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Sludge Report #67 – Playing Monopoly On The NZ Web

In This Edition: Xtra and Microsoft Playing Monopoly On The NZ Web - The Worst Portal In New Zealand Online Media - Xtra’s Attempts To Be Everything To Everybody - So What Should Be Done?

NOTE: Authors of this report will be anonymous and wide ranging, and occasionally finely balanced. Indeed you are invited to contribute: The format is as a reporters notebook. It will be published as and when material is available. C.D. Sludge can be contacted at sludge@scoop.co.nz. The Sludge Report is available as a free email service..Click HERE - http://www.scoop.co.nz/mason/myscoop/ to subscribe...

Sludge Report #67

Playing Monopoly On The NZ Web

The news earlier this month that Microsoft and Telecom NZ are to shortly launch a new XtraMSN Internet portal fills Sludge with a sense of forboding.

World domination in the PC software business isn’t enough for Bill Gates it seems, he now has to also dominate NZ online-media.

As for Xtra: here we have a company that sells access to the Internet trying to dominate the media itself, while simultaneously knowing almost nothing about it . Xtra’s play could be likened to Carter Holt Harvey forming an alliance with a company that builds printing machinery and launching a newspaper publishing division.

And then there is the timing. And this is where the story gets really dirty.

Also in the news recently was an announcement from Microsoft that New Zealand is to be a test ground for a new method of selling operating systems.

For approximately half the $800+ price of a copy of Windows XP professional, from October 25th NZ Microsoft customers will be the first in the world to have the option of, "renting a copy” of the operating system for a year.

Microsoft, unsurprisingly, rather likes the idea of getting people to shell out every year for its operating systems. And where better to try out such an idea than a nice South Pacific back water with relatively toothless commerce laws.

However it is not just the rental scheme that worries Sludge – and it is worth noting that Microsoft says the WindowsXP launch will be bigger than the Windows 95 launch - rather as said earlier, it is the timing.

It is highly likely that the launch of Windows XP on October 25th will coincide with the launch of the new New Zealand XtraMSN portal.

Why is this important?

Because, and this is just a guess to be sure, but Sludge is picking that XtraMSN plans to leverage as much value as possible into its portal via the new operating system launch – an area where Microsoft has a clear unmistakable monopoly.

For years Microsoft has released its browsers with a pre-selected version of the “favourites” file – the list of commonly used websites – made up of its commercial friends, subsidiaries and allies.

Xtra for its part has also used the browser ‘s default settings and favourites file as a significant strategic tool .

If you have ever have the opportunity to set up an Xtra Internet connection using an Xtra supplied “100 free hours of Internet” CD you will know exactly what Sludge means.

The first thing Xtra’s “free” CD does - and Sludge understands around 19,000 kiwis a month are signing up to Xtra so we are talking big numbers of Broswer Xtrafications going on here – is install an Xtrafied version of the Microsoft Explorer browser.

This version of the browser has Xtra’s homepage as the default homepage. (In early versions of Xtrafied browsers Xtra went even further and disabled the normal facility to change the address of a users homepage.)

Before Xtra’s CD installs its own browser it first tells the user that their present browser software is out of date (even if it isn’t). And unless you allow the Xtrafied browser to be installed, you can kiss your 100 hours of free internet goodbye.

It is because of these tactics, the distribution of doctored browsers that Telecom’s Xtra has managed to achieve its remarkable success in the New Zealand based Internet online media industry.

According to ratings statistics maintained by Hitwise.co.nz Xtra is second only to Microsoft’s own portal (which benefits from the same dynamics – it is the default homepage in most operating system installs) as the most-read website by New Zealanders.

Now it would appear Microsoft and Telecom are planning to use their already dominant positions to again make a play for total domination of the Kiwi Internet media sphere.

This in itself would possibly not be quite so bad, were Xtra not so incredibly bad at what they do.

Not only are we destined to be dominated in our online media by a couple of blatantly monopolistic players in the industry, but we are destined to be dominated by people who lousy at online media. And the tragedy of this is that it will reflect badly on all of us.

The Worst Portal In New Zealand Online Media

Telecom’s Xtra portal is probably one of the worst examples of Internet vandalism Sludge has had the misfortune to visit.

This is, you need to remember, the first port of call for thousands of Kiwi Internet newbies, and so is therefore is not entirely a laughing matter.

Xtra’s failings reflect badly on the entire online media culture. For many Kiwi’s, this is online media.

So what do New Zealand’s Internet virgins discover when they get to Xtra.co.nz, the website that has been practically hardwired into their browser?

Well until a couple of months ago one of the things they found was a search engine that didn’t work on its default setting. (See… "Scoop" = "Seborrhoeic Keratosis" The default setting on the search dialogue box on the Xtra homepage has now, thankfully, been reset to search the Internet. However it is worth noting that in spite of the fact it did not work for four or five years, Xtra’s management team did not fix it.)

