Microsoft Goes Browsing With Dollars

SAN FRANCISCO (03/27/2000) - Microsoft Corp. has made no bones about its focus on the Internet. The company changed its 20-year-old mission from crafting software that runs on "a PC on every desk" to running "any time, any place, and on any device," pointedly including Net appliances. The importance of the Web and connectivity is a recurring theme of its executives' public addresses. So it should be no surprise that Microsoft is putting its money where its mission is: broadband and communications investments and acquisitions.

Dialing Up Broadband

A slow connection hinders you from getting online and spending time and money on MSN, Expedia, or other Microsoft-powered electronic-commerce ventures. So Microsoft is trying to jump-start the market with nearly $6 billion worth of broadband investments, more than $500 million in digital entertainment, and more than $1 billion in site-building and Web-hosting companies.

One of Microsoft's most dramatic investments occurred last May, when the company purchased $5 billion in AT&T securities "to accelerate the deployment of next-generation broadband and Internet services to millions of American homes." Under the agreement, AT&T plans to use Microsoft's TV software platform in advanced set-top devices.

Microsoft is continuing that trend. The company invested $50 million and holds a 26 percent stake in startup Gilat, which is developing two-way broadband satellite access. The company also provides VSAT, short for Very Small Aperture Terminals, which are small, software-driven antennas that transmit data, video, or voice via satellite.

But marketing is Microsoft's middle name, and its broadband investments cover that as well. For example, Microsoft has invested $200 million in Best Buy common stock. The retailer will demonstrate MSN in both dial-up and broadband connections, sign up new subscribers, and sometimes bundle Microsoft's Internet service provider with PCs.

Microsoft is partnering with Digital Subscriber Line service provider NorthPoint Communications (in which it invested $30 million) and Tandy/Radio Shack (a $100 million equity investment) on a similar bundling deal. You'll be able to subscribe to MSN and a broadband service in as many as 7000 Radio Shack locations by year-end.

"They're building a set of services with broadband," says Rob Enderle, senior analyst with the Giga Information Group. "They're in the tools business, and broadband gives them a different way to deliver the tools."

Microsoft's list of Web tools includes its instant messaging service MSN Messenger, the Internet Explorer browser, Media Player to provide streaming media, and Windows 2000 Advanced Server and Internet Information Server to run Web sites. And of course there's MSN (the portal) and MSN (the ISP). Microsoft has invested in wireless companies such as Nextel, OmniBrowse, and STNC, enabling Microsoft to provide MSN Mobile content on phones and other wireless devices.

Microsoft wants a Microsoft-sized chunk of a growing market. U.S. broadband sales are expected to swell from $767 million in 1999 to $7.4 billion by 2003, according to market researcher IDC.

Aside from mainstream broadband investments, Microsoft is investing to push adoption of its Windows Media Player as a streaming media platform. The company has signed a deal to deliver digital tunes on DiscoverMusic.com, the leading provider of music samples and data to Internet music retailers.

Browsing for a Deal

The Web is a whole new market for Microsoft technology. Not only do its broadband investments help Microsoft push its Web offerings to consumers, they also give it a new platform for existing products. That's part of the motive for moving desktop software, such as Office, to a Web-hosted environment.

To help with its software applications, a $10 million equity stake in Corio allowed Microsoft to begin rolling out Office online. When customers want to purchase Office applications online, Corio, for a monthly fee, provides access to applications and services hosted on its secure network.

Similarly, a recent deal with RealNames will let Microsoft integrate that company's technology for real name searches in MSN Search and Internet Explorer. Rather than type in the http://www prefix for a Web site, RealNames will let you simply enter a keyword in the browser window. In this case, it helps Microsoft keep up with online arch-competitor America Online, which already supports keyword searches of that type, notes Michael Gartenberg, vice president and research area director at the Gartner Group.

Gartenberg offers another explanation for Microsoft's vast investments, especially in new markets.

"One reason it invests is to find out what a company is doing," Gartenberg says. Drawing on its enormous cash reserves, Microsoft often buys stock in a company just to keep tabs on it.

