The Long Goodbye?

Despite the missteps, Microsoft insists it's still serious about advertising. The ad world has doubts

Meanwhile, expansion is afoot. Microsoft plans to open an 18,000-square-foot space in San Francisco called Solution Studio 415 where brands and Microsoft staffers will brainstorm new ideas. Meantime, a second New York location is in the works. “We wouldn’t do that if we weren’t serious,” van der Kooi insists.

That depends on how one connects the dots. Most of the Microsoft Advertising unit isn’t found on the company’s famed Redmond, Wash., campus. Rather, most of the group works from offices an eight-mile shuttle ride away in Bellevue, a bustling exurb across the lake from downtown Seattle, tucked inside an office park amid fountains, seafood restaurants and high-end shopping.

It is quiet the week before Labor Day. A slight flavor of startup-ness fills the wood-paneled offices divided by floor-to-ceiling glass walls. A Connect Four game sits at a conference table, half-played. One by one, Microsoft ad leaders emphasize their goal of setting the agenda for the ad industry, while clearly weary of questions about the group’s commitment and ability to do so.

“The dawn of Windows 8 is really going to redefine the way consumers interact with brands,” says Holland, standing next to a whiteboard beside a wooden conference table as he sketches out the company’s ad strategy. Holland sees the online ad market splitting three ways: premium placements, traditional IAB ad units, and ad inventory that can sold by machines.

Later, at the same table, Jennifer Creegan, gm of display advertising experiences, articulates Microsoft’s plan to lead, not follow, regardless of recent history. “There is a wave we could ride in terms of the way the display market is going or we could create the wave,” she says. “We want to take the uncomfortable position of saying, this is where the market should go. We want to elevate the value of digital media.”

Creegan is talking about Windows 8, of course. But what does that have to do with advertising? Will we be seeing banner ads in PowerPoint, pre-rolls on the Windows startup menu?

Not exactly. Windows 8 revamps the traditional interface. Rather than the current program layers, a Windows 8 machine hosts large, uneven rectangular icons called tiles that cover the entire computer screen. (Imagine a cross between Apple’s iPad and Flipboard icons.) The tiles are live, meaning they are updated automatically with news, headlines, tweets and posts without requiring the user to hit refresh. If you’ve seen a Windows Phone, you get the idea.

There’s no question that Windows 8 looks gorgeous. And if users take to it—and that’s a big if—the new operating system could well make browser-based surfing and banner ads look obsolete. Even though 400 million machines are expected to be sold with Windows 8, the world has seen how Microsoft can stumble with a Windows rollout. (See Vista.)

In terms of how brands fit into the Windows 8 redesign, Holland sees a future in which advertisers build custom apps alongside Microsoft’s own apps for travel, news, weather and the like. In other words, an advertiser can buy its own tile, placing its messaging front and center in the operating system. And, of course, Windows 8’s own apps will themselves feature beautiful, non-banner-type ads. Five pilot advertisers have already signed on, though Microsoft declined to name them. “Ads are part of Windows 8, which is pretty big for us,” says Creegan, a 15-year Microsoft veteran, adding, “You think Ballmer doesn’t care about this?” (Ballmer declined to be interviewed for this story.)

Microsoft’s CEO might care about Windows 8, but few industry experts believe he cares much for display ads. And as former Microsoft employees tell it, that lack of interest lies behind some of the recent cuts in the advertising division.

“We’re definitely seeing a de-emphasis on the core display business,” says Sean Kegelman, evp, partnerships and ventures at Publicis digital shop VivaKi. One example of the downshift is the largely outsourced content of MSN, a property Ballmer has considered killing for years but one that is still a crucial traffic driver for Bing.

While the vultures anticipate the death of the ad unit, Kegelman is not among them. “I wouldn’t count them out of the ad game,” he says. “Windows 8 is the great unknown. But if they can execute, they’ve got a great start [given their huge footprint].”

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