The second thing that Kiwi Internet newbies who visit Xtra will find, although they won’t know it, is that they are not in fact at a portal site.

The idea of a “portal” site - at least when the expression was invented - was that it would be an entry point to a range of Internet content. Yahoo is probably the best example of a genuine “portal”. Xtra on the other hand is not.

Rather Xtra.co.nz is a not very subtle attempt to dominate the Internet space for the benefit of its owner Telecom, and its friends, including Microsoft and its subsidiaries such as NineMSN in Australia.

There are innumerable aspects to the Xtra site that make Sludge nauseous, but for the sake of brevity only four will be mentioned here.

1. Whenever Telecom produces a profit result – the announcement, spin unmodified, becomes, surprise, surprise, the most important news story the day;

2. Xtra appears to operate on a “if-in-doubt-make-it-foreign” approach both to providing content and to developing online alliances. For example click on the Auctions channel on the front page and unsurprisingly there is no mention of the Kiwi startup trademe.co.nz, just a link to US based online auctions giant Ebay “On eBay NZ, trading is in $US (not $NZ)”. Similarly when it comes to e-commerce sites Xtra has its allies, this time it is Trader International Group, a group of trading websites allied with Mircrosoft Australia’s NineMSN;

3. Xtra – in the spirit of its “lets-try-to-do-everything-ourselves” philosophy - provides a “net directory” similar in some respects to Yahoo’s, or searchnz.co.nz’s. The main difference with Xtra’s is that it is low-tech ( entries in real web directories these days are ranked on the basis of popularity – Xtra’s directory is strictly based on a first come first served basis). The directory itself is hard to find. It is hard to find anything with (there is no media or news section for example) and hard to get listed in (fill in the form with your own website’s details like Sludge did and get the message yourself, “thankyou, your request will be processed within the next four weeks!”).

4. Outright amateurishness. Click on the “How Are We Doing? -Here's your chance to give the Xtra news team some feedback”, link and you might expect to find a user survey form, with boxes to write your comments in. Think again. Find yourself on a page headed “How Are We Doing?”. Underneath there is a single paragraph. “ We're keen to hear from you about how we can make the news site better; about your views on the news of the day, so feel free to:-. Email the editor with your comments, criticism and concerns. “

In general it is probably fair to say that the Xtrasite management teams’ philosophy is to use the site to attempt to “trap” users into using websites associated either with itself or its friends. The name of the game is to use its nearly dominant position as, “the homepage most New Zealanders are stuck on”, to extract as much commercial advantage as possible.

Everybody else can be considered a competitor. And as Xtra is dominant it has the right to treat everybody else in the industry with contempt, which is what it does.

For example, Sludge has heard that Xtra decided at one point in the recent past to approach the NZ Herald Online with a proposition. “We will provide links on our front page to your news stories in return for a share of your advertising revenue,” was the offer. Unsurprisingly the NZ Herald team told Xtra to naff off.

Xtra’s Attempts To Be Everything To Everybody

Following the launch of Xtra’s new “Out and About” section Scoop’s editor Alastair Thompson recently decided that some of the issues relating to Xtra’s domineering position in the NZ internet scene ought to be brought to the attention of Telecom CEO Theresa Gattung.

And so he wrote to her. The following is his message, followed by a response from a member of the Xtra team.

*********

From: alastair@scoop.co.nz>
To: theresa.gattung@telecom.co.nz
Subject: Dear Theresa,
Date sent: Wed, 9 May 2001 11:11:51 +1200

Dear Theresa,

I see today that Xtra has launched yet another online media service... this time an out and about gig guide.

This has prompted me to write to you as I think there is a fundamental flaw in the Xtra media business plan. I appreciate that from where you sit Xtra media is probably a long way away, but it is probably something that you ought to know about.

Effectively Xtra media appears to be attempting to be everything for eveyone in online media. It has a health site, a business advice site, a news site, a gig guide and god knows what else.

In every one of these areas it is competing directly with someone else either the little guys - websites like mine, the news website, scoop.co.nz, or others like NZoom and Stuff.

In every one of these areas it is I expect providing online media content in a loss leading, cross subsidised manner.

No doubt the Xtra team feel they are doing a great job in providing online content for readers. But I submit to you that In fact they are crowding out genuine online media offerings.

To use an analogy the Xtra strategy is a little like a paper manufacturing company - Carter Holt Harvey, or Fletcher Paper - getting into the newspaper publishing business.

As an ISP, Xtra benefits from their being a rich online content environment in New Zealand. The better the online content offerings are - the better the internet surfing experience for New Zealand surfers and Xtra subscribers..

The problems independent sites - like mine - have in earning revenue are considerable.

But they are made substantially worse by the conduct of Xtra and Telecom in the market.

