Microsoft as Media King?

The software giant sees its future in advertising and mobile and is taking the message to Europe—and to Google and Yahoo!

by Jennifer L. Schenker

Most people still see Microsoft primarily as a software company, but on Oct. 2 at a media event in Paris, Chief Executive Steve Ballmer painted a surprisingly different picture of the company's future: Over the next 4 to 10 years, he said, as much as 25% of Microsoft's revenues are likely to come from advertising.

Microsoft, the media company? That's right. As growth slows in Microsoft's core operating systems and desktop applications businesses—and as the threat grows from free software and applications offered over the Internet by the likes of Google (GOOG)—the software giant is scrambling for new sources of revenue and growth. Microsoft (MSFT) aims to stitch together its software, ad serving, and media properties to become a formidable online power with many of the marketing pieces that advertisers look for as they embark on Internet ad campaigns. "All marketing will be digital sometime in the next 10 years," predicts Ballmer.

Microsoft intends to go after that business big-time. In May, the company made its biggest acquisition ever (BusinessWeek.com, 5/18/07), a $6 billion purchase of online marketing powerhouse aQuantive. The deal gave Microsoft an online marketing base for selling ads, placing them, and giving advertisers tools to measure ad performance. The same month, Microsoft also purchased ScreenTonic, a French mobile-phone advertising venture, for an undisclosed amount. And earlier this year it bought another French company, MotionBridge, which specializes in mobile search.

Online Ad Market Growing Fast

That's important because going forward Ballmer says he sees Microsoft's fastest growth coming from advertising and mobile—and now the company is able to combine both. The Oct. 2 conference in Paris was a chance to pitch Microsoft's digital advertising strategy to more than 500 advertising clients from 17 European countries. While Microsoft has held similar such conferences in Seattle for several years this is the first time it has arranged one in Europe.

To be sure, online advertising still lags somewhat in Europe. Market tracker JupiterResearch figures it will amount to some $8.4 billion this year, vs. $19.9 billion in the U.S. Still, Europe's online ad market is growing fast, and it's an important opportunity for Microsoft if it wants to become a serious player in the global advertising market, which is worth about $550 billion annually, says Chris Dobson, vice-president of global sales for Microsoft's Digital Advertising Solutions Div.

The pitch to clients in the audience was that Microsoft can now deliver advertising to new platforms such as in-game promotions and mobile-phone campaigns. Marc-Henri Magdelenat, chief marketing officer and a co-founder of ScreenTonic, was on hand to talk about recent successful mobile advertising campaigns in some of the four European countries ScreenTonic now serves, such as one in Britain that allowed consumers to click on their mobiles if they wanted to test-drive a car, and another in France launched by Coke (KO) around the World Rugby match. There are plans to expand ScreenTonic's reach globally but rollout dates are not being disclosed yet, Dobson says.

Advertising Is Everywhere

Customers in the audience told BusinessWeek they are interested in the new advertising avenues presented by Microsoft but still undecided about how much they are willing to spend on new media such as mobile advertising.