worldís biggest software company almost
missed the hottest wave on the Internet. Again.
Nearly a decade after the Netscape browser
threatened Microsoft Corp.ís dominant Windows
operating system, Google Inc. did the same with
its search engine, which processes hundreds of
millions of queries a day and helped the company
generate $105.6 million in profit last year.
Microsoft has responded, spending some of
its $56-billion cash hoard to build its own
search engine, which it plans to release by the
end of the year and incorporate in the next
version of Windows, expected in 2006.
The focus on search is the latest sign
that Microsoftís MSN division has largely
abandoned its early mission of just providing
Internet access: Nine-year-old MSN is charging
for video streams of Major League Baseball games
and other content and is planning to launch a
store for music downloads this year.
Yusuf Mehdi, the Microsoft vice-president
who runs MSN, discussed Internet access, search
and advertising with the Los Angeles Times this
month at the D2: All Things Digital conference
in Carlsbad, California.
Youíve talked about an end-to-end
system for searching everything from websites to
e-mail to the files stored on your personal
computer. Whatís that going to look like?
"Itís probably too early to talk about
all those particular details, in part because
weíre still figuring some of them out."
Does the dominance of Microsoftís
Windows operating system give you an advantage
A lot of people think it does.
"I donít know why. Windows is an open
platform, from our perspective. For a long time,
weíve allowed people to choose the search
engine they want, and weíre going to continue
to do that. If people have a great search
engine, they can use it on Windows. We wonít
do anything to prevent it."
But if the next version of Windows lets
people search through all those things from
their desktop without even opening a browser,
wouldnít that make it tough on other search
engines that rely on people to visit their
"Without getting into specifics, people
should assume that Windows is going to be a
great place where anyone whoís got a search
engine can come and add value to consumers.
Itís important to the success of Windows."
Youíre investing heavily to compete with
Google. Whatís missing now from the
Internet search experience?
"Eighty per cent of whatís available out
there you canít get. Thereís data behind
private databases like Lexis-Nexis or Factiva.
If youíre a subscriber to a newspaper and you
want to get the premium content, you canít
even get that in your search results."
Yahoo has controversially started
accepting money from companies that want their
websites visited more often so that they are
more likely to be included in search results.
Will you do that?
"Weíre looking at that model and trying
to see if that works. But we think thereís
actually an incentive for people to want to give
you all their content. The problem with that is
itís hard to do."
You still sell dial-up Internet access.
How long will companies like MSN be able to
charge $21 or more for dial-up service, with
discount services like NetZero Inc. gaining
customers and high-speed broadband becoming
"Itís hard to say. A lot of people are
moving to broadband. But a lot of people are
staying. Thereís some 25 million people who
like narrowband and canít get access to
broadband. Thereís a lot of people who say, I
donít want to pay that money because price is
an issue. As for access, we have a small team
that is running that and managing that as a
profitable business. It has not been our
strategic focus for quite some time. Itís
different than EarthLink and AOL, who have said
they continue to believe in that market. If the
price of broadband gets down to about $25 or so,
then there will be dramatic change. Otherwise
our base is declining, but itís declining
fairly slowly. Itís not like itís going to
evaporate right away."
The last 18 months have been busy on the
digital music front, with Apple Computer Inc.,
Dell Inc., Roxio Inc.ís Napster, RealNetworks
Inc. and others selling music downloads.
Microsoft sells copy-protection software to
several of those companies. But why arenít you
rushing to sell music yourself?
"Part of it was we wanted to do as good a
job of balancing with our partner companies,
like Napster, to do a service and really empower
them with our Windows Media platform. The other
part about it is we wanted to take our time and
do a great job with it. There have been a lot of
music services that have come out we
wonít name names and theyíve just not done a
good job. Theyíre not very simple. Theyíre
hard to use. They donít work. They donít
have all the music. A lot of the basics that I
think are critical to making a service have not
been done, and they take time."
Do you worry that if you wait too long,
people will get set in their ways?
"Yes and no. I always like to move quickly
and be first. But itís so early. ITunes has
been a fantastic success, but theyíre only in
4 per cent of US homes. And thankfully Apple has
stuck to a single device, their own hardware
device, and I think thereís massive
opportunity thatís going to happen when people
have a choice of devices. Thereís a lot of
things that arenít yet done that we will
enable when we come out that will be big."
got a lot of heat for serving up ads related
to the content of messages in Gmail, its new
Web-mail service. Is it a bad idea to put
targeted ads in e-mail, or can it be done right?
"They came out and announced the strategy
and didnít really address a lot of the
concerns people had. I think thereís a way to
do things well, and I think thatís an
How much information do you collect on your
users? And what can advertisers do with
"Today we do not collect a ton of data. We
just donít have a good system (for targeting
ads to users). Itís a shame. Weíll have it
How do you do that without upsetting people?
"The most important thing ... is to get the
consumerís trust. One of the things that I
think companies like Amazon.com have done well
is that when they tell you they start to
personalise results and recommendations, you can
find out why youíre getting that data.
Thatís a great way to build trust with the
consumer and make them feel more comfortable
giving you their data."
Being able to opt out is an important part of
"Yes. Giving people control of their
data is a key thing."
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