booming Online Commerce Action

Bidding to become more of a central player in the booming business of online shopping, Microsoft announced Thursday a broad e-commerce strategy based on several products and services designed to make it easier for companies and consumers to buy and sell over the Internet.

The market for electronic commerce, pioneered by companies such as Amazon.com, is expected to explode in coming years. Cambridge, Mass.-based Forrester Research estimates $1.4 trillion in transactions will be conducted over the Internet by 2003, up from $43 billion last year.

Microsoft got off to a slow start in e-commerce, much as it did with the Internet itself in the early 1990s, and online shopping is a key marketplace the software giant does not dominate. But the company has a history of becoming dominant once it focuses its efforts.

This new, wide-ranging strategy, which puts Microsoft in direct competition with dozens of companies, including America Online and IBM, stretches from building its MSN portal site into a giant shopping mall to providing all the software that companies need to sell online.

“We believe millions of businesses will sign up to this approach in the coming years,” said Microsoft Chief Executive Bill Gates at a San Francisco news conference where the company unveiled its initiative. “We are seeking to expand this market by a factor of 10, not just increase market share.”

After spending more than $1 billion to develop its presence on the Web, only to generate a steady flow of red ink, Microsoft is intent on turning its collection of Net properties on the MSN Web site, such as the Expedia travel service and CarPoint auto mall, into a profitable vehicle for e-commerce as well as a showcase for Microsoft’s new line of e-commerce products.

“MSN has suffered for some time from neglect,” said Rob Enderle, analyst at Giga Information Services. With this initiative, he said, MSN will generate revenues from providing e-commerce services as well as become a test bed for Microsoft products.

Microsoft’s key technology initiative is BizTalk, a set of standards to be introduced later this year that would make it easier for manufacturers and merchants to send product and promotion information to a new online shopping directory on MSN.

The software giant will upgrade its software for online businesses, called Commerce Server, later this year and provide tools and services to enable retailers and small businesses to establish online commerce on MSN and to promote their sites on the Web with a few clicks of a mouse.

The company also said it is developing an online “Passport” system that would include shipping, credit card and other information about each consumer so that Internet shoppers need register only once to get access to participating sites and make purchases without filling out a lot of forms.

Microsoft also announced it has acquired CompareNet, a service that helps consumers do comparison shopping on the Net.

MSN’s history has not been a proud one for Microsoft. Launched in 1994 as a proprietary online service, MSN went through several incarnations, including one as an Internet service provider and another as a provider of online entertainment. At each turn, business partners were tossed aside, employees laid off and consumers confused.

Last fall, Microsoft combined its disparate sites and settled on its current strategy of becoming a “portal,” or entry point to the Web, in competition with Yahoo and AOL.

The portal strategy has generated results as customers of such popular Microsoft sites as Hotmail, its free e-mail site with 35 million users, have helped direct visitors to other Microsoft sites.

Microsoft now reaches more than 40% of all Internet users, putting it in third place behind AOL and Yahoo.

“After a couple of false starts, they are finally getting it right,” said Tim Brady, vice president of production at rival Yahoo. “They are a savvy competitor.”

But Brady argues that Microsoft’s effort to tie MSN more closely with its software products in the e-commerce area could be its undoing.

“It’s going to be very difficult to serve two masters,” said Brady. “Consumers on the Web are completely unforgiving. To serve them, in addition to writing software for everybody and avoid conflicts of interest, is difficult.”

IBM, for its part, is confident it can fight off Microsoft’s intrusion into the “back-end” business of developing e-commerce systems for small and large businesses.

Developing e-commerce systems is a services business that involves connecting computers from a wide range of vendors and making them robust enough to handle huge volumes of business.

“These are not historical strengths of Microsoft,” said David Liederbach, director of e-commerce marketing at IBM. “We are coming from a position of strength.”

But Microsoft’s new strategy could be a critical ingredient to finally enabling MSN to turn a profit.

While MSN has “a substantial aggregation of eyeballs,” said Kevin Werbach, managing editor of Release 1.0, an industry newsletter, it still isn’t enough to turn a profit simply with advertising, as Yahoo has managed to do.

Still, while Microsoft may not dominate the Internet as it has the desktop, most analysts expect the software giant to use its deep pockets and software skills to emerge as a key player.

“I would never bet against Microsoft,” Werbach says. “Microsoft has always been good at constantly evolving and getting better. The fact that they’ve made some wrong turns is not as much a negative as it would be for other companies.”