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Would You Buy Paper Clips and Health Insurance Through Microsoft?
The software giant enters the already packed small-biz portal arena

Here comes Microsoft Corp. again. For all its resources, the software giant hasn't replicated its Windows success on the Web -- witness its portal's failure to become a top Internet on-ramp. Undeterred, it's charging into a new, already crowded cyber niche -- one-stop-shopping sites for small business.

Microsoft's, which launches Sept. 30, will confront over two dozen competitors trying to tap the 23-million strong U.S.small-business market by presenting entrepreneurs with a pre-selected group of merchants, sparing them the effort of sorting through the multitude of business tools and E-commerce services.

Entrepreneurs already have no shortage of portal options. Companies pop up almost daily -- some venture-capital funded startups, some with heavyweight parents like Citigroup and IBM -- offering a similar mix of discounted merchandise, small-biz advice, and services, liberally salted with Web freebies. Will Microsoft offer anything different -- and most important for customers will the 800-pound-software gorilla with bottomless pockets push out weaker competitors with better ideas? Microsoft's own description hardly sounds novel: "We aim to show them services that bring real results and create a bigger small business vision," says marketing director Deb Whitman. Moreover, the company hasn't been able to squash competitors on the Web the way it has in software.

That said, Microsoft does have one key advantage. Unlike many of its rivals (an informal Business Week survey has turned up 26 contenders), Microsoft doesn't have to cobble together offerings from disparate partners. will mainly repackage pieces of the company's empire -- centering on the 1.5 million-member LinkExchange, a Web-site management and ad-space barter service. To that, Microsoft will add its travel reservations and office-supply sales. The company may also use to sell its software in a new way - becoming an Application Service Provider or ASP, allowing cost-conscious small businesses to "rent" software they use occasionally, paying per use, instead of buying it outright. -- like other small biz portals -- will offer basic service and information for free. For anything more sophisticated, they'll pay a fee.

Whether the concept works as a business is an open question. Still, the rivalry between the players should play into budget-minded entrepreneurs' hands -- especially if the sites try to one-up each other with appealing freebies. After all, nothing prevents a user from darting in and taking advantage of the odd bargain without signing up for the kind of management services that would keep them coming back -- such as starting a corporate calendar or online bill-paying. "As a user, they need my loyalty," points out Kneko Burney, Manager of Markets & Opportunities at Cahner's In-Stat Group, a small-business research outfit: That assumes entrepreneurs actually want to run the guts of their business over the Internet instead of on their own computers. (Reluctance may partly be a function of slow Internet access.) Only 5% of small companies connected to the Web use Web-based software to manage their finances or payrolls, according to the Willard & Shullman Group, a Greenwich (Conn.) research company. Only one in ten manages projects and schedules via the Web. "Small businesses are ignorant about what's even available for them," says Eric C. Schmitt, Forester Research analyst covering e-commerce sites. "The biggest challenge [for the sites] is getting in front of them."

Entrepreneurs may find small-business portals lacking for another reason: Many identify with their industries -- and look for the goods and services they need through industry sources. They don't see themselves as generic small businesses. That's a problem Microsoft's LinkExchange already faces. It has pitched its services aggressively to business owners but mainly has lured individuals. "When we talk to people they talk about themselves in a specific business," concedes Whitman. "They don't say 'I happen to run a business that happens to have under 100 employees.'" Whitman hints at a hybrid strategy, which would include a catch-all site for small businesses, with mini-portals for separate industries.

How much entrepreneurs will embrace the small-business portal phenomenon remains to be seen. The giant of Redmond is throwing down the gauntlet with a nationwide radio and print campaign starting November. "The deep pockets guys are going to...make it difficult for the start-up guys to gain an advanatage," says Schmitt. "They can really spend them into the ground."

The outcome will boil down to how much small businesses want to be led to water -- by Microsoft or anyone else -- and whether they'll drink.

By Dennis Berman in New York



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