MICROSOFT ROLLS UP SIDEWALK, BUT THREAT TO PAPERS REMAINS

Local web guides no longer have a deep-pockets competitor, but ...

Two years ago this week, when we first took over publishing NewsInc., the Big Story was, "Is Bill Gates the enemy?"

It seems that at the 1997 edition of Connections, the newspaper industry's new media conclave, speakers had railed against the co-founder and chairman of Redmond, Wash.'s Microsoft Corp. They suggested that Gates was ready to wage war on newspapers, building on-line city guides by hiring away newspaper journalists and luring away classified advertising.

The future for newspapers, the speakers at Connections ’97 assured us, was grim.

Interestingly, 24 months later, the Big Story is somewhat different: Not only have the vast majority of newspapers hailed the second quarter of 1999 as "record," (see Senior Editor Pete Wetmore's story inside), but Microsoft sold its on-line Sidewalk city guides – present in 75 markets worldwide – to Ticketmaster Online-CitySearch Inc. (TMCS) of Pasadena, Calif., on July 19.

The reason? Analysts agreed that it was to allow Microsoft to focus on "more promising Internet businesses." The general belief is that Microsoft's costs were outpacing its income.

The $291 million deal, which provides Microsoft with a nine percent stake in TMCS as well as content for its Microsoft Network on-line service (MSN), doesn't include the on-line Yellow Pages or interactive buying guide businesses – just the entertainment, restaurant and local information guides.

Just the stuff that was losing money.

Were the 1997 speakers right in playing Paul Revere to Gates's British invasion force? Of course. Though the rhetoric was a little heated, the point was that newspapers were moving slowly on the Internet front. There is no question that a well-executed plan by a company with the resources of Microsoft could have eaten newspapers' lunch.

Fortunately for the newspaper business, though, Microsoft missed on that "well-executed" piece.

What went wrong for Microsoft? The conventional answer is that the technology company didn't know how to manage journalists. I find this mind-boggling for two reasons. First, I have worked with professional programmers for almost a decade and a half, and they aren't all that different from journalists. Second, Microsoft seems to have no problem running its MSN or MSNBC operations, both of which have journalists.

No, the real answer is that Microsoft didn't understand local news consumers. The coverage of "local events" in the Sidewalk sites was pretty sparse and though the entertainment stuff wasn't bad, in cities with good alternative weeklies that had their own web sites (or where TMCS was affiliated with a local daily), the print-oriented material beat the pants off the Sidewalk site.

The people who go to these sites want it all – they want the material to be fresh with an attitude and accurate. Sidewalk just didn't meet their criteria.

The sale of Sidewalk to TMCS is good news for the papers that have already affiliated with TMCS, because it folds the Sidewalk material into the TMCS site. For newspapers that were competing with Sidewalk and TMCS in a market, it is also good news: There's one fewer competitor.

But for the papers that were previously competing against just Sidewalk, they are now competing against a combined effort. And for them, although the enemy may no longer be Bill Gates, it is a formidable enemy nonetheless.

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Housekeeping notes: For those interested in my annual "why I bought NewsInc. and how I run it" essay, we invite you to find it on the Web at http://colegroup.com/newsinc/hooked.HTML. (While you're there, check out the recent improvements we've made to ColeGroup.com.)

And a seasonal reminder – NewsInc. publishes only 24 issues per year, so in the months of August and December we take little vacations. See you again on Aug. 30.

– David M. Cole

Inside ...

• Five have record results (low newsprint costs, high ad revenues)

• Connections has ideas for building successful franchises on-line

• ABC formally launches Reader Profile Service as NAA unveils NICC

• Ad sales growth expected to last to year's end, experts agree

• Web searchers need editors to make stories accessible

• Persons

From NEWSINC., Aug. 2, 1999, Copyright © 1999, The Cole Group. All Rights Reserved.