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BusinessWeek: November 28, 1994 |
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Cover Story
MICROSOFT WANTS TO MOVE INTO YOUR FAMILY ROOM Most office workers spend their days with Microsoft--using a computer that runs Microsoft Corp.'s operating qystems and/or applications programs. Now, Chairman William H. Gates III wants to go home at night with them, too. From edutainment software for the kids to home shopping and interactive television, Gates is pushing Microsoft to the forefront of a new home-electronics revolution. It's an opportunity that Gates has had in mind for years. "The consumer market was part of the original vision," he says. "We now have the chance to make it come true." The first step was creating the Consumer Products Div. Launched last December to sell entertainment and reference titles on CD-ROMs, it has become the hottest growth area at the company's Redmond (Wash.) headquarters. It employs 650 full-time workers, is hiring hundreds more, and has hundreds of contract employees--programmers, artists, musicians--working on new disks. Currently, 60 titles are available, ranging from the Magic School Bus to NBA Basketball, and one new title will be added every week from now until next June. Early next year, the division plans to release Utopia, software to make using PC applications easy for every member of the family. An on-screen character will act as an assistant, memorizing which programs a consumer uses, for example. Utopia will also perform such functions as maintaining an electronic calendar. "Instead of mastering the PC, you're having an experience," says Patricia Q. Stonesifer, vice-president of the Consumer Div. The sweep of Gates's ambition in the home market is just now becoming apparent. In recent weeks he has laid out plans to buy Intuit Inc., the top seller of personal-finance software, signed a deal to offer electronic banking with Chase Manhattan Bank, agreed to jointly develop technology for electronic shopping with Visa International, and launched a $100 million advertising blitz. The latest addition to the company's four-man office of the president is Robert J. Herbold, a 30-year veteran of consumer-marketing powerhouse Procter & Gamble Co. He dreamed up P&G's system for tracking and predicting sales of dozens of products. Gates chose the Comdex computer show to outline his consumer vision. Before a packed house in Las Vegas on Nov. 14, he ran a film showing all sorts of gadgets--from dashboard PCs that handle videoconferencing to wallet-size computers for electronic shopping--that he says will be in use by 2005. At a press conference later that day, Gates officially introduced the Microsoft Network, the on-line service that will compete with companies such as CompuServe, Prodigy, and America Online. The network, scheduled to go live in mid-1995, will be a key "platform" for delivering an array of new Microsoft services. It will, says Gates, "become a reason to buy a home computer." NET APPEAL. That would represent a huge turnabout. While on-line services have more subscribers than ever, only about 5% of all PCs are hooked up, notes Nathan Myhrvold, senior vice-president of Microsoft's Advanced Technology Group and chief architect of the on-line strategy. Worse, he asserts, some networks still have 100% annual churn rate--meaning that while thousands of customers are signing on each month, thousands of others are dropping out. Microsoft has a new approach that Myhrvold says will make the network more appealing. To generate better "content," for example, the company is making its system more entrepreneurial and freewheeling. Instead of offering a broad array of services in the base price, the Microsoft Network will be more a la carte. Microsoft will charge as little as $5 per month for basic service--about half what the competition charges--and let companies that supply games, news services, or home-shopping charge whatever fees they feel are appropriate. These content providers, says Myhrvold, will keep most of the revenue. Existing services, such as America Online Inc., typically give content companies 20% of the revenue associated with their part of the service and forbid them from charging consumers a premium. "You're going to see a lot of innovation from us in on-line service," says Gates. Competitors are already seeing red. They say Microsoft will have a huge--and unfair--advantage when it starts shipping Windows 95 next year because each copy of the new operating system will include software to sign up for the service with a simple click of the mouse. That means that by mid-1996 some 10 million to 20 million Microsoft Network-equipped machines will likely be in use--vs. 6 million subscribers for all on-line services now. One of the complaining rivals is Apple Computer Inc., which bundles software to connect to its e-World network with every Mac. Because Microsoft has 80% of the PC operating-systems market, says Peter H. Friedman, general manager of Apple Online Services, "that brings into question restraint-of-trade issues." Gates says using Windows 95 as a distribution method does not shut anybody else out. So far, no word from the Justice Dept. on Microsoft's on-line plans. But the government, which earlier this year ended a Microsoft antitrust investigation with a consent decree, is reviewing the Intuit buy. Justice has asked for additional data on the deal, but Gates says the review is "routine." DIAL-A-SCORE. The Microsoft Network, which is to be built up over the next three years, may serve as the software maker's bridge to the Information Superhighway. Initially, it will operate on phone networks, but industry sources say it can work over cable-TV networks, too. That could make the service a means for delivering interactive TV. Already, Microsoft Baseball, a CD-ROM reference program, includes software to dial up an electronic newsletter with daily scores. In the future, that newsletter could turn into a video update, allowing you to scan for the footage you missed the night before. The Consumer Div. is developing CD-ROM packages for children that go along with TV programs. The whole consumer push, in fact, is entwined with Microsoft's plans for the convergence of computing and video. Microsoft is loading up on Hollywood talent, including some top technologists from Lucasfilm Ltd. They're cranking out CD-ROMs now but could someday make movies. Gates now travels to Hollywood to talk with Jeffrey Katzenberg and David Geffen, and industry rumors have Gates a potential investor in the new studio Katzenberg and Geffen are creating with Steven Spielberg. Says Gates: It's "easy to read too much into" his Hollywood visits. But he admits that he's on the prowl for more ammunition for the consumer market. Acquisitions, joint ventures, and other collaborations with consumer software companies and Hollywood studios are all among the options. "You'll see us doing a few deals every year," says Gates. Think of it as the second computer revolution. "The PC industry has come a long way, but that's nothing compared with what's going to happen," he vows. | |
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