Microsoft Proves Itself to the Ad Industry With Netflix Deal

On Wednesday, Netflix announced that Microsoft won the top prize in ad tech and will serve as the streamer’s global advertising technology and sales partner as the company builds a much-anticipated ad-supported tier, which could debut as early as the end of this year. The partnership came as a surprise to the ad industry, which is used to seeing other software giants dominate ad tech. “The companies in contention for the business were Comcast, Magnite and the Trade Desk,” said co-founder of programmatic advisory Sparrow Advisers Ana Milicevic, citing the post-Cannes rumor mill; Google was also in the running for the job. “Everybody tends to forget about Microsoft in the space.” However, the pairing makes sense given that many of the major players in connected TV ad tech have media businesses that compete with Netflix: Google has YouTube, Comcast has NBCUniversal (and its Peacock streaming service) and Amazon has Prime Video. “Neutrality matters a lot,” Milicevic said. Indeed, the word “agnostic” was a key part of Microsoft’s pitch to Netflix, according to a Wall Street Journal report. The deal is a vote of confidence for Microsoft’s ad business, which over the past few years has trailed big tech competitors but was recently buoyed by its estimated $1 billion acquisition of Xandr from AT&T last month and a pending merger with gaming giant Activision Blizzard. Sources said the deal is a stepping stone for Microsoft to prove itself to the ad industry. Netflix Selects Microsoft as Partner for Upcoming Ad-Supported Tier “Microsoft is assembling the pieces to become the final avenger in what may be known one day as the quadopoly,” alongside digital ad behemoths Google, Facebook and Amazon, said Ross Benes, senior analyst at Insider Intelligence. “Account managers at video ad-tech firms who were unable to win this deal are crying in their beer this week, trying their best not to spill any on their blazers, jeans or leather shoes.” Microsoft and Netflix declined to comment beyond their initial announcement about the deal. Microsoft’s pivot back to advertising Fifteen years ago, both Google and Microsoft made big pushes into ad tech, spending billions to acquire DoubleClick and aQuantive, respectively. It was Google that was able to turn itself an ad-tech juggernaut, while Microsoft would end up selling part of aQuantive to Facebook four years later and writing off $6.2 billion from the deal. Google is the dominant search engine, another site for advertising business, capturing 92% of the worldwide market to Microsoft Bing’s 3.2%, according to StatCounter. But under CEO Satya Nadella, Microsoft has been creeping back toward the advertising space, particularly with the Xandr and Activision deals and the acquisition of LinkedIn in 2016. The focus of the company under Nadella makes it more conducive to be an ad-tech powerhouse, said Adam Heimlich, co-founder of ad-tech firm Chalice. “When Windows was their core business, the internet was either an appendage or a threat,” Heimlich said. “Under Nadella the core of the business is cloud and AI, and they’re coming back toward ad tech, and it promises to fit together much better.” However, other firms have had a head start. Rivals were making inroads with the connected TV business when Xandr, Microsoft’s core ad technology, previously in the control of AT&T, was on deck to be used to serve WarnerMedia content. But Xandr was never fully embraced by WarnerMedia, into which it was folded in 2020, and notably was not included in April's $43 billion WarnerMedia-Discovery merger. “Many others have been around for a very long time and have been built to support the streaming world,” said Tal Chalozin, CTO of CTV-focused ad-tech firm Innovid. “This is not to say anything [needs to be] built from scratch. The biggest question is about time.” Despite its lagging start, Microsoft offers many synergies to Netflix, including its global reach and footprint in gaming, an area Netflix CEO Reed Hastings has long coveted (Netflix launched its own gaming division in November 2021), Milicevic said. But Microsoft must execute if it wants to increase its share of the digital ad market, projected to be $240 billion in 2022 in the U.S. alone. The company will account for 3.7% of US digital ad spend in 2022, per Insider Intelligence. “The big thing is Microsoft’s record in powering media businesses,” Heimlich said, citing the company’s biggest hurdle. “There’s no doubt they have the capability and the personnel.”

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Microsoft Proves Itself to the Ad Industry With Surprise Netflix Deal

After a hiatus, the streaming partnership helps the company reposition itself as ad-tech leader

Catherine Perloff

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Catherine Perloff