Does Microsoft Have Digital Ad Biz’s ‘Holy Grail’?

Microsoft is heading into Advertising Week looking to capture the ad industry’s attention by laying out a sweeping vision for the online advertising market and the integral part it plans to play in it the future. The company was already facing a somewhat skeptical crowd when rival Google turned the pressure up a notch last week by announcing details of its online ad exchange.

The software giant’s ambitions are grandiose, to say the least. Microsoft already has its own fledgling exchange, its own ad network, ad server and proprietary ad delivery product. The next goal is to build an ad platform that the entire industry could use, on every screen. That platform promises to elevate display ad targeting to the level of performance that search enjoys. The message seems to be, ‘If you like what we’ve done with Bing (Microsoft’s recent well-received search engine launch), watch what we can do with banner ads.’

As if that weren’t lofty enough, Microsoft is also offering to eliminate all the digital publishing industry’s logistical ills, by building a set of tools that all sorts of Web sites can use to handle data, trafficking, ad delivery, pricing, etc.

In an interview with Mediaweek, Scott Howe, corporate vp, Microsoft’s advertiser and publisher solutions group, laid out the company’s far-reaching plans by invoking the company’s core software triumph. “If Windows is the operating system for our online applications, what we’re trying to do is create a user intent operating system off which everything else can sit,” he said. “We kind of look at this and say this is the most ambitious software engineering project ever undertaken.”

At the heart of that undertaking is the plan to build a product that can figure out exactly what ads Web users want to see and when. “At the core, the most important thing to us is mining user intent,” Howe said. “What does a user really want to see in the way of advertising.”

That’s easy in search. But intent is not so clear on content sites or social networks. “If Bing is step one [for Microsoft Advertising], step two is extending that engine to power the ads that someone sees across all display ad formats, and multiple devices,” Howe said.

But isn’t that what behavioral targeting has promised for a decade? Not exactly, explained Howe. “When people talk about behavioral targeting, often they’re talking about flat display formats on a PC—and we’re talking about across all digital devices. And so, by having this engine power all the different things holistically, we’re actually in some respects unlocking the Holy Grail of marketing.”

Microsoft is more vague on exactly how far along it is in this endeavor. No formal product launches or partnerships appear imminent. And the company has been talking about several of these concepts for a while; Howe’s predecessor Brian McAndrews delivered a keynote address in early 2008 during which he predicted that Microsoft and Google would emerge as the industry’s only two ad operations giants, managing vast warehouses of data for advertisers. Earlier this year, Howe announced that Microsoft had formed a consortium of publishers who agreed to start testing a suite of tools under the label PubCenter.

As with any Holy Grail quest, there are believers and skeptics. One top Web publishing executive expressed serious doubts about whether publishers would be willing to place their operational needs in the hands of a competitor. “The idea that everyone is going to hand off all of their back-office stuff to Microsoft is beyond unlikely,” he said. “And just wait until the U.S. Government gets involved.”

David Moore, chairman of WPP’s 24/7 Real Media was also skeptical about the advertising side of the equation, particularly the exchange model. “If they make it easier to buy display advertising, there is value in that,” he said. “But it’s hard to see the top hundred publishers selling their inventory this way. Plus, it will be very hard for Microsoft to remain agnostic.”

Yet Curt Hecht, president of VivaKi, which has committed to work with Google’s ad exchange, said he was watching Microsoft’s plans with keen interest.

“In the display marketplace, they have the pieces,” said Hecht. “You can see the path they want to go down. I would take what they are planning very seriously.”