More often, Microsoft invests to increase market penetration of its software, Gartenberg adds. "It invested in Apple to get Internet Explorer on the Mac," he says.

A Guide to Microsoft's Investments

Retail

Best Buy: Microsoft is investing $200 million and forging an alliance in which Best Buy will demo and sell MSN Internet access at more than 350 Best Buy stores in the United States and through BestBuy.com.

CompUSA: Unspecified investment.

Radiant Systems: The financials of the investment were not disclosed, but the two companies will join forces to allow retailers to conduct business-to-business e-commerce over the Internet.

Radio Shack: A $100 million equity investment and agreements to showcase its MSN in Radio Shack stores.

Streaming Media

Akamai: $15 million investment; will integrate Windows Media Technologies and Windows-based servers into Akamai's (a content delivery provider) network.

Audible: Undisclosed investment in the audio streaming provider.

DiscoverMusic.com: Investment in provider of music samples and data for use by Internet music retailers.

Encoding.com: Investment in the company that encodes, manages, and distributes digital media.

INTERVU: This service provider for Internet audio and video delivery is teaming with Microsoft for twin $5 million investments in DiscoverMusic.com, a provider of music samples and data to Internet music retailers.

ThingWorld.com: An undisclosed investment; ThingWorld will integrate Windows Media streaming media.

E-Commerce

Honeywell: Strategic alliance to accelerate the growth of Honeywell's MyPlant.com, an electronic hub for manufacturing industries. Microsoft signs on to help the company to become the independent e-hub for collaboration.

Microsoft also made a strategic equity investment in MyPlant.com.

Broadband

Asia Global Crossing: Joint investment with Softbank (combined $200 million minimum investment) to bring increased broadband connectivity to the Asian region over the next three years.

AT&T: $5 billion investment to further push Microsoft's TV software platform in advanced set-top devices. Both companies also plan to provide digital cable services.

BroadBand Office: $25 million investment in the provider of communications services, which intends to integrate advanced applications solutions for BroadBand Office customers across the country.

DSL.Net: $15 million investment; Microsoft will help the company deploy its network infrastructure to bring its small- and medium-size-business customers a cobranded MSN portal.

Gilat Satellite Networks: Microsoft made a $50 million investment and will initially hold a 26-percent stake in the new two-way satellite broadband company. In addition to its cash investment, Microsoft plans to purchase a significant number of very small aperture terminal units over a four-year period.

Global Cabo: $126 million investment to accelerate deployment of advanced broadband and Internet services to Brazil, through a partnership with the leading cable television operator in Brazil.

Intertainer: Investment in the broadband entertainment network.

NorthPoint: $30 million investment in the DSL provider.

NTL: $500 million investment in NTL to speed deployment of high-speed voice, video, and data services for national fiber-optic telecommunications networks in the United Kingdom and Ireland.

Portugal Telecom SA: $38.6 million investment, giving Microsoft a 2.5 percent equity stake in Portugal Telecom's cable and satellite television services company, which plans to launch broadband services.

Rhythms NetConnections: $30 million investment in the high-speed networking provider, to offer remote access and give Rhythms' customers access to Hotmail through a cobranded portal that also offers Microsoft Passport, MSN Search, and Windows Media.

Web Hosting

Interland: $5 million investment the Web hosting company.

Jato Communications: $10 million investment and agreement to deploy hosted applications for small and medium-size businesses.

Financial

CSI: Investment in the supplier of daily and historical information on stocks, options, and mutual funds.

Application Hosting

Data Return: $5 million investment in this company, which provides Back Office hosting; option to invest another $3.7 million.

Digex: Microsoft and Compaq will invest $50 million in convertible stock and warrants to purchase Digex common stock to fund a joint effort to develop, deliver, and market a suite of application hosting services based on Compaq servers and storage as well as Microsoft products and platforms.

Web Sites and Site-Building

CareerBuilder: $17.8-million investment; MSN access to the CareerBuilder Network, which provides online recruitment product and services offerings.