I do not know if you are aware of this fact but Xtra - and it seems Telecom in general - appears to have an online advertising strategy that excludes advertising Telecom products - such as Xtra's own services - on third party online media.

In addition Xtra media has a policy of refusing to sell advertising space to other online media - Nzoom I understand was refused the right to advertise on Xtra around the time of its launch.

Finally Xtra also appears to have a policy of not linking - prominently anyway (with a handful of exceptions)- to other content providers.

All three of these policies make it considerably harder for online content companies in New Zealand to make a buck. These companies are ultimately both telecom customers - and providers of content to telecom subscribers.

In addition, because of its aggressive and monopolistic online strategies, xtra is in the process of making itself enemies in the online community. This too is counterproductive from a business point of view.

It may sound presumptuous and self-serving to suggest this but I suspect that Xtra would be far better off if:

- it scaled back its online content offerings to a simple directory like structure using its homepage as a portal (which is what it was supposed to be anyway I thought) highlighting the best content offereings on the net. It should attempt to be an impartial promotional service for the benefit of all content providers.

- it also spent some of the money saved on content production (which I bet is considerable) on online advertising on independent intenet content providers sites thereby 1. making itself friends and 2. improving the content offering on the net in New Zealand and thereby making the net in general more attractive to its subscribers.

While I appreciate you are very busy, I would love an opportunity to meet and discuss these and other matters relating to the intenet with you in person.

regards
Alastair Thompson
Scoop

*********

From: "Chris Thompson"
To:
Subject: Re: Scoop/Xtra/Telecom
Date sent: Thu, 10 May 2001 13:13:06 +1200

Dear Alastair

Thanks for your email. It has been forwarded to myself to answer. Xtra’s business model on the internet is to be a broad aggregator of information and services, not the originator of content. We are always looking for content provision relationships, and would be open in discussing such a potential arrangement with yourself.

Xtra is seeing strong growth in internet advertising revenues. We have recently hired additional media sales staff, and despite the dot com downturn are finding opportunities in the local market to generate advertising revenues. We do believe that the internet industry needs to work together to increase the appeal of internet advertising to New Zealand advertisers, and we are endeavouring to lead this approach by working with our competitors to establish common benchmarks and advertising standards across the industry. You may also be interested in supporting this approach by supporting the activities of CAANZ and other groups.

With greater than 90% of New Zealand internet traffic heading offshore, we believe the competition for viewing audience is global in nature, rather than purely local. However even the local competition is intense with many strong players - including media companies, ISPs, and vertical market operators. However, the pace of change will continue, and the industry will continue to re-invent itself at it's current frantic pace. Despite this, we do believe that the online business model is valid, and does provide returns to our shareholders.

Contrary to your email, Xtra - and Telecom - do advertise on many other online sites. The selection of sites is done via our advertising agency, Saatchi & Saatchi, on a cost effectiveness basis. If you are interested in selling advertising on your site to us, it is probably best to represent your site to Saatchis directly.

best regards
Chris Thompson
Xtra Marketing Director

*********

At this point you might have expected that rather than allowing C.D Sludge to launch the attack on Xtra that you are presently reading, Scoop – as a small struggling online content provider – might have more wisely approached Saatchi and Saatchi, and Xtra to see what could be arranged.

However My editor informs me that Scoop has approached both Saatchi and Saatchi and Xtra directly on numerous occasions. The response has usually been a, “we’ll think about it”, followed by a, “don’t call us we’ll call you”. And the call, of course, never comes.

Perhaps more importantly, before Scoop got around to replying to Chris Thompson's kind reply, the XtraMSN deal, and its associated $300 million Microsoft purchase of Telecom paper, was announced. In such an environment the views of a minnow as small as Scoop count, to be sure, not a lot. Clearly this is on juggernaut whose course is already well and truly set.

So What Should Be Done?

C.D. Sludge believes we have with the planned XtraMSN tie-up, coinciding with the planned launch of Windows XP, evidence of a clear plan by both Telecom and Microsoft to abuse a dominant position in the New Zealand online media market.

While legally speaking in the area of online media itself, Xtra and Microsoft may have a case to argue that they are not dominant even together, and that there are insufficient barriers to entry to warrant Commerce Commission action, no such argument can be made out with regards to the distribution of browser software.

In this area Microsoft at least has a clearly monopolistic position.

And so the Commerce Commission ought to immediately request copies of all agreements between Xtra and Microsoft, and scrutinise the plans of both Microsoft and Telecom around the release of WindowsXP in the New Zealand market.

Ideally a resolution could be reached surrendering control over the favourites folder in the WindowsXP browser – and all other hardwired facilities in the new operating system – to an independent Internet industry body.

Then an attempt can be made to ensure that all those involved in online media in New Zealand are given a fair go.

Anti©opyright Sludge 2001

© Scoop Media

 
 
 
 
 
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