MSN dreams of wireless domination

While Microsoft muscles in on the mobile handset business, its content arm, MSN, is also moving into the wireless services market, with a number of significant launches.

The first stop in MSN's short term mobile internet strategy is to deliver its most successful messaging applications, Hotmail and Instant Messenger, over SMS networks.

SMS is a tempting prospect because it offers the company a chance to finally extract revenue from the vast but unprofitable user bases for both services - Hotmail has 110 million users, MSN claims, but they don't have to pay MSN a penny.

Microsoft is currently striking deals with mobile operators to allow their users access to Hotmail and Messenger. They either charge users per message using reverse billing, or pay a licensing fee to Microsoft, which they then pass on to the customer.

Pilot versions of Hotmail over SMS in Denmark and Switzerland have only attracted "thousands" of users, but they have boosted the number of SMS messages those users send by an average of 27 per month, MSN claims.

There is no date announced for the first network to go live with Hotmail over SMS in the UK, but in January Telefonica announced a deal to offer MSN over SMS in 14 countries including Germany.

Vassili le Moigne, strategic development manager for MSN EMEA, told silicon.com at the 3GSM show in Cannes: "The deal with Telefonica was a real eye-opener for the mobile carriers. They are now looking at MSN as an entity that can really drive SMS traffic for them."

In six months the first SMS-based version of MSN's Messenger instant message service is expected to be announced, which will operate on a similar basis to Hotmail over SMS.

Microsoft has several advantages over the other companies that are bidding to bring SMS, email and instant messaging together, such as AOL, Yahoo! and Orange/France Telecom.

Microsoft has a massive installed user base, and it controls many of the operating systems on users' devices, from desktop PCs to a growing share of the PDA market. The company is shortly to launch an operating system for smart phones. Microsoft's mobile services are built to mirror the desktop Windows user experience as closely as possible.

Beyond the obviously profitable SMS-based communications services, however, the future for MSN is less obvious. The company has launched PDA-friendly versions of its portal in France and Germany and a UK version is due to go live within weeks, but the portal is unlikely to generate much revenue other than ad sales.

MSN has initiated a range of applications, which it will develop over time and eventually, the company hopes, generate significant revenue, though as le Moigne admits, it's a long-term game and the final goal is far from clear.

However, Le Moigne is sceptical of many of the revenue generation solutions being touted at 3GSM in Cannes by rivals, such as the enhanced versions of SMS like Multimedia Messaging Service (MMS).

He says: "Why should I spend $1,000 on a handset, so that I can send low-resolution pictures at $2 a time, when I can already get them on the browser of my Pocket PC? I see the handset makers and the carriers pushing MMS, but I don't see the end users demanding it."

However, with the scale of Microsoft, he can always hedge his bets. "If MMS does take off, then we can supply it though partnerships."

Likewise location-based services, another widely touted panacea for mobile operators. Said le Moigne: "It's technically difficult, with every operator adopting a different system, legally it's a nightmare and we don't know if the operators will ever open their systems up to third parties."

Rather than offer services that depend on the network to detect an individual's location, le Moigne sees simpler systems that get the user to type in his position himself as a better prospect.