Microsoft as Media King?

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Conference attendee Thomas Egede Kragh, who buys Internet advertising for Nykredit, a Danish financial-services conglomerate with interests in banking, pensions, real estate, and insurance, says his company "is not quite ready to put a lot of effort into mobile yet." Microsoft's Dobson concedes that it is still early days. "We have all the components we need for the platform, but it will take us years to build the ecosystem," he says.

Once that ecosystem is in place, Microsoft thinks it will be able to target consumers anywhere, anytime with advertising. Ballmer said he went for a jog in Paris the morning of the conference and wondered why it was not possible for a message to be piped to his watch that would say "Bonjour, have you bought breakfast yet?" and then suggest where he could go.

"Our digital devices are with us 16 to 17 hours per day, and they are also a place for targeted messages and appropriate and relevant advertising," Ballmer says. Soon, he promises, Microsoft "will know about you, we will know where you are, and we will know what you are doing, and we will service you appropriately."

Yahoo Joins Telefònica

But Microsoft will have plenty of competition trying to meet that goal. "Microsoft now has a strong presence in games, mobile, ad serving, and media," says Nate Elliot, a senior analyst in the Berlin office of technology consultancy JupiterResearch. "But Google does have offerings in most of those categories and Yahoo! (YHOO) does as well, and both of those companies have some of the same expertise Microsoft is bringing in."

Indeed, on Oct. 1, Yahoo announced a global agreement with Telefònica (TEF) to extend Yahoo's mobile Internet reach to more than 100 million subscribers in Britain, Ireland, and Latin America, a move it described as one that would help increase its drive into mobile advertising.

Finnish handset maker Nokia (NOK) is another potential rival. In August it announced its intention to move into mobile Internet services and advertising, and on Oct. 1 announced that it had agreed to buy Chicago-based Navteq for $8.1 billion (BusinessWeek.com, 10/1/07), as part of its move into mobile search. If Nokia and other industry players can perfect a business model, the content will be crucial to a future when people use their phones to navigate their way around as well as get information about stores and other services along the way.

Competing with Murdoch

"It's going to be interesting to see what is more important: Nokia's knowledge of the mobile sector or Microsoft's strengths in media and marketing," says JupiterResearch analyst Elliot.

Media companies also could be formidable rivals. Ivan Pollard, a partner at British ad agency Naked Communications, says he sees Rupert Murdoch as a major competitor to Microsoft, should the media mogul successfully stitch together all of his media properties. There are also a host of smaller rivals in each of the digital advertising segments that Microsoft is targeting.

But Google is clearly the one that Microsoft is trying to catch. Ballmer put it this way on Oct. 2: "Today we are No. 2," he says. "That is a big differentiator because it makes us hungrier, more flexible, more open. We want partners, we want more participants, and that helps us a lot on the advertising side."

Restoring Consumer Trust

As for search, Ballmer was frank about Microsoft's lag behind Google, admitting that the company will have to spend billions simply to "stay in the game." He hinted Microsoft may have some surprises in store. "We are going to have to put a few game changers out there, and when we are prepared to talk about them publicly we will," he says.

But technology alone won't carry the day. More than 7,000 consumers in Europe were asked in 2006 to rank the brands of 27 major technology companies in a survey released Sept. 28 by the Amsterdam office of technology consultancy Forrester Research (FORR). Microsoft scored far worse than rivals on brand trust: On a scale of 1 to 100 Nokia was ranked 86 and Google 57. Microsoft's score: 4. Restoring consumer trust will be a vital step if Microsoft aims to be a major venue for advertising.

Schenker is a BusinessWeek correspondent in Paris.