Quote of note:
"They began their attack on AOL 10 years ago," she said. "Since then they have lost billions, and now they are making money. It gives me a real sense of just how patient they are."
Microsoft's Online Unit Shows Signs of Life
By SAUL HANSELL
At an October 2002 gala to introduce Microsoft's MSN 8 Internet service, Bill Gates showed a video of himself wearing a butterfly costume and handing out software for the service.
His point was that after seven years of floundering in the Internet access market, Microsoft would do whatever it took to beat its longtime rival America Online. That included pouring $500 million into MSN to match AOL's most popular features and another $300 million into marketing, featuring MSN's butterfly mascot and a concert highlighted by rocker Lenny Kravitz singing "Fly Away."
But all that flew away was the better part of a billion dollars. Microsoft's share of the Internet access market has declined steadily since.
In the years since the start of what was first called the Microsoft Network, Mr. Gates has tried dozens of different business models, from Internet access to Web sites to monthly software subscriptions. They all had one thing in common: they lost money.
Over the last year, however, MSN has finally started to see some profits. The unit began making money last fall and is expected to post an operating profit of about $200 million for the fiscal year that ended June 30, compared with a loss of about $531 million last year.
The reason has little to do with any of Microsoft's more ambitious Internet strategies. Instead, it was one of the businesses that it had put on the back burner - Internet advertising - that really started to take off.
Even without a lot of new investment, MSN's Web site has long been the third most popular destination on the Internet, bringing together its Hotmail e-mail service, the MSNBC news operation and a variety of other channels. Recently, it has worked to repair a frayed relationship with Madison Avenue, putting the company in a good position to gain as the ad market rebounded. Over the last year, MSN has ranked second in online advertising revenue, behind Yahoo and ahead of the longtime leader AOL, a unit of Time Warner.
