Microsoft’s Online Strategy: What It Must Do to Compete

Microsoft (MSFT) has been scrambling in many markets, but has been particularly scrambling in the Internet segment, with Google (GOOG) dominating the online advertising space and MSN lagging versus Yahoo (YHOO) as a portal.

I have said before that the big money in new media is going to be in the verticals. Microsoft actually has a very good vertical presence in Finance, with their MSNMoney offering which I have reviewed recently as part of my Web 3.0 and Personal Finance series.

Another big vertical is Travel. Ironically, Microsoft HAD a great travel portal, Expedia, as early as October 1996. But they spun it off, took it public, and now Expedia (EXPE) is a massive travel portal getting 19 Million unique visitors a month. It has a market cap of $7.25 Billion. In between, Expedia had been acquired by Interactive Corporation and then spun out again. Expedia draws both transaction revenue and advertising revenue. The Online Travel vertical is a key segment to own for any player with ambitions of being a new media leader.

A third key vertical is Photo Sharing, today one of the foremost Communitainment categories. Microsoft doesn’t have a significant play in this segment either. There are potential acquisition targets like Shutterfly (SFLY), which is public, and numerous other private players.

Besides acquiring Ad Networks and Ad Agencies, Microsoft, if it wants its MSN to be a success, should pay attention to building up the verticals.