Jump Networks: Acquisition of the Web-based calendar services company; Microsoft used Jump's technology in MSN.

Keen.com: Investment in the site where you ask questions and are connected to those with answers over the phone.

RealNames: 20 percent equity stake, which will allow Web navigation using RealNames in conjunction with MSN Search and Microsoft Internet Explorer browser software to type in the name of a company without having to enter a URL.

VerticalNet: Investment creator and operator of vertical trade communities targeted at business-to-business users.

WebMD: $250-million investment in provider of Internet-based services and information for physicians. Microsoft and other Internet and health-care companies will make an additional investment of $150 million.

Wink Communications: A $30 million investment, and an agreement to promote interactive content.

Winstar Communications: Microsoft and Credit Suisse First Boston Equity Partners; Welsh, Carson, Anderson and Stowe; and Cascade Investments will invest $900 million to fund the company's business plan of helping companies get onto the Internet and expand its network, products, and services.

Software

Access Software: Acquisition of the PC golf games publisher.

Banyan Systems: Investment in integrated messaging and networking company; focus on interoperability and migration between Banyan VINES and StreetTalk, and Windows NT Server and Windows 2000 Server.

Commtouch: Undisclosed investment in the e-mail software provider.

Entropic: Acquisition (undisclosed amount) in firm that's developing technology for speech-enabled applications, promoting speech technologies, and advancing server-based telephony solutions.

FASA Interactive Technologies: Undisclosed acquisition; Microsoft gains exclusive electronic rights to the BattleTech stable of stories, games, and characters.

Inprise: $125 million in investments and payments, with a $25 million purchase of the software provider's preferred stock. Microsoft also paid Inprise $100 million for the rights to use its patented technology in Microsoft products and to settle a number of long-standing patent and technology licensing issues.

Corel now owns Inprise; Microsoft's partnership focuses on high-end Back Office tools that are not competitive with Corel's desktop suite.

Sendit: Acquisition; Sendit provides mobile Internet application server applications and operators for Global System for Mobile communication.

ShadowFactor Software: Investment in the manufacturer of Battlefield Communicator (BattleCom) technology, allowing multiplayer Internet gaming players to talk to one another instead of typing.

Softway Systems: Acquisition for an undisclosed amount; company makes Interix products for interoperability between UNIX and Windows NT operating systems.

Visio: Acquisition of this business diagramming and technical drawing software company.

ZOOMIT: Acquisition; ZOOMIT provides meta-directory products, and Microsoft will integrate its technologies into the Windows 2000 Active Directory service.

Web TV and Digital Entertainment

Concentric: $50 million investment, with a two-year extension of Concentric's current contract to supply network services to WebTV service.

Digital Entertainment Network: $26 million investment in this entertainment and information content provider; along with Dell, Cassandra Chase Entertainment Partners, Chase Capital Partners, and Lazard Freres & Co.

Rogers Communications: $400 million investment in this Canadian cable provider; Microsoft is also licensing its Microsoft TV and Microsoft TV Server to support at least one million set-top boxes and support Rogers branded e-mail and content services using MSN.

Digital TV

Peach Networks: Microsoft acquired this provider of services for digital television. This includes the Microsoft TV platform.

Wireless

Nextel Communications: $600-million investment in the wireless communications provider and a deal to offer a cobranded version of the MSN portal.

OmniBrowse: Acquisition of the wireless data services company, which specializes in applications for wireless handheld devices' content-delivery services; incorporated into MSN Mobile.

STNC: Acquisition; the company develops communication software for digital cellular phones. Microsoft will use STNC's technology for future digital cellular products that support Web access by phone.

Other

Giga Media: Unspecified investment.

ITRAN: Microsoft made an undisclosed equity investment in the developer of power line carrier home networking technologies, to allow enabling smart objects to be connected to each other easily.

United Global Communications: Unspecified investment.

United Pan-Europe Communications N.V.: Undisclosed investment.

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