Microsoft has a lofty goal. Within the next 4 to 10 years they look to have advertising account for 25% of Microsoft’s business. Based on recent revenue that would be upwards of $12 billion dollars a year. That represents a couple billion more than Google made in total last year. Think about that for a moment.
Why the sudden interest in advertising? Well to start you can look at the strides Google has made in the space with the AdWords model over the past few years. Combine that with Steve Ballmer’s view that there is an increasingly blurry line between software, media, and advertising and the fact that Microsoft spends $3 billion a year on advertising it’s various products and brands and you can begin to see why this is becoming such a central focus within Microsoft.
It’s great to have a goal, so the next question is how will Microsoft strive to achieve a 12 billion dollar yearly run rate? It will be a major transition going from a software services model to a marketing-services/audience company. It looks as though acquisition will be the plan of attack. Looking back to the recent acquisitions of Avenue A/Razorfish, AdECN, in-game ad serving company Massive and mobile network Screen Tonic shows the initial steps in this direction. There are also many rumors swirling that Microsoft is targeting a deal with Yahoo. Microsoft currently has a goal of 30% of the market where their current search share is 11% and Yahoo currently owns 23% whereas Google owns 56.5%.
It is true than many agencies outsource the technology pieces and focus on being a strategic partner. Microsoft looks to be focusing on all sides of Marketing-services and advertising. Avenue A/Razorfish highlights the desire to learn more about agency style work while they simultaneously are working on gaining market share in online advertising. This is an interesting move considering that Microsoft is a very partner driven company to date. Product implementation and customization services are handled by Microsoft Consulting Services and various partners from the partner program. And currently Microsoft leverages the services of Young & Rubicam and MRM Worldwide to handle the advertising for its various lines of business. It will be very interesting to see how the acquisitions will go on the Marketing-Services side.
If any team can do it (funding and understanding of technology) it is Microsoft. They have always followed a second to the market mentality, or make it better and faster and endlessly market it. Agency style marketing is not in the corporate Microsoft DNA so it will be very interesting to watch over the next few years.
I think MS has realized that advertising has really begun to eclipse subscriptions and licensing as a source of revenue in the software industry. Many great sites and products coming out today are almost exclusively funded via advertising.
It’s in Microsoft’s best interests to build a presence in advertising as it slowly encroaches upon their existing sources of revenue.
I agree on that! Reall good post!