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HOW MICROSOFT PLANS TO OUT-YAHOO! YAHOO!

Yahoo! Inc. (YHOO) may be the classic fleet-footed startup, but mighty Microsoft Corp. (MSFT) has achieved dominance by playing the tortoise, not the hare. Whether it's the Windows operating system or the Internet Explorer Web browser, both of which made real headway only in their third version, Microsoft has often succeeded more through persistence than through speed.

Now, the software king is setting its sights on the Internet's newest strategic prize: the portal, a super Web site that has so many services and so much info that it's the first place you visit on the Net. Microsoft right now is recasting its fragmented Web presence into one catch-all portal, after a six-month effort code-named Start.

The plan is to consolidate Microsoft's three separate consumer gateway sites into a single super Web site called MSN.COM and--after two mediocre tries--to finally turn the MSN brand into a cyberspace leader. About 2.5 million subscribers now use MSN for Internet access--far fewer than America Online Inc.'s 12.5 million. But by prominently featuring Microsoft's own popular Web sites, including Expedia travel and CarPoint auto sales, on the redesigned MSN.COM home page, the combination could be powerful, experts say. ''Maybe three times is the charm,'' concedes wary Yahoo Chief Operating Officer Jeffrey Mallet.

HANDS ON. He should worry. For starters, Microsoft's new site will match many of the convenient features offered by Yahoo, AOL, and others, such as instant messaging and advanced search services. But Microsoft also will exploit advantages that rivals can't easily match. Consumers will be able to get to the portal by clicking either the Microsoft Network or Internet Explorer icons found on almost every Windows PC, so Microsoft will get the first shot at newbies. And the software giant plans to spend $100 million to spread the word. ''This is the focal point of our Internet strategy today,'' says Pete Higgins, group vice-president for Microsoft's Interactive Media Group.

The project is so vital to Microsoft's future that Higgins, an 11-year Microsoft veteran, is handling it directly. His strategy: to do the same standout job of integrating Microsoft sites in MSN.COM as he did when he oversaw the stitching together of the company's spreadsheet, word processing, and database programs into the Office suite. Today, that package holds a 90% market share.

Can Higgins hit another grand slam? A repeat of such high market share is unlikely given the runaway performance of Yahoo and AOL. But experts figure Microsoft can wangle its way into becoming a top-ranked portal. ''If they can work it out, they will be a real competitor,'' says analyst Kate Delhagen of Forrester Research Inc. (FORR). ''And we think they'll figure it out.''

HUNGRY FOR ADS. Microsoft is hardly starting from scratch. Despite its missteps with MSN, some 30 million people visit Microsoft's consumer sites each month, just 10 million fewer than Yahoo. The Expedia site boasts 2.5 million regular users, who book $20 million a month in travel reservations, while CarPoint produces $250 million in monthly sales through auto dealerships. Lumped together, Microsoft's family of consumer sites ranked sixth in Media Metrix' July list of top Web properties.

But Higgins' ultimate success will depend on whether or not he is able to turn that huge audience into profits. While Microsoft's Web revenues topped $410 million during the fiscal year ended in June, much of it came from lower-margin Internet access fees--not more profitable E-commerce and advertising income. Indeed, analysts peg Microsoft's Web losses last year at more than $300 million.

The new portal strategy should help turn that around. Higgins expects it will more than double ad revenues. According to Jupiter Communications Co., Microsoft netted $20 million in Web ad revenues last year--one-third what Yahoo took in. ''Advertisers follow eyeballs,'' says Jupiter analyst Peter Storck. If so, the tortoise could be lacing up some track shoes.

By Steve Hamm in Redmond, Wash.



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Updated Aug. 27, 1998 by bwwebmaster
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