13 Comments

Summary:

Nearly two years ago, Microsoft CEO Steve Ballmer told a group of European advertising executives that he saw online ads generating one-quarter of Microsoft’s revenue within a few years. Yet in the quarter ended June 30, Microsoft’s Online Services Business turned in sales of just $731 […]

msadvertisingNearly two years ago, Microsoft CEO Steve Ballmer told a group of European advertising executives that he saw online ads generating one-quarter of Microsoft’s revenue within a few years. Yet in the quarter ended June 30, Microsoft’s Online Services Business turned in sales of just $731 million, some 5 percent of its $13.1 billion total. It was also the company’s worst-performing division, with an operating loss of $732 million. In other words, Microsoft spent $2 for every $1 it made online. So with the recent Yahoo search deal and today’s sale of its Razorfish digital ad shop, is Microsoft trying to get out of the ad business?

Microsoft picked up digital marketing shop Razorfish when it bought aQuantive for $6 billion in 2007 (four months before Ballmer made his one-quarter-of-revenue remark). Today, after months of rumors, Microsoft is selling Razorfish to the Publicis Group for $530 million in cash and stock plus a 5-year strategic alliance between the two companies. And with the search deal it inked with Yahoo last month, Microsoft gets to jettison its advertising responsibilities to Yahoo while it focuses on the technology — its search engine, Bing, and sales platform, AdCenter — side of things.

Microsoft has spent billions of dollars trying to create an online advertising business with no meaningful revenue or any profits to show for it. Steve Ballmer was even prepared to take Microsoft into debt for the first time in company history to buy Yahoo. Taken together, the Yahoo deal and the Razorfish sale beg the question: Has Microsoft made a strategic decision to move away from online advertising and back to software, which is the company’s bread and butter? But, then, if not advertising, what is Microsoft’s next big thing?

You’re subscribed! If you like, you can update your settings

  1. Problem is, Microsoft’s still on the hook to deliver the platform, even if Yahoo is supposed to sell it. Microsoft *might* have the engineering chops to make a better search engine than Google, but there’s no way they can make a better overall search advertising platform. It’s what Google does — you can’t beat them unless you fully commit.

    http://anthonywang.com/2009/07/31/bing-hoo-thoughts-on-the-yahoo-microsoft-search-deal/

  2. Jordan-

    I’d encourage you to spend some time digging in to stories rather than writing them on whims. The sale of Razorfish was always the intention when they purchased aQuantive.

    aQuantive had two parts of their company: design / creative services (Razorfish) & technology (aQuantive).

    Microsoft is not a “people / services” based business.. so they sold Razorfish. Microsoft is focused on being an advertising technology provider and so their goal was to lock up the customer base, publisher network and advertising customers from aQuantive’s technology.

    The services business is a low margin business that essentially reduced the price of the aQuantive acquisition so that microsoft can focus on what it is its core competency: technology.

    -sks

    1. Indeed, but does it want to be a technology provider or a publisher network and advertising company? More of the former, I suspect — and it still hasn’t made any money off the deal.

    2. Good points. There is no way Microsoft is going to give up on Ads. It is their next big thing. As a search engine, I think Bing is already better than Google, Microsoft just needs to work more on their ad platform. Microsoft is allowing to Yahoo to sell ads, but using Microsoft’s platform.

    3. I agree Shan … You have said:

      “I’d encourage you to spend some time digging in to stories rather than writing them on whims. ….. Microsoft is focused on being an advertising technology provider and so their goal was to lock up the customer base, publisher network and advertising customers from aQuantive’s technology”

      And a whole lot more on both counts, I’d suggest. A good start would be to learn of what Brian McAndrews, the svp of advertiser and publisher solutions at Microsoft had to say in an interview mid June, in CANNES, FRANCE.

      This was after Microsoft had bought addressable TV player Navic Networks in a deal that will extend its ad platform to television.

      http://www.adweek.com/aw/content_display/news/digital/e3i79825b157551fdb98fd60b6c8b82075e

      I’d then recommend checking all that been posted in this thread (sharecafe) where I wrote (on 21 June) that …. It does appear that they are now “line-ing up” to get behind MSN’s new Publisher Center and the wonderful new “options” that can be offered by the MSN’s (the software giant’s), automated planning and buying tool, known as Admira … And by any other name ….

      http://www.sharecafe.com.au/board_postview.asp?a=PVS&postID=486210&boardID=2117&sym=LOK

      This blog-post here (in April) advises that Microsoft’s current adCenter Publisher architecture will serve as the foundation for PubCenter, even though at this point in time it continues to be in Beta stage ….. According to Microsoft (the writer advises), PubCenter will combine technologies and tools that were acquired concomitantly with Atlas and Rapt.

      http://blogs.zdnet.com/BTL/?p=8230

      And (out of no-where), along comes YieldBuild with all of that.

      And that from a following post came, that on April 14th the YieldBuild blog had announced of a new text ad program to be had with Microsoft’s pubCenter ….

      Jordan, you may also care to catch the (surely?) possible ‘parentage’ of YeildBuild, too! (Check the full thread at sharecafe, is my advice). As I do find it quaint that Rapt (a Co also bought by Microsoft) still is/was ‘housed’ (yes, a tenant) in Looksmart’s own building, down in 625 Second Street San Francisco…

      Looksmart have recently introduced it’s SmartRotation (for advertisers) and today, told of it’s launch of Optimal Pricing.

      I see a future where the YPN of newspapers take on Bing search and along with (a white-label version of) the Microsoft publisher ad platform. Further down the track I see this occuring, globally.

      And that Steve Ballmer said he saw online ads generating one-quarter of Microsoft’s revenue within a few years then, almost becomes a reality. And (to me) it all looks like they are well ‘on track’ now, to doing so. (Certainly now, with the Yahoo deal, all over.)

      In closing, you may (also) find it od interest in that, back in February 2008, the now Microsoft’s Rapt had signed an agreement with ad agency Publicis, which has a partnership with Google.

      http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2005/10/24/story6.html

      Cheers!

      1. And here’s that Link for the Publicis/Rapt deal ….

        http://www.clickz.com/3628390

    4. Completely agree w/ Shan. I’m surprised it took this long – the sale of RazorFish was a no-brainer from day 1 of the aQuantive acquisition.

  3. weBranding | Abbreviated Marketing News Round-up Monday, August 10, 2009

    [...] Is Microsoft’s Great Ad Experiment Over? Nearly two years ago, Microsoft CEO Steve Ballmer told a group of European advertising executives that he saw online ads generating one-quarter of Microsoft’s revenue within a few years. Yet in the quarter ended June 30, Microsoft’s Online Services Business turned in sales of just $731 million, some 5 percent of its $13.1 billion total. It was also the company’s worst-performing division, with an operating loss of $732 million. In other words, Microsoft spent $2 for every $1 it made online. So with the recent Yahoo search deal and today’s sale of its Razorfish digital ad shop, is Microsoft trying to get out of the ad business? [...]

  4. agree with Jordan. need to look more closely at MSFT’s strategy …they are not getting out of the ad-business – but getting more lean in terms of their assets.

    Bing is now my default search engine too… the thing is considerably better than their earlier efforts.

    despite all this action, making 25% of its revenue from advertising is a steep target nonetheless.

  5. To be fair, microsoft was lacking they key ingredient in the online ad world – a search engine worth writing home about. And now they have it – coupled now with the reach of yahoo. Let’s wait and see how microsoft will fare with Bing, by the end of the year.

  6. Microsoft never had any strategy to begin with when it got into the ad business. If it did, it would not have been sidelined in the Search business by a newcomer Google, who came in and swept the rug under their feet.

    Microsoft’s strategy has always been acquisition and not innovation. The Yahoo deal is another e.g of this. MS has been always been playing “catch-up” but technology is moving too fast for it to keep up anymore.

    The politics within MS is enough to stiffle any innovative ideas and MS should first get rid of the multitudes of non productive individuals, begining from Balmer to actually make a difference in it’s bottom line

  7. Google sold of Performics not long after closing the Doubleclick deal – didn’t signal them getting out of the ad business either, just avoiding the potential conflicts of interest that come with owning an agency.

    http://www.marketingpilgrim.com/2008/08/google-sells-off-search-marketing-division-of-doubleclick.html

  8. Aktuelle Transaktionen: Publicis stärkt Digital Business durch Razorfish-Übernahme | aquarius: Consulting für digitale Medien und Realisierung Thursday, August 13, 2009

    [...] Microsoft überhaupt ein Geschäft mit Razorfish machte, ist eher zweifelhaft. Microsoft’s Online Services Business machte im vergangenen Quartal einen Umsatz von gerade mal 731 Mio. US$ (= ca. 5% des [...]

Comments have been disabled for this post