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Thursday, September 02, 2004 - Page updated at 12:00 A.M.
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Exec details the strategy of response to Apple, iTunes

By Kim Peterson and Brier Dudley
Seattle Times technology reporters

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Microsoft has new push for multimedia
Yusuf Mehdi, corporate vice president of MSN, sat down with The Seattle Times yesterday to talk about the new MSN Music service. The following is an excerpt from the conversation.

Q. Is this something Microsoft decided to do because of Apple and iTunes?

A. We definitely would have done this on our own. We were on a path already to provide great music services and so the Apple effort didn't really change what we would have done.

Q. Why did it take so long for Microsoft to get this out?

A. I wanted to really take the time to make sure we shipped a quality service and to make sure that we had the breakthroughs on the ease of use, the support for the number of devices and to really nail the basics.

In my opinion, a lot of services have rushed out to market, have not been very good, and we've seen that from the lack of consumer enthusiasm. We didn't want to do that. I wanted to make sure that when we came out, since we weren't going to be the first out, we might as well be one of the best out.

Q. Why not the first out?

A. Apple had already gotten out before we had even thought about doing our own particular service. We weren't going to be first regardless.

So then the question was, how quickly do we need to get out? Do we need to respond in three months or should we take our time and build a great service on our own plan, and that's what we decided to do.

Q. When did you decide to sell music?

A. A year ago. We actually sat down with Bill (Gates) and Steve (Ballmer) because they were involved in the decision. It's a big decision to go to the point where we're actually selling music directly. We talked to them about it a year ago and we went back and forth on it. We showed them a prototype of what we thought we could deliver, and I think that really blew people away.
 
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Q. Is this going to be a major revenue producer in terms of advertising sales compared with search and other MSN areas?

A. The search business model is a multibillion-dollar business model for the industry today and probably will be for us at some point in the future. I don't believe today we're going to rival that with MSN Music service directly. I do think we'll drive significant advertising revenues and opportunities within this service in a pretty big way.

MSN Entertainment, of which MSN Music is a part, will be one of the top ways that we will drive revenue in the future.

Q. Is this a sign of a trend toward more consumer-based services at Microsoft?

A. We're going to take a very close look at the success we have on this MSN Music service and the learnings that we'll get from it. That may open up different ideas for us to pursue in the future depending on our success here.

Q. Do you think this will help you get more MSN subscribers?

A. I do think it will help us sell more premium services in general, whether it's MSN Premium subscribers or à la carte purchases of Hotmail Extra Storage features, because once you've bought something with us and you've filled out the information and given your credit card, if the experience is positive, then the ability to go and buy something else becomes just a couple of clicks.

Q. Why are songs priced at 99 cents? Wal-Mart and RealNetworks sell songs for less.

A. In our consumer testing, the price points show that below 99 cents — 49 cents, 79 cents — it doesn't matter. People are really making the decision there more on the ease of use of the service and their affinity for the overall brand that it's associated with. So we will be at 99 cents for the large percentage of all our tracks.

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

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

Copyright © 2004 The Seattle Times Company

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