MSN’s new service will make it easier for people to switch from AOL. The launch might seem strangely timed in a struggling ISP market, but higher MSN subscriber numbers will advance Microsoft’s Passport and .NET web services strategy. However, AOL is unlikely to take MSN’s threat lying down: an ISP price war may be brewing.
Microsoft’s MSN portal has launched a campaign to win subscribers from AOL.
Microsoft’s US ISP service, MSN, has launched a $10 million campaign to win users from the US’ largest ISP, AOL Time Warner’s America Online unit. MSN currently has 7.7 million subscribers, compared with AOL’s 34 million.
Once signed up, MSN’s new service will automatically notify a user’s contacts of their new email address, while transferring the contents of inboxes and calendars. The ISP will also give a $50 rebate to customers switching from AOL.
Making switching easier is definitely a good way to win customers: Datamonitor has found that 26% of US consumers wanted to switch telecoms provider last year, but failed because it was too difficult. As growth in the US ISP market slows (over 56% of US consumers already have home Internet access), stealing rivals’ customers is easier than persuading technophobes to go online.
But why would Microsoft want to grow MSN? ISPs currently make most of their money from access charges; particularly as barriers to switching are eroded, this will become an increasingly low-margin business. Especially as many broadband providers have gone bankrupt over the last few months, now seems like a strange time to aggressively attack the market.
However, Microsoft has a good reason to increase consumer subscribers: ISPs have significant control over their subscribers’ browser homepage, putting them in a strong position to offer premium content and eCommerce services.
Despite delays and security problems, Microsoft is trying to establish its Passport authentication technology and its .NET web services offering. Increasing the captive audience will boost initial uptake, which will then encourage still more people to sign up.
However, AOL will not be easy to displace. It also has strong financial resources, a first mover advantage, an eCommerce vision – and also has significant cable Internet assets and one of the strongest content sets in the world due to the Time Warner merger. It looks set to react to Microsoft’s move, putting a serious ISP war on the cards.
Related research: Datamonitor, 2001: ISP Customer Acquisition and Retention