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Monday, August 1, 2005 - Page updated at 12:00 AM

Making online connections the Microsoft way

Seattle Times technology reporter

So you're home from a long day at work and want to catch up with friends online. Or maybe you'd rather update your blog and make plans for the weekend.

Microsoft isn't exactly the first place you would turn. But it wants to be, and in the past year has been developing online communities aimed at connecting people in ways it hasn't before.

The company has changed its thinking and now views those online connections as an important way to win loyalty and — eventually — more money.

It's a strategy that places unprecedented value on the Internet user as an online draw, and one that Microsoft's rivals have also recognized. The strategy also is aimed at increasing the already strong revenue streams in the company's MSN and home and entertainment divisions.

Not long ago, Microsoft's main push in this area was in its MSN division, where users could join groups devoted to genealogy research, motorcycles, cats and other topics. It was a stilted way of communicating but has remained active for years.

Microsoft went a bit further in 2002 with Xbox Live, a subscription service that allows people to play video games against each other online. But charging a subscription fee has limited the service's growth to a fraction of the Xbox players out there.

Now, the company is building online neighborhoods that are more accessible and organic. It's encouraging users to contribute content and enliven the services in ways that a staid software giant cannot.

In the past year, Microsoft has announced plans to open up much of Xbox Live at no charge. It has also launched MSN Spaces, a free Web-logging service. Last week, it rolled out a test version of an upgraded mapping service that will eventually feature restaurant reviews and other user write-ups.

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None of those services directly leads to more software sales. But each contributes to intangible benefits that are becoming more important to Microsoft: loyalty, buzz and customer satisfaction.

"When people join communities, it creates an affiliation, whether that's in the brand or the product," said Robbie Bach, a senior vice president at Microsoft and head of the company's home and entertainment division. "Those affiliations are strong, they build loyalty. They build a commitment."

Bach also heads up an executive committee at Microsoft focused solely on consumer issues. He said market data show that people want more ways to be connected.

"When the world is moving as fast as it is, and with people moving from town to town, there's a tendency for them to feel more disconnect," he said. "They all look for ways in their life to find that connectivity. All those things apply across the company."

Popular focus

Microsoft isn't the only company making an online home, and its initiatives sometimes are overshadowed by rivals' more ambitious projects. Apple Computer, for example, recently made its iTunes music program ground zero for the nascent podcasting movement by adding a directory of 3,000 free audio broadcasts.

Google is collecting users' videos for its video-search project and by last week was offering clips of birthday parties, bicycle races and vegan cooking demonstrations. Yahoo! has rolled out a number of features this year aimed at encouraging users to share information.

The companies all know the audience for these new features is growing. People are spending more time at home than ever, yet still want to interact with the outside world, said Scott Nelson, a vice president of research at Gartner.

"There is a growing segment of society that does feel, for whatever reason, that being in a home environment is the best way for them to deal with the issues of the world today," he said. But staying at home can make people feel cut off, he added, and going online can replicate experiences that occur in the real world.

Push from Gates

Microsoft's newest effort in this area is Virtual Earth, a mapping service championed by Chairman Bill Gates and fast-tracked as a result. The company promises it will vastly improve what it previously offered on its MSN Maps & Directions site.

Google recently intensified the competition with its Google Earth, a software program that delivers sweeping satellite views and animated driving directions. It also has made its Web-based Google Maps technology available to those who want to incorporate it into their own noncommercial Web sites.

The mapping technology is being used in new sites such as Seattle Bus Monster, at www.busmonster.com, which gives real-time information about bus schedules in King County.

Microsoft will make its new mapping system available under similar terms, said Tom Bailey, the director of marketing for the MapPoint division.

But unlike Google, Microsoft plans to encourage users to add content. Starting this fall, an avid hiker, for example, can post a layer on Virtual Earth showing the best trails. A parent could point out child-friendly restaurants in Bellevue.

Future versions of Virtual Earth would allow users to post reviews of restaurants, parks and other locations, adding an editorial component that could mimic some elements of Sidewalk, the online city guide Microsoft launched — and then sold — in the 1990s.

No one was sure that people would go online to give ratings for certain categories of businesses beyond restaurants, said Greg Sterling, an analyst with The Kelsey Group. But people are doing just that on such sites as the travel-focused TripAdvisor, he said.

"There are just a lot of different ways in which this user-generated content theme is going to continue to play out and become more and more significant," he said. It takes advantage of the viral and democratic nature of the Internet, he added.

Tie to Spaces

Virtual Earth will have a strong tie to another new Microsoft product: the Spaces blogging service. A test version of Spaces launched in December; by April, 4.5 million users had created a blog (though only 170,000 blogs were updated daily).

Now Spaces users have more than 15 million Spaces blogs, and some 500,000 are updated every day, according to MSN. Users would be able to pull some parts of their Virtual Earth postings into their Spaces blog.

Spaces still has a way to go before it overtakes Google's Blogger as the top blogging service. It ranked fifth in June, with nearly 4 million unique visitors, according to comScore Media Metrix. Blogger had nearly 12 million unique visitors.

MSN is planning to boost Spaces' popularity by launching social-networking features this fall. The service could compete with more established services, such as MySpace, Friendster and Orkut.

"You end up with a series of cascading relationships that get further away from you, at least from your closed circle of friends, but they're very important for you," said Blake Irving, a vice president in the MSN division.

Spaces is free, but users must deal with banner advertising at the top of the blogs. Similarly, Microsoft said that it will place some advertising on its Virtual Earth site.

Xbox Live still charges a $50 annual subscription fee, but that will change in November when the next-generation Xbox 360 console debuts. Microsoft is planning to offer free access to basic features, such as voice chat and messaging but will still charge a subscription to play others online.

Those kinds of connections will change the industry, Gates told analysts Friday.

"Video gaming will have gone from just being a thing you do in one location with just the people there to a far more social thing," he said. "It revolutionizes that business."

The subscription fee was such a barrier to entry that Xbox Live had only about one subscriber for every 14 consoles shipped. Microsoft wants half of its Xbox 360 players connected to at least the free services in Xbox Live, which will likely be supported by advertising.

Entertainment emphasis

Xbox is moving to more entertainment-related features in Xbox Live, Bach said. A user could play a song online for friends, who can listen, then chat about it, he said. Bach has recently been assigned to oversee Microsoft's digital music strategy.

"Part of what is powerful about communities is that they are self-reinforcing and they lead to self-recommend," he said. "Certainly it means that there's loyalty to the business we're building."

Microsoft has entered these areas partly because of what Google and Yahoo! are doing, said Michael Gartenberg, an analyst with Jupiter Research. The company knows it must provide services that are as good as, if not better than, what its rivals have released.

"It's not a surprise that Microsoft would want to stay on top of that trend," Gartenberg said.

"It's important for them to remain visible, on the cutting edge of this type of community-building, and to offer these services as a gateway to drive other sorts of services."

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2005 The Seattle Times Company

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