How Microsoft played the numbers game to boost MSN

Independent support for 201 million claim less than threadbare

Analysis Microsoft's claims this week that the "MSN network of Internet services" has become the "No 1 worldwide Internet destination for consumers" on "multiple Web sites associated with the MSN brand" got plenty of publicity upfront, but how true were they? Specifically, the company claimed that its own count shows 201 million unique users visiting MSN during June.

On the available evidence, we don't think that the claim is true - although Microsoft may well become number one in the fullness of time, just as it eventually did with IE.

It's easy enough to see why Microsoft would dearly like to own the leading group of websites. MSN has been a disaster since it was first announced by Bill Gates in 1994, when it was code-named Marvel; Microsoft did not have the first-mover advantage it enjoyed with DOS, and despite many relaunches, MSN has lost a great deal of money in attempting to achieve market domination.

Steve Ballmer found himself landed as the caretaker for MSN when Pete Higgins left last year, and at that point became very aware of just how much Microsoft was losing. He hired Rick Belluzzo, ex-SGI, ex-HP, in the hope that he would turn around the consumer division, and diverted Brad Chase (who had been responsible for IE marketing) to MSN marketing.

The need to staunch Red Ink West

With Windows sales being essentially flat as a result of depressed PC sales and the Office suite in decline, it is becoming less and less acceptable for Microsoft to carry the considerable losses from MSN. These must by now be well over a billion dollars. A new market approach was needed for MSN, and since Microsoft tends to have a cavalier attitude towards market data - this was especially seen during the trial - it's not surprising that the company thought it would be a good idea to claim web site visitor leadership as a marketing ploy.

In the event, Microsoft made a number of mistakes in its execution of the plan, as we shall see. Microsoft knew that Yahoo would be boasting about its own leadership when it released its Q2 results on 11 July, and it wanted some cheery news to fortify its own Q4 results on 18 July.

Microsoft decided to set up a stunt in the form of a celebration of supposedly becoming the online leader. It was decided to hold a party on 17 July for some of the 1,000 or so MSN staff, with cake and champagne being served in the RedWest Commons area of Fort Redmond. An "international growth announcement" would be made for MSN. To ensure some press coverage, a photo opportunity was announced on 10 July, a week before the party, and the day before the release of Microsoft's Q4 results. There was to be a chance to take some snaps of consumer group vp Rick Belluzzo, Brad Chase, and marketing vp Yusuf Mehdi.

Research = Yahoo + n

Microsoft didn't have to decide what figure for online visitors to announce until after Yahoo had made its own claim, which was that it was the "world's leading global, branded Web network with more than 156 million users worldwide during June". Microsoft clearly decided that a substantial increase on this figure was needed, and knowing that there was no independent service monitoring Internet visitors worldwide, it thought it could get away with claiming 201 million visitors. Nielsen's Net Ratings, which covers some countries, unfortunately excludes so-called proprietary services like AOL.

Chase refused to elaborate on the MSN figures at the party, but he did admit that MSN was locally known as "Red-Ink West". He also admitted on CNBC earlier in the week that MSN had probably not met internal expectations for subscriber numbers.

To ensure good coverage, the story was leaked to the WSJ at least by Friday 14 July, because it reported that AOL and Yahoo had been asked to comment on Microsoft's claim on 14 July, but had declined to do so.

Chase was said in the WSJ article to have claimed that MSN had added "about 800,000 users in the quarter ended in June, and that the total now stands at about three million". But unfortunately for Microsoft, it had claimed in January that it had 2.5 million subscribers for MSN, so if 800,000 had been added it clearly must have lost 300,000 by churn, following promotions that offered incentives to sign up to MSN free for a limited period - something that neither Microsoft nor the WSJ mentioned.

Enter, the real numbers

A close look at Media Metrix's independent monthly data for US website visitors shows that from February to April, AOL was first, Yahoo was second and Microsoft third, but in May Microsoft squeezed ahead of Yahoo by some 450,000 unique visitors, although AOL was comfortably ahead of Microsoft by nearly 10,000,000 visitors.

It is particularly interesting that in February, Media Metrix data broke down the Microsoft data and showed that the total number of unique visitors to Microsoft sites was 43.811 million, and that the number visiting the various Microsoft sites was msn.com 35.885 million; microsoft.com 25.771 million; hotmail.com 17.126 million; msnbc.com 8.575 million; expedia.com 5.254 million; windowsmedia.com 4.554 million; and Money Central 4.303 million (although Chase claimed earlier this week to the Seattle Times that this was 14 million). Slate visitors may also have been included by Microsoft in its claim. It's noteworthy that only a quarter of Hotmail's claimed 67 million active users visited the site during the month.

The June Media Metrix US data were disclosed yesterday, and show that AOL remains comfortably ahead of Microsoft, with 59,124,000 visitors to Microsoft's 49,834,000, with Yahoo a close third to Microsoft with 48,421,000.

Microsoft has said in its defence of the 201 million claim that much of the increase has come from outside the US, but this does not stand up to careful examination either. It is generally recognised by analysts that with 23 offices outside the US carrying out localisation, Yahoo's global presence is considerably greater than that of MSN. Even allowing for Microsoft's recent marketing efforts and incentive schemes with Radio Shack and Compaq to promote MSN use, Microsoft's claim cannot be reconciled with any independent data. In addition, in the US, MSN has been criticised for not having local call access in many communities, and insufficient lines where it does have a port, since users often get busy signals. Internationally, the MSN network has far fewer nodes than AOL/CompuServe.

Microsoft apparently became a little worried that its claim was being questioned, so Microsoft's director of MSN marketing, Kumar Mehta, told Reuters on Monday afternoon after the 201 million figure that had been released that the figure did not include visitors to microsoft.com, which makes the claim even more suspicious, in view of Media Metrix having included it.

Microsoft has also made disputed claims for the average time spent by users on rival services. Media Metrix data also shows that MSN is far from having the leading websites so far as advertising impressions is concerned.

A better measure of the success of MSN would have been something about its economics, but Belluzzo was strangely silent on the subject, although he was "excited" that MSN had become "the top destination on the Internet". ®