The Long Goodbye?

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

Whether or not Microsoft wants to be in the display business long term, the company is definitely pulling back on media offerings. Where the BEET team had created custom ads and original Web series for clients like Kraft before the group was jettisoned, Microsoft aims to entice outside creative agencies to use Windows 8.

"We see this as a whole new way of experiencing brands," said Stephen Kim gm of Microsoft's Global Creative Solutions team. "Those questions about whether we are committed to the ad business—that perception is so far from reality. We want to inspire the creative community to generate ideas we haven't even thought of." 

In other words, Microsoft wants to serve up beautiful brand messages—it just doesn’t want to make them. “Media requires custom-based solutions,” says one Microsoft media exec. “But things [like custom Web series] that aren’t scalable were really hard for Microsoft’s tech teams to support.”

Another challenge: While Microsoft ad execs in Bellevue demo Windows 8 on stripped-down Samsung tablets, most people will first see Windows 8 on their PCs, where the tiles are still unfamiliar and where mouse clicks rather than touchscreens rule navigation. Microsoft counters, naturally, that Windows 8 will really pop on the company’s forthcoming Surface tablet. But for the time being, Apple dominates the market with 84 million iPads—and not one of them runs Windows.

Then, there’s the widely held belief that portals are dying, meaning that Web users who live on social networks and blogs won’t unplug to surf to freestanding apps for weather and travel, for example. The same might be said for Windows’ ad apps in that they may look pretty but could struggle to draw visitors to what is essentially a microsite.

It remains a question exactly how many charter Windows 8 advertisers will sign on. One former Microsoft exec—one who agrees that Windows 8 will revolutionize computing—still doubts the product’s impact on the advertising side. “I don’t see how it gets any scale for advertisers,” he says, adding, “And I really don’t see the company investing in this brand business.”

Essentially, Microsoft is betting its entire ad business on devices and software that hardly anyone uses yet, rather than say MSN, which has 123 million users, per comScore. (though MSN is expected to be relaunched to look like Windows 8.)

Veteran Microsoft execs all say the same thing: Ballmer got into the ad business only because Google launched its own Windows-threatening, ad-supported business software under the Google Apps umbrella in 2007. Also, the search giant offered free alternatives to Microsoft products with Google Docs and Google Spreadsheets. Amid shrinking profits for Windows, Google was said to have earned $1,500 to $2,000 per PC based on some internal Microsoft estimates, and its search side drove greater ad conversions than Microsoft. "There was this deck floating around back then warning that Google was going to monetize pretty much everything with advertising," recalls one former Microsoft ad official. "That got a lot of attention."

Back in Bellevue, Holland acknowledges the faded hopes for adCenter as the ultimate, industrywide ad-targeting and decision-making engine—not to mention pubCenter, which promised to handle Web publishing’s technical needs but which went nowhere. (In a sense downgraded several weeks ago, Microsoft adCenter was rebranded Bing Ads to reflect its diminished role as the ad monetization technology for Microsoft’s search engine—and not much else.

However, to be fair to the adCenter saga, "it is a billion dollar business," argues one former Microsoft executive.

And for now at least, Microsoft seems to have abandoned its quest for ad tech players. From 2006 to 2010, the company spent at least $7 billion on the companies Massive Inc., ScreenTonic, Rapt, Powerset, AdECN and, of course, aQuantive.

The $6 billion aQuantive purchase “was a completely defensive move, and they paid a crazy premium,” says one longtime Microsoft exec who laments that the investment stopped there. “We put it in a drawer. We had been screaming, ‘Let’s buy DoubleClick!’ Instead, we bought aQuantive. Remember, Microsoft had a lead over Google in display at the time.”

Still, van der Kooi downplays the inflated purchase price. “This write-down was really just an accounting position,” he says.

These days, Microsoft is handling things differently, investing in companies like AppNexus rather than getting mixed up in wholesale acquisitions; some wonder whether the company might even look to sell Atlas to AppNexus. And while it may look from the outside as though Microsoft remains committed to the still-struggling Bing, insiders commonly theorize that Ballmer supports it as a diversionary tactic, to keep Google from deploying an army of engineers to take down Windows.

“We take a very long view on the business,” argues David Pann, gm of Microsoft’s search network. “The pace at which we are innovating is just amazing. We’re making huge strides on the monetization gap [with Google].” Pann sees product like Windows Phone and even Skype helping increase Bing's share. Perhaps, but Google still commands over 60 percent of the search market, per comScore, a position that Bing has never come close to threatening.

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