Bill Gates recently heralded in Microsoft's newest rendition of its MSN online service. Despite the fanfare and typical Redmond brouhaha surrounding most Microsoft product launches, a sense of urgency prevailed.

In the week's prior to the announcement, rival America Online had peppered headlines with word of its upcoming client updates, and basked in its continued success as the number one Internet provider in the United States.

After spending years as a highly subsidized "money-losing" operation, MSN is emerging as a viable alternative to AOL, and has clawed its way to profitability. But Microsoft faces a waking giant in AOL, which is aggressively updating its client and broadband services rather than relying on past inertia.

BetaNews sat down with Lisa Gurry, MSN Group Product Manager to discuss the challenges facing MSN - present and future.

BetaNews: How dramatic a release is the new MSN over MSN 8?

Lisa Gurry: Over the last year, we realized that our future lies with our core competency as a company – developing great software and services – and the time was right to make a big bet for consumers. That bet is broadband. Not broadband access, but providing the best software and services to help customers make the most of their high-speed connection by empowering them with great tools that open the doors to new scenarios while making them more efficient. We've changed our business and our software to deliver on this bet.

MSN made smart investments in areas that consumers care most about. MSN Premium offers market-leading capabilities in areas such as persistent protection (no extra charge for desktop AV/FW from McAfee Security, Pop-Up Guard, strong junk e-mail protection), advanced communication tools (Outlook Connector, POP-3 integration, MSN Photo Swap via Messenger, Photo E-mail and Photo Story), and rich information services (new MSN Video, broadband optimized My MSN and MSN home page).

BetaNews: Why were version numbers dropped for this release, instead opting for the Plus and Premium monikers?

Lisa Gurry: We are constantly making improvements to our services today on a regular basis and will continue to do so. We do see value in packaging major product improvements, both for our customers and our partners. Over time, we will evaluate our product model to ensure we're delivering the best value to consumers. We will absolutely focus on delivering what consumers want and believe MSN Premium is the service that can best serve broadband customers today.

BN: AOL is parlaying the best features of AOL 9 Optimized over to its upcoming client software, and adding other new incentives for customers to stick with AOL. This will provide members with: spyware protection and enhanced spam blocking, open email access, a standalone dialer, and a souped up version of AIM with multiple logins and video conferencing. America Online is also providing its customers with a "light" version of its client software. Has this push by AOL caused MSN to modify or accelerate its future development roadmap?

LG: Our focus is solely on delivering what is important to consumers. The New MSN is based on customer feedback. We took more than 150,000 pieces of feedback and ran the largest managed beta program ever at Microsoft with 25,000 customers with MSN Premium. We're proud of what we're announcing today – we're bringing customers more services, more choice and more value.

BN: AOL has teamed up with Apple to deliver premium content from AOL music properties over iTunes. For instance, Sessions@AOL offers members exclusive sonic sessions from featured artists. MSN has prepped its own video service, and is said to be testing its own music store. How will MSN's approach differ - or offer a valued added commodity - to customers versus AOL?

LG: MSN will roll out a music download service in 2004. We have no further details to share at this time on our download music service; however, MSN Music currently enables people to discover their own world of music online.

MSN Music currently employs unique SoundsLike technology and expertise from the MSN Music groups, so people can find and listen to their favorite music, discover and purchase music all online with complete artist biographies, discographies, music recommendations, promotional downloads, album previews, Billboard Charts and news all at their fingertips.

MSN Music delivers the best way to discover new music through its impressive breadth and depth of music content. The service offers more than 20 music styles, each with a variety of subcategories, resulting in a broad range of music content and preprogrammed listening stations for all tastes. Using this unique music-matching technology, MSN Music provides a huge variety of music and delivers the following key benefits and features.

MSN also offers MSN Radio Plus; this $29.99 per year subscription service allows unlimited access to 250 commercial free streaming radio stations with improved audio quality and utilizes the "SoundsLike" technology.

BN: AOL is launching the low-cost Netscape Internet service to attraction demographics it says its regular service does not draw in. Customers will be able to dial using regular AOL access numbers for $9.95 USD /month. Has MSN abandoned the dial up market, or will it address AOL's expansion into new segments of the market? How important is broadband adoption to MSN?

LG: MSN Premium will work on both narrowband and broadband connections; however it is designed for the broadband customer. We believe the market is poised for the growth of these services as broadband is becoming more mainstream. Broadband users need and want smart services that can enhance their broadband connection. Because our services are designed for the broadband user and to provide a comprehensive, value-added package of useful services, we believe there is a market for these services today, which will become even larger over time. Consumers care about quality services, convenience and value – MSN can best deliver this combination.

BN: Will customers from ISPs such as Comcast realistically dish out the extra money each month for a BYOB MSN?

LG: We believe there is a growing market for premium Web services. Our research indicates that nearly 70% of broadband or broadband-intenders have heard about premium Web services and nearly 35% of these customers pay for premium Web services today, primarily virus protection and extra online e-mail storage (online financial info, online games, and junk e-mail filters are other top premium Web services).

We believe that the market is right for the growth of these services as broadband is becoming more mainstream and broadband users need and want smart services that can enhance their broadband connection. Because our services are designed for the broadband user and to provide a comprehensive, value-added package of useful services, we believe there is a market for these services today, which will become even larger over time.

We know that about 35% of broadband customers today already pay for a premium Web service, most of them are paying for services that are included in MSN Premium. We need to educate the market that MSN Premium contains a product value of over $400 – including services and features they care deeply about, such as persistent and comprehensive anti-virus solutions, advanced communication tools, and rich information services.

BN: According to recent financial statements, MSN has moved into the black. What contributed to this turnabout?

LG: MSN achieved operating profitability for the first quarter since it launched in 1995. MSN had a very strong quarter with 15% revenue growth year over year, attributed to success in our advertising business. MSN advertising revenue was very strong showing growth of 50% year over year. MSN's advertising success this quarter was due to growth in both search based advertising as well as brand advertising. Although MSN saw a decline in subscription revenue due to churn of its dial-up customers, as well as transferring broadband Internet access customers to Qwest, there was growth in the adoption of premium services.

We expect to see stronger growth of our premium service business when we launch a new wave of subscription services this winter. We're also looking forward to rolling out a new range of broadband services on our MSN network simultaneously. These efforts are critical components of our efforts to deliver the best communication and information services for broadband users.

Over time, we expect to see our overall subscriber base grow as our premium Web service business takes off. In the meantime, our existing dial-up business is a healthy contributor to our overall business and our strong advertising business and other investments, such as search, will help offset the transition time of our transition from an access business to focusing on premium services.

BN: What can we expect to see in future editions of MSN - specifically the Longhorn release? Also, will we see more ties into the Xbox gaming platform?

LG: We are definitely excited for the future of MSN, but do not have any further details to share at this time.