The Cutting Edge: COMPUTING / TECHNOLOGY / INNOVATION : News Corp. Web Team Carries On

While executives from Microsoft Corp. and MCI Communications Corp. were enthusiastically touting their new strategic alliance to make money in the Internet business this week, the mood in a newsroom in lower Manhattan’s Silicon Alley was decidedly less sunny.

That’s where about 200 employees had been laboring for six months to produce content for a joint venture between MCI and News Corp. that was supposed to turn struggling Delphi Internet Services into a full-fledged online service on the World Wide Web.

MCI’s announcement that it was partnering with Microsoft--which last fall launched the Microsoft Network, a Delphi competitor--was understandably unsettling. Last May, the long-distance company invested $2 billion in News Corp., and the creation of a robust Internet service provider was touted as a central component of that plan.

The party line at News Corp./MCI Internet Ventures--the umbrella name for Delphi and other assorted Internet projects--is that except for a delay in launching the new service, business will continue as usual. Sources say the venture will soon gain a new partner, Oracle Corp., which will hold about 40% of the company, while News Corp. will own 40% and MCI will retain 20%. News Corp. and MCI had been 50-50 partners.

“While the grand corporate machinations continue, on the shop floor we have built a very large and sophisticated set of content, which the world is going to see,” said one employee. “There is no reason why we shouldn’t go on now.”

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Analysts agree that MCI’s latest deal is not a fatal setback. But that doesn’t mean the future of Delphi--which today claims a mere 2% of the online service market--is at all secure.

“They were in a pretty precarious position, even before” MCI announced its new partnership with Microsoft, said David Ludlum, director of business multimedia services for IDC/Link, a market research and consulting firm in New York. “There have just been constant delays in getting the service transformed,” he said, adding that he suspects that is part of what drove MCI to seek a new partner in Microsoft.

MCI said its Internet ventures are not a zero-sum game and that its new relationship with the Redmond, Wash.-based software powerhouse does not necessarily portend a withdrawal from its project with News Corp.

“We’re not going to put all our eggs in one basket,” said Frank Walter, MCI’s director of communications. But Scott Kurnit, chief executive of the joint venture, said he expects MCI to substantially reduce its stake in the project: “MCI becomes less significant to our venture, but we have other partners lined up who will become more significant.”

News Corp. acquired Delphi--then the fifth-largest computer online service in the U.S.--in September 1993 with the intent of creating an electronic newspaper. Last May, News Corp. and MCI announced a partnership that would combine Delphi with Internet MCI, Marketplace MCI and other Internet projects under the News Corp./MCI Internet Ventures umbrella.

A new and improved Delphi--originally scheduled to debut last fall--has been continually delayed, but a World Wide Web-oriented version is currently being tested and is expected to go live in the near future, spokeswoman Nancy Morrisrowe said.

“The launch plans have been pushed back because of Microsoft, but we are planning to launch very soon,” she said.

Before MCI and Microsoft made their alliance public Monday, Kurnit sent his staff an e-mail message explaining the deal and its implications. Later, an upbeat News Corp. Chairman Rupert Murdoch dropped in to the lower Manhattan newsroom to boost morale.

“People were very grateful when he showed up,” said an employee who attended the meeting. “He reiterated News Corp.’s commitment to being in this business. Most people felt reassured. . . . People weren’t dancing in the aisles, but they weren’t leaping out of windows, either.”

Those looking for evidence that the two companies will maintain a close relationship can take heart in last week’s announcement that News Corp. will help MCI exploit opportunities in the satellite television business after the long-distance company bid $682.5 million for a license in a government auction.