Microsoft: Ready to Rev Up Soapbox

The software maker isn't ruling out acquisitions to bolster its online video-sharing tool and there are plenty of would-be targets
by Catherine Holahan
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Microsoft's MSN Soapbox video-sharing site is unlikely to knock Google's (GOOG) YouTube off its pedestal anytime soon. Soapbox, which officially launched for public testing this month, has several interesting features and big brand backing. But it lacks what lured people to YouTube in the first place: originality. And, when it comes to online video, originality is everything.
With Soapbox, Microsoft (MSFT) lives up to its reputation for taking an existing product and adding often useful features, rather than being first to market. Think of how the Xbox game console helped Microsoft encroach on Nintendo (NTDOY) and Sony (SNE) turf (see BusinessWeek.com, 10/30/06, "Games: Console Wars").
Netizens Want the Real McCoy
True to form, Soapbox is arguably a bit fancier than YouTube. It lets users search for videos while simultaneously watching them. It also has a large player that makes viewing easier than on other sites (see BusinessWeek.com, 9/25/06, "Soapbox Works Up a Lather"). But ultimately, what worked for gaming consoles and other areas of tech has not worked for online video. Users tend to stick with the pioneers and shun the big-brand Johnny-come-lately sites like Microsoft's. "Unfortunately it just seems like Microsoft is just kind of a day late and a dollar short in terms of the Internet," says Walter Pritchard, a research analyst at Cowen & Co. (COWN).
Microsoft may well need to buy rather than build if it hopes to gain enough traction to rival YouTube and entice large numbers of advertisers. "The site is a copycat of YouTube," says Gene Munster, a senior technology research analyst at Piper Jaffray (PJC). "You can't build it. They have tried to build it."
Google went the buy route last year, acquiring YouTube after its homegrown video site failed to receive the same kind of attention the market-leading startup was garnering (see BusinessWeek.com, 10/10/06, "YouTube's New Deep Pockets"). News Corp. (NWS) also spent its way onto the field with MySpace.
Shopping for an Audience
Last year, Microsoft Chief Executive Steve Ballmer announced plans to spend more than $1 billion on MSN research and development. Rob Bennett, MSN's general manager for entertainment and video, says Microsoft has "looked at" making acquisitions.
Any acquisition would be first and foremost about gaining people who generate interesting ideas and second about technology, Bennett says. Acquiring additional audience would be a third, less important factor. "Audience is important, but it is also sort of fleeting," says Bennett. "There are plenty of cases where companies have bought audiences and squandered them."
Microsoft executives ran a slide rule over startup Revver, according to a Feb. 22 CNET (CNET) report. Revver executives deny that the company is for sale and Microsoft declined to comment on the story.
Optimizing Existing Users
Bennett points out that MSN, though it wants to attract new audiences, can grow by increasing the amount of time that its existing users spend on Microsoft sites. Overall, MSN has 465 million unique users a month. If MSN could get those users to be active on Soapbox and also entice their friends, the site would be successful, says Bennett. Bennett credits MSN's existing audience for the success of its blogging and social networking service, Live Spaces. Launched in December, 2004, Live Spaces now has more than 120 million unique users worldwide, according to Microsoft.
However, even if all 465 million MSN users each streamed one video a month on Soapbox, the site would still lag behind YouTube's more than 688 million monthly streams, according to comScore data. For MSN to become a top video site, it would have to acquire a company with a large audience as well as ideas and technology.
Possible Targets
Aside from Revver, Metacafe is another site rumored to be seeking a buyer. In the past, comScore has listed Metacafe as one of the top 15 video-sharing sites in terms of unique users. It has 17 million customers, according to Erick Hachenburg, an Electronic Arts (ERTS) veteran who took over as CEO earlier this month. The Israeli company just moved its headquarters to California. "We can innovate and come up with great ad products for the consumer," Hachenburg says.
Also in the mix is Veoh, which boasts technology that can show high definition–quality video. Another site is Guba, which has a smaller audience than some rivals but has video-screening technology developed in partnership with the Motion Picture Association of America that the company says effectively blocks uploads of copyrighted clips (see BusinessWeek.com, 2/1/07, "Video Sharing: Thinning the Pack").
The best acquisition would be a company that people don't know about yet that is doing something truly game-changing, says Cowen's Pritchard. "I don't see any reason why they shouldn't go out and buy a unique and early Web property every month, put together a collection and see if something comes out of it," he says.