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Microsoft Seeks Edge in Online Advertising
No one can quite agree on whether Microsoft Corp. held its first online advertising
summit in a conference room or a cafeteria, but what everyone does remember
is how little attention was paid to the field just seven years ago.
This year, Redmond-based Microsoft is expecting 700 people at its annual MSN
Strategic Account Summit, which comes as even the most skeptical advertisers
are realizing the potential -- some might say necessity -- of hawking their
goods online.
But although the field is hot, Microsoft has plenty of work to do as it tries
to persuade advertisers to go with its services, particularly when pitted against
market leaders Google Inc. and Yahoo Inc.
"Microsoft has long watched sort of on the sidelines as Google has built
up online advertising into a hugely profitable business," said Andrew Frank,
research director with Gartner.
Frank doesn't expect Microsoft to be able to play catch up immediately, but
he thinks the company has the potential to find a niche with Microsoft adCenter,
the online advertising platform the company is testing in some markets and plans
to roll out more broadly.
Microsoft has traditionally relied on a Yahoo subsidiary to deliver the ads
that appear alongside its search results. Microsoft's own platform will replace
that, although the software maker says the long-term plan is much broader.
With adCenter, Microsoft hopes to eventually allow companies to target specific
audiences, such as men between ages 18 and 25 who make a certain income and
live in the Northeast. Then, it hopes to be able to offer those companies the
ability to create a variety of advertisements that will reach across a wide
swath of mediums where it has a presence, such as its search engine, its television
platform and its online videogaming service.
Eric Hadley, general manager for trade marketing with Microsoft's MSN online
unit, insists he and others aren't losing sleep over the fact that it is still
in the early stages of its effort, while Google and Yahoo have recently impressed
Wall Street with upbeat profits.
Microsoft's MSN unit lost money in its most recent fiscal third quarter. Microsoft
also conceded that its investment in adCenter will hamper its ability to make
money on MSN in the coming quarter and next fiscal year ending in June 2007.
"We're not in for the sprint, we want to have the long-term play,"
said Eric Hadley, general manager for trade marketing with MSN.
Analysts say the hefty investment makes sense.
"Increasingly, they see that advertising is probably one of the best hopes
for them for revenue growth," said David Smith, another Gartner analyst.
The online advertising business is one of several areas where Microsoft wants
to significantly ramp up investments to spur growth, as the market for its flagship
Windows and Office products grows saturated and the industry increasingly appears
to be moving to more online software distribution.
At this week's conference, Microsoft will focus on the online content it has
to offer through its MSN site and other products as a way of trying to lure
advertisers to do business with it. The conference, on Microsoft's corporate
campus, runs Wednesday and Thursday.
In recent months, Microsoft has devoted considerable resources to boosting
online properties, including revamping its e-mail and instant messenger offerings
and investing in online mapping and other search technologies.
But Microsoft still has an uphill battle with its search engine. The company
only recently began using its own technology for delivering search results,
and it remains substantially less popular than Google and Yahoo. Nielsen/Net
Ratings reported that Google had 49 percent of the U.S. search market share
in March, while Yahoo had 22.5 percent and MSN Search had 11 percent. Microsoft
says it is working hard to improve the results its search engine delivers.
No one is expecting consumers or advertisers to immediately switch loyalties
to MSN Search en masse.
"The advertiser doesn't suddenly say, 'I'm not going to advertise on Google
or I'm not going to advertise on Yahoo because of adCenter's behavior,' but
they will say, 'To reach this particular type of customer I'm going to go to
MSN,'" said Shar VanBoskirk, an analyst with Forrester Research.