MS plans broadband control

Through a series of major investments, Microsoft is attempting to buy its way into the next-generation Internet business at every level, from the pipes that deliver content to the Web pages that are delivered.
Written by Matthew Broersma, Contributor

"This goes beyond just competing with other Internet players. This is competition for the overall back end of the Internet," said analyst Rob Enderle of Giga Information Group. "These infrastructure players may not necessarily be the thrones we see, but they will be the powers behind the throne. They may not be the Yahoo!s, but they'll be the powers who allow the Yahoo!s to succeed or not to succeed."

Microsoft is widely reported to be in talks to buy up to 30 percent of Cable & Wireless for a stake of around $4 bn (£2.5 bn), following a $5 bn (£3bn) investment in AT&T. The US telco, for its part, is poised to become the nation's biggest cable provider with an agreement to purchase the MediaOne Group; it already owns cable provider TCI, which is turn is the largest stakeholder in @Home Network, a cable-based, high-speed online service.

Experts say the deals should get Microsoft's foot in the door when it comes to the high-speed, or "broadband" networks expected to reach the mass-market in two or three years.

But Microsoft has bought into just about every technology that connects the living room to the Internet. Notable acquisitions include buying WebTV Networks, its purchase of a share of Comcast and its stake in Time Warner's RoadRunner, followed by a taking a 7.5 percent stake in French consumer electronics maker Thomson Multimedia, which owns the RCA brand.

The company has even made significant investments in digital subscriber line (DSL), a telephone-line-based broadband technology that competes with cable modems. For example, it recently sunk as much as $60 million (£37 million) into DSL provider NorthPoint Communications and $30 million (£19 million) in Rhythms NetConnections, which sells DSL access to corporate customers.

"To a certain extent, infrastructure providers, like cable companies, have control over what people look at on the Internet," said Jill Frankle, an Internet analyst at IDC. Frankle noted that those who use America Online as their ISP mostly go to Web pages promoted on AOL, or to AOL.com, one of the most popular Web sites.

Broadband providers not only control the "front door" users see when they go online, but, since they own the distribution mechanism, they can create a better user experience for sites they want to promote; if Microsoft positions itself well enough, those sites could include such Microsoft services as Carpoint, Expedia or Sidewalk. "They can control how much assistance you'll get on a site, how much bandwidth capacity you'll have access to, which relates to giving you a better experience," said analyst Enderle. "People will go where they'll have a better experience."

But competitors argue that consumer experience isn't all about technology -- in large measure, it's about content, and particularly branding.

Go Network, for example, the Internet hub that combines Infoseek's directory service with Walt Disney's online content, isn't worried about being shut out of the loop in the future.

"At the end of the day, our brand strategy protects us," said Patrick Naughton, executive vice president of products for Go. "If we were just a generic site, and the switching cost were minimal, it would be a concern. But you can't go anywhere else for Mickey Mouse or ESPN. ... People will go to the brand they want, just like they did with cable TV."

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