Why Microsoft Matters

microsoft mattersMicrosoft isn’t the advertising behemoth it once aspired to be when it purchased aQuantive for $6 billion in 2007. Since then, Microsoft has mostly been a publisher, selling inventory both directly and programmatically across its Microsoft Network (MSN) family of sites, its Outlook email portal, Skype and Xbox.

Following the Microsoft-AOL search and display deal, some people were skeptical about the importance of the pact.

“Microsoft is a really big player, but they didn’t have as much [inventory] as AOL,” said Gregory Smith, North American director of digital investment at GroupM agency MEC. “It never quite scaled.”

And Danielle Sporkin, director of investment at Essence (the agency of Microsoft rival Google), noted how online portals are no longer media plan linchpins.

“Back in the day, MSN, AOL and Yahoo were the three largest reaching platforms that were out there,” she said. “They were mainstays in everyone’s media plans. All of those companies have had to reinvent themselves as the landscape has changed.”

That being said, Microsoft’s properties remain among the most heavily visited in the US. They’ve hovered between fifth and sixth in terms of monthly uniques throughout 2015, according to comScore’s Media Metrix. (It was fifth in May with 177 million US uniques, behind Google, Facebook, Yahoo and Amazon.)

While an infusion of Microsoft inventory doesn’t suddenly make AOL competitive with Google or Facebook in display, others see value in its quality.

“It’s really great-performing inventory for us,” said Alec Greenberg, VP of media operations at Dstillery. Greenberg and his team buy MSN, Skype and Outlook on the Microsoft Advertising Exchange (MAX) open marketplace, which is powered by AppNexus and is one of Dstillery’s biggest supply sources.

He chalks up the high performance to a number of factors. MSN is a “good, trusted news source” and performs about as well as other large news sites like CNN, where people are engaged and catching up on the news.

Skype also benefits from a captured audience. “You want to talk about some strong, subliminal messaging: You look at your Mom’s face while you’re looking at an ad,” Greenberg said. “It’ll perform well, especially if it’s an ad sophisticatedly targeted to you and relevant to your likes at the time.”

And Outlook, as an email program, benefits from consistent user login patterns.

“At the end of the day, we’re looking for a user in-market for a brand at a particular moment, with a higher propensity to convert,” Greenberg said. And that’s audience he can typically find on Microsoft properties.

Both MEC’s Smith and Greenberg pointed out that Microsoft’s inventory was consistently clean. “It’s not fraudulent,” said Smith. “There aren’t bots. It’s reputable.” Microsoft’s legacy as an Internet technology company incented it to ensure quality inventory, he said.

“They don’t want their sites hacked or infiltrated,” Smith said. “They come from that discipline.”

These benefits – plus the fact Dstillery had a dedicated account manager despite being an exchange buyer – means Greenberg hopes little changes now that AOL has the reins.

“It’s 100% wait and see,” he said. “I haven’t heard anything from anyone yet. My hope is that I get the same level of performance from the team and the same level of performance from the inventory. I hope nothing changes, and if it does I hope it only gets better.”

For both Smith and Carrie Seifer, president of digital, data and technology at Publicis media agency Mediavest, “better” means Verizon will come in and make its data assets available to AOL and Microsoft buys.

“We’re paying close attention to whether Verizon’s data comes along for the ride,” said Seifer. “We assumed that when Verizon bought AOL, the data would be incorporated and infused into AOL’s inventory and now, hopefully, Microsoft’s inventory as well.”

None of the companies involved have stated whether this is in the works.

“If [Verizon] can execute, it could be very significant – it could be very large scale that comes with great technology and data,” Seifer said. “If they don’t execute, it’s just a bunch of inventory. It starts with the inventory like a layer cake, then you apply the programmatic technology that AOL has done a good job at, then you layer on Verizon data. That’s where things get really interesting.”

Smith echoes this sentiment. In so doing, Verizon/AOL will achieve what he calls “premium commoditization.”

“Banners and video and to a greater extent mobile inventory are being commoditized, which is fine,” he said. “But the way to win if you’re a seller is to say: ‘Yeah it’s a commodity but a premium commodity. A higher grade of oil.’ The more I know about that audience, the more I can charge.”

The other opportunity could be tie-ins with AOL’s video platform Adap.tv. Before the deal, MSN video inventory was only available through direct deals.

Additionally, Xbox inventory wasn’t available at all on the exchange, and it’s unclear how effective Microsoft was in selling it. The video game console always seemed like an outlier within Microsoft’s advertising options. But it had, as of February, 48 million members across 41 countries tapped into the Xbox Live media delivery service.

It’s also worth noting that though Microsoft’s current-gen console Xbox One is mostly a video game platform, it has loftier aspirations. Its reveal at the 2013 E3 video game convention focused heavily on the TV- and movie-watching experience.

“We looked at Xbox more from the OTT side than from the video gaming side since there’s more scale and opportunity there,” said Essence’s Sporkin.

But Microsoft never seemed to embrace – or even figure out – advertising on Xbox. While Xbox generated tremendous marketer interest, Sporkin said at the end of the day it was mostly about potential – the possibility to tap a unique audience via the console’s cross-platform reach.

“When you talk about Xbox, it’s a more complicated sell, a more strategic sell,” Smith said. MEC has done advertising on Xbox before, but the sales cycle tended to be longer – which Smith pointed out doesn’t always suit marketers.

Xbox is an opportunity for AOL, which fields a sales staff with more experience selling video and other media. Unlike Microsoft, AOL would simply be selling inventory, not simultaneously trying to convince advertisers of the value of Xbox.

“You need someone to buy the [Xbox] medium,” said Smith. “AOL doesn’t have to sell the medium.”

Microsoft Ain’t Out Of Advertising Yet

Microsoft isn’t out of the advertising game yet. True, its relationship with advertising has never been particularly clear, and its deal with AOL – as many have pointed out – reflects CEO Satya Nadella’s mandate to refocus the company on technologies and platforms.

“They’ve historically always had a weird relationship with advertising,” said MEC’s Smith, pointing out how some older versions of the Internet Explorer browser had default ad blocking.

But even post-deal, the company has been meeting with agencies, pushing its renewed focus on platforms like Xbox, the upcoming Windows 10 operating system and mixed reality (think of a hybrid between virtual and augmented reality) HoloLens headset.

“They’re focused on getting 10 on as many cross-platform products as possible,” Mediavest’s Seifer said. She presumes the goal is getting an install base across as many platforms as possible, though it’s not clear the extent to which agencies or advertisers can leverage that, should Microsoft be successful.

“We’re just now taking meetings with them post-AOL,” said Smith. “They’re going back to their technology roots: Look at all these technology platforms, including basic things like Office: What are the marketing opportunities – not just advertising – for those things?”

This is a different strategy than playing in a world of content, filled with display and video and click-based metrics. Smith’s perception is that Microsoft is trying to figure out how to walk the line between building technology and supporting advertising.

“If you drop the word ‘advertising’ and you substitute messaging or presence,” he said, “like marketing presence, it starts making sense.”

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