Microsoft Advertising Should Survive Reorg, for Now

Insiders bracing for changes

Will Microsoft Advertising survive the company’s impending reorganization? Probably. But insiders are bracing for staffing reductions and reshuffling, with many wondering whether this shake-up will lead to CEO Steve Ballmer further outsourcing the business—an area that has never been the software giant’s core focus.

According to AllThingsD, Ballmer is planning to unveil a comprehensive reorganization of the entire company on Thursday. Per multiple sources, ad executives at Microsoft are nervous and in the dark, particularly given how poorly consumers welcomed Windows 8, the Windows Phone and the Surface Tablet—even though the company put so much of its 2013 ad focus on those platforms.

The company was betting heavily that brands would either gravitate to in-app advertising on the Surface or opt to build out robust apps of their own. But word is that Microsoft has been forced to pay developers and content companies to build apps for Windows 8 devices.

It may be marketing, rather than advertising, that takes a bigger hit, said insiders. While marketing has been decentralized of late at Microsoft, several sources believe that the marketing team will become recentralized and get smaller. One name being bandied about to lead marketing operations is Tami Reller, who heads marketing for the Windows business. That could be bad news for Xbox chief marketing and strategy officer Yusuf Mehdi, said a source. “That would signal Ballmer favoring Windows over Xbox,” this source said.

However, while marketing could see a shake-up, advertising may be relatively safe for now, said sources. Even though Bing has never put a dent in Google’s search share, it has kept its larger rival honest. Many believe that the only reason Ballmer has stayed in the ad business for so long was to keep Google busy and blunt that company's efforts to disrupt the software business—Microsoft’s bread and butter.

According to AllThingsD’s Kara Swisher, Qi Lu, president of the Online Services Group, could end up in charge of Microsoft Office as well—a possible signal that the company is looking toward a future when its software is monetized more by ads. Others have questioned whether Lu’s job is safe. Some are puzzled as to why Microsoft would further separate its display and search ad business from Xbox, the division of the company that seems to excite brands the most.

Another theory being floated is that Microsoft could execute its big reorg, spare advertising                                                                                                                                                                                                                                                                                                                     and then begin the process of fully outsourcing ad sales and operations to a company like Yahoo or Facebook. “That way you could take it off the books and still blunt Google,” said one source. “We know Zuckerberg would love to help with that.”

"I can definitely see Steve wanting out of the ad sales business and selling off assets there or partnering for someone else to do the selling against the MSN assets," said a former staffer. "But those deals do tend to drag."

Others question whether Facebook would want to touch Bing or the MSN portal at this point. And Yahoo seems to have other priorities at the moment.

“I think Bing is safe," said an insider. "It’s deeply ingrained into different parts of the organization, particularly Windows. It’s almost break-even now, and highly unlikely to go away. I really doubt they get rid of the ad business just because they need it to power Bing ads. I know Ballmer has tried to axe MSN many times, but it drives a large percentage of search share. But display and MSN could well be on the block.”

Another source cast doubt on that theory: “Shutting down MSN seems to be counter to the investment they've made. And what does it cost them to run at this point?”