Why Silicon Valley Can't Sell

Or, why luring big brands to platforms is its next big problem

No one talks more smartly (or more eagerly) about the need to build a better brand ad environment than the folks at Microsoft Advertising, but they’re doing so while trying to shed a reputation for ineptitude in the industry. Part of that reputation has come because the company’s byzantine structure for managing advertising sales has undergone multiple reshufflings in recent years; the latest resulted in longtime Microsoft supply chain manager Frank Holland installed as the head of the sales unit. (And yet even after the reorg, a chunk of staff responsible for many advertising services remains in a parallel organization, reporting to Online chief Qi Lu.)

Microsoft Advertising’s head of U.S. sales, Lorizio, who oversees a team of 180 selling everything from MSN to the Xbox, is candid about the difficulties. “We have not made it easy and scalable for buyers to be able to buy,” he says. Like its competitors, Microsoft attempts to make things easier for brand advertisers by absorbing much of the friction cost described by Google’s Mohan. Lorizio’s colleague Stephen Kim, for example, runs a creative team devoted exclusively to working with some of Microsoft’s largest advertisers, such as Lexus, on custom products.

Meanwhile, Facebook, the new kid on the block, is still trying to figure out exactly what it is, even as it floods the market with cheap display inventory and drives down CPMs for everyone. It has built its own custom creative unit, and Facebook’s David Fischer has a well-honed pitch on the value of social media for brand building.

But VivaKi’s Hecht suggests Facebook’s future path might lie in positioning itself more as a research platform than as an ad venue. “[They’re] definitely a consumer insight company,” he says. “They can survey at a census level if they’d like.” On the other hand, that risks the potential data overreach that angers users and invites government regulation.

Kenny, the VivaKi founder, is no longer in the advertising business, having become president of Akamai, the Internet traffic management company, in 2010. He’s also a recently installed Yahoo board member. He warns observers not to get too caught up mistaking a snapshot of what’s happening right now for the future, or even worrying about the $60 billion gap when TV itself is migrating toward the Net.

“Would there even be such a story 10 years from now about digital media, and television?” he responds, when asked to explain how the gap will be closed. “Because it will all be digital. And it will all have the capability of targeting, of segmentation, of better metrics, of new levels of engagement, of different kinds of interactivity.”

But the brands still have to follow, and Rothenberg isn’t as sure as Kenny that they will. “When all television is addressable,” Rothenberg says, “when magazines and newspapers are moving online, when that time online goes above 50 percent—if the brands don’t find what they want, then you reach a full-blown crisis.” If brands can’t find their customers—or worse yet, if the customers are spending too much of their time visiting places where, as Rothenberg says, “marketers are just simply uncomfortable following,” whole industries—but especially packaged goods—could be in trouble. Along with the media business itself.

Which brings us back to Yahoo, which built its business in the ’90s via ad banners, as a low-price CPM operation that reached mass eyeballs. Google trumped Yahoo by reaching even more eyeballs via search, then used text ads to drive banner pricing into the dumps. Now Google faces the same prospect for its burgeoning display ad business when it looks at Facebook. Yahoo is trying to go back to the hard work of turning itself into a more valuable and higher-margin media company—but it may be too late, a lesson the newer platform companies might want to note before the Next Big Thing comes along and makes it too late for them as well. On the other hand, if you’re Facebook and you have what seems like unlimited impressions growing faster than their cost is sinking, why would you? Especially with an IPO coming—the present values you too highly to worry about the future.