Microsoft's Rik van der Kooi Discusses Microsoft Display Strategy And AppNexus Investment

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MicrosoftRik van der Kooi, Corporate Vice President of Microsoft's Advertiser & Publisher Solutions group, discussed Microsoft's recent investment in AppNexus (see release) as well as its evolving strategy in data-driven display media.

(This interview was conducted on Tuesday.)

AdExchanger.com:  Tell us about today’s announcement regarding Microsoft’s investment in AppNexus.

Rik van der Kooi: So, today, we're announcing a partnership with AppNexus, as you've seen in the press release.  As a result of that partnership, we are able to significantly accelerate the demand for our remnant inventory that we're going to be running through the AppNexus RTB platform while we continue to develop tools that integrate with that app platform for ourselves.

The partnership’s essence is that we will be using their RTB while we focus on building our marketplace and yield management tools that interface with and sit on top of that.

The key reasons for this strategy are:

  • It gives us an opportunity to accelerate our footprint both in terms of adding more demand partners for our inventory as well as having a faster international rollout than we were expecting to be doing on our own.
  • Second, as a result of the partnership, we think that both parties can accelerate value creation. AppNexus is going to benefit from the fact that they are going to see a lot more supply.  We're going to see more demand.  And both of us benefit from focusing on our areas of chosen specialization.
  • The third point is one that I would like to emphasize.  As a company, Microsoft has decided to focus on partnering with the ecosystem in cases where we decide not to build ourselves in the interest of the long-term health of that ecosystem. And where other companies might look to acquisition as a vehicle to accelerate, our focus will be to create meaningful partnerships with significant players, and this is, you could say, the first step in what we think is going to be a significant acceleration of our scale display strategy.

These are three main reasons why we have chosen to enter into a partnership with AppNexus.  We see them as a clear leader in this emerging space, as we've also said in the press release.  And, in addition to the partnership, we're also taking a minority stake in the company.

Are you going to have a board seat with AppNexus?

Yes, it’s a minority stake with a board seat.

What would you say about Microsoft's commitment to this audience-buying digital advertising world?  To date Microsoft has been very focused on search.  Is this partnership and investment the beginning of something new?

I would say it is the beginning of something that will get more external visibility.  Even though search, of course, takes the main stage for us in many respects, as well.  We are absolutely focused on display - and not just brand display - but also audience and performance display.

Our Microsoft Media Network is around fifth place in U.S. reach, and is meaningful in that respect.  We're accelerating the build out of that and we're continuing to invest significantly behind that technology.  As a result of some of the decisions that we are announcing today, it will allow us to put even more wood behind that arrow.  So, we will continue to build out our audience offering the targeting technologies and a broad suite of yield management tools that support the audience and performance businesses. The Microsoft Media Network is going to continue to have a “seat” and will be an offering that exists in parallel to our Exchange offering. We will look to continue to grow it.

Is Microsoft real-time bidded, non-guaranteed inventory now going to be available through AppNexus? Anywhere else?

It’s going to be available in two places.  One is, we're going to bring it to market ourselves and the brand name for that may not have been decided yet.  Let me just call it our Microsoft Advertising Exchange offering, which we will continue to market it ourselves through our advertisers, and partners, and the large agencies.  And then in addition it's going to be available on AppNexus' real time bidding platform.  And those are the only two places that it is going to be available.

What is the status of AdECN in all of this?

Part of AdECN we're winding down as a result of this partnership - especially the element which had been building out the real-time bidding platform. The people that we had working on those activities are going to be transferring internally to the I mentioned before such as marketplace management and yield management components of the marketplace.  We hadn't really launched AdECN as a brand in the marketplace, and we're not obviously planning to do so.

And just for clarification purposes, how does the federated system or Exchange fit within these brand names and your strategy?

The “federated” system was what we originally referred to our RTB system as.  We're going to instead turn to AppNexus to power that part of the Exchange platform.

What are your expectations are for this next step into display for Microsoft? Whether in terms of revenues, scale, etc. in the next 1-3 years?

So, of course, this is a scale-driven business.  The ones that are going to be providing superior ROI and yield to advertisers and publishers are going to be those entities that are able to invest at scale and build out the complex platforms and toolsets that support achieving that.  Certainly, we expect that as a result of our partnership today, we will be accelerating this scale and that will translate ultimately into higher returns for all of the participants including ourselves.  The fact that our inventory is going to be available now to a much larger group of demand partners should provide a yield uplift to ourselves and that is one element of our decision today.

If I look further ahead then, again, we see AppNexus as a clear leader in this space who will be attracting more supply and we firmly believe that over time they will be one of those scale players when the dust settles in this emerging industry, and we will be benefiting both directly and indirectly from their growth in scale.  We also will be looking to facilitate bringing in more demand ourselves, either through other partnerships that we may look to forge, or through our connections within the ecosystem –all of whom are interested in making sure that this remains a viable business model.

Have you given any thoughts into leveraging the tactic of search retargeting?  Also, can you address the merger of search and display and how perhaps this deal may be emblematic of some opportunities you see there?

Search retargeting we already do today, and so there isn't an immediate acceleration for that. Of course, it is an attractive way for us to present relevant advertising to our users.

Regarding the search and display convergence, one of the areas where you can start seeing it converge already is on the mobile phone.  AppNexus will also be the RTB component for our mobile exchange.

Let me give an example of search and display converging on the mobile phone. If somebody is driving on a road somewhere and gets a coupon based on their location sent to them, or gets a coupon sent on previous search behavior, is that a search ad or is that a display ad? We would argue that it’s an ad that focuses on fulfilling a certain intent.

You may have heard us talk about Bing being a decision engine, but as a company, we're very focused on ensuring that people can fulfill their intents and complete tasks in a much quicker way. Search is one area of focus for that. But, display will be the second area of focus for that if we are able to garner the signals that a user provides us. As a result of that we will be able to fulfill that intent quicker, so we will focus on building out technologies that enable that.

Over time, we do expect that the search and display ad formats are going to look more and more similar.  We also expect that advertisers will look to buy them in a similar way.  So, both from a user perspective (ensuring that the user has an attractive experience), and from an advertiser perspective, we expect that they will converge.

Finally, regarding your demand-side channel partners –and I'm specifically referencing demand side platforms and ad networks - do you have any strategy to continue to strengthen the bonds with them?

Absolutely.  Our action today is partially in response to the requests from many DSPs, networks and other demand partners.  On AdECN, we had a number of DSPs live, and we were adding more.  But the demand for our inventory directly coming from DSPs and ad networks was such that we felt we had to accelerate the availability of it.  So, that is one immediate reason behind our decision to forge this partnership today.

The second thing is, we have decided is to not buy a DSP ourselves.  That was a clear decision that we were making in the context of, again, partnering with the ecosystem.  We want to enable other entities in the ecosystem to create value and be healthy.  And so we have decided that we are going to partner with all the large DSPs instead of competing with them.

And then the third element is: through our Atlas Suite, we have a partner program that is specifically focused on DSPs that will allow them to leverage the Atlas tool suite and the Atlas data in a very effective way.  So, yes, we are looking to intensify our relationships with both the ad networks and the DSPs.

By John Ebbert

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