How and why Microsoft is breathing new life into MSN

At this week's Lehman Brothers Technology Conference, keynoter Steve Berkowitz, Microsoft's Senior Vice President of Online Services, made the reasons behind Microsoft's renewed appreciation for crystal clear.

Until recently, when Microsoft execs have touted online services as key to the future of Microsoft, they've almost always meant Microsoft's "Live" services.

But recently, I've started to notice Microsoft re-emphasizing the strategic importance of its portal to its overall business.

Earlier this fall, to the surprise of many, Microsoft opted to brand its "You Tube killer" as "Soapbox on MSN Video," rather than as "Windows Live Video." Then, at this week's Lehman Brothers Technology Conference, keynoter Steve Berkowitz, Microsoft's Senior Vice President of Online Services, made Microsoft's renewed appreciation for even clearer. currently attracts 465 million unique users a month, Berkowitz told attendees of the December 5 Lehman Brothers event. Rather than just abandon these hard-to-attract customers, simply because they prefer a pre-programmed entertainment-portal-style experience to a more geeky Windows Live one, why not try to steer them toward Microsoft's Live platform as it evolves? If you can convince users to take the time to enter their contacts into Live Messenger and their address books into Live Mail, you've got them hooked, Berkowitz reasoned.

At the same time, Microsoft is planning to position MSN "as the best partner for media companies" based on the fact that Microsoft "doesn't compete directly with them," Berkowitz said. Premium content, like video "needs to find a way to get aggregated," Berkowitz continued.

"We want to become the distribution point and aggregation point for our partners." Berkowitz used a mall analogy in explaining Microsoft's thinking in the online services space. "Our business model is we will own the real estate for the mall… and we get a fee on the way in and the way out," he told conference attendees yesterday.

Microsoft sees three potential online-advertising syndication channels, Berkowitz said: renting traffic (your ad on their site, a la Facebook); distribution deals (you host and own the traffic); and we build the portal for you (like Microsoft is doing for Quest Software).

Berkowitz -- who joined Microsoft earlier this spring from, where he was the CEO -- made some other interesting observations during his Lehman Brothers talk:

* Microsoft is grouping its Windows Live services into three uber-categories: Search/Inform (all the Windows Live search services go here); Communications/Connect (Live Messenger, Live Mail, Live Spaces); and Protect (Windows Live OneCare).

* Microsoft's ultimate goal with its destination is to flesh it out with its other core Windows Live services, like Mail, Messenger and Spaces.

* Microsoft has taken to talking about two kinds of search: Destination and convenience. Google and Yahoo pretty much own destination search (i.e., searches that are done by going specifically to a search page). But Microsoft believes it has a chance to make inroads in the convenience-search space, Berkowitz said, where search is more of a commodity, since the chosen search provider is simply whichever search engine that happens to be located on a certain device.

* Microsoft plans to integrate its core Live services into other existing Microsoft products, such as Xbox. What if you could have Xbox Messenger, powered by Windows Live Messenger. Berkowitz emphasized that Microsoft's goal will be to hook users in with "sticky apps and experiences" that will make them less inclined to veer outside the Microsoft fence.

* Microsoft is working hard on how to realize the idea of "your personal data cloud" -- a combination of software and services that will eliminate the need for users to be tethered to their laptops and other devices, he said.

"We need to aggregate audiences in a way that advertisers understand," Berkowitz said, in summarizing Microsoft's goal to turn and Live into a virtuous circle.

And in the end, all online service roads lead to advertising, Berkowitz acknowledged. The worldwide advertising is an industry that is two and a half to three times as big as the software marketplace, Berkowitz reminded Lehman Brother conference attendees. And that fact obviously hasn't been lost on Microsoft -- or its competitors.