Like Yahoo! before it, Microsoft is now offering free basic Web sites to local/small businesses.
I haven’t set one up so I don’t know how "robust" it is compared with what Yahoo! offers. It’s pretty clearly a kind of "foot in the door" strategy to get SMEs on board.
I’ve long believed that free Web sites could be an effective channel or way to get small businesses into paid search and other online marketing. It has to be both simple to set up and professional looking. Once the site is established, then there’s a potential upsell opportunity.
Web hosting is quickly becoming a commodity business, although switching is painful and inertia (especially at the SME level) probably means there isn’t a lot of